Finn O'Hara
Nancy Knowlton threw one of her New York bankers for a loop when they first met to discuss introducing her Calgary tech company to the Wall Street crowd.
"She was the spitting image of my high school history teacher, right down to the tweed skirt. She might as well have walked right off the schoolyard," says the financier, recalling that first session with the chief executive officer and co-founder of Smart Technologies in the fall of 2009. The banker, whose firm does not allow him to be named, adds: "Then I stopped to figure out what she was worth, and realized she was one wealthy history teacher."
The Canadian public is about to realize what bankers and tech insiders have known for months: Knowlton and her husband, Smart chairman David Martin, have quietly built a dominant global player in educational software. Smart is expected to launch an initial public offering by July that will value the company at more than $2 billion, with three of the world's biggest dealers leading the global financing-Morgan Stanley, Deutsche Bank and Royal Bank of Canada.
The two founders started out in 1987 as distributors for a U.S. projector maker-he had the tech background, she knew finance. When their offspring goes public, the couple are expected to be worth more than $600 million, as sources say they have managed to keep a third of the company.
An IPO will mark a coming-of-age for a company that's reinventing the way children learn. Think of Research In Motion's role in handheld technology; that's what Smart means in electronic education. The company turned old-fashioned blackboards into electronic whiteboards, and 30 million students in 1.6 million classrooms now sit before its screens each day.
Smart is not the only maker of electronic whiteboards, but dominates sales to U.S. and Canadian school boards, where public schools are following the lead of private institutions by installing its technologies. Smart also holds its own in Europe, and is showing up in a growing number of Asian and Middle Eastern classrooms. In a domestic tech sector that sees entrepreneurs struggle to turn start-ups into world-beaters, the hard-driving 56-year-old Knowlton appears to be writing a game plan for success.
These whiteboards do more than just get rid of chalk dust. Teachers can write notes with a pen, or draw with a finger, and erase by running their hand over the board. No special tools are required. But the real magic of the system comes into play when students crack their homework. The teacher's notes on the whiteboard are stored, and can be accessed using home computers or laptops. It changes the whole learning experience, making it far easier for lessons to be retained.
The technology can go viral once it gets into a community, as the schools in America's cowboy country showed over the past decade. Laramie County Community College, a Wyoming school with 5,900 students, bought its first whiteboard in 1999; it now has 66. The school's audiovisual supervisor, Don Myers, says enrolment is up 36% in the past five years, due in large part to "marketing our cutting-edge technology."
Once the community college fell for Smart, the county's 35 public schools followed suit. Then Laramie's sheriff, a graduate of the community college, bought a screen for the police station. It's used to instruct new recruits and as a tool in meetings.
An offering from Smart would end a long dry spell for IPOs in general, and tech debuts in particular. The TSX saw just $547 million worth of IPOs in 2008, and $1.8 billion of activity in 2009. But recent deal traffic is dominated by oil companies, retailers and insurers; tech has been quiet. With a value of more than $2 billion, Smart would instantly qualify as one of Canada's top five public tech companies.
The roots of Alberta's tech sensation reach back to the late 1980s when Martin, with a background in applied mathematics, began tinkering with the concept of mating a computer with a blackboard. Knowlton, with an MBA from Saint Mary's University in Halifax, had been working in accounting-she ran audit teams at Touche Ross-when the couple decided to launch the projector distribution business. But Knowlton shared her husband's passion for electronics-before launching Smart, she taught computer science.
In 1991, Martin came up with a prototype electronic blackboard: A teacher could scrawl notes in front of the class, then store the data. Knowlton shouldered responsibility for finding financing and selling the gadget.
"Nancy was on the job when the first dollar of revenue came in the door, and she can tell you what they did with that dollar, and every dollar that's come in since," said Neil Selfe, a managing director at investment bank GMP Securities who has advised Smart for more than a decade. "Nancy is one of the best operators you're going to meet. She's tough, she's intense and she's extremely determined."
There were signs of that drive in Knowlton's university years-she was Quebec's leading scorer and one of Canada's top scorers for two seasons running during a storied basketball career at Bishop's University and Saint Mary's. With Knowlton lighting up the scoreboard, tiny Bishop's twice made the national championships.
Overperforming also characterized Smart's early years. Tech start-ups typically struggle to raise the money needed to build prototypes and develop a customer base. Promising concepts often get sold or licensed to established manufacturers. All too often, founders get tossed aside. Knowlton and Martin opted to stay independent, but also to tap a deep-pocketed backer. They sold a minority stake in Smart in 1992 to the venture capital arm of Intel, the world's dominant computer components maker.
"Intel Capital recognized the potential for Smart...to transform the classroom and office environment," says Amy Kircos, spokeswoman for Intel. "This pioneering company also aligns with Intel's long-term interest in fostering education programs, advocacy, and technology access."
With Intel's cash in the coffers-neither side will say how much the company invested, and with an IPO in the offing, Knowlton and Martin declined to be interviewed for this story-Smart began to produce electronic whiteboards, and to sell its concept of electronic learning to school boards, one teacher at a time.
Like other successful tech companies-Microsoft and Google spring to mind-Smart's founders strived to create an innovative corporate culture, with twice the open workspace of a typical office building. Knowlton works long hours, and expects colleagues to do the same. It's not an easy place to work-one banker working on the IPO said the CEO views relatively high staff turnover as a cost of building a global business. Smart's 1,200 employees refer to their headquarters as a "campus," and GMP's Selfe described the working environment as "cultish, in a good way."
Smart whiteboards allow teacher and students to store whatever is written during a lesson, and easily access that information long after a conventional blackboard would have been wiped clean. Smart sells both the board at the front of a class (starting at $1,400) and the software that link the screen to students' laptops (another $1,000).
Universities and private schools were early converts, and now public school boards around the world are buying into the concept. The military is also buying in, using whiteboards to plan campaigns. As it prepares to go public, Smart boasts 30%-plus annual growth in sales and 48% global market share. In other words, Smart sells almost as many units each year as all its competitors combined. This remains a niche market, with several of Smart's competitors coming in at half its size. One as-yet theoretical threat to all the players is the arrival of a major hardware player, such as Hewlett-Packard.
Even with Intel's backing, funding expansion proved a challenge. So in 2007, Smart's founders welcomed another minority investor, private equity firm Apax Partners. Again, no one is willing to say how much money changed hands. The 30-year-old British-based fund is a leading player in technology, with more than $5 billion invested in the sector.
"David and Nancy are a unique combination, possessing an outstanding vision for the business and constantly innovating, while being able to execute and drive results," says Salim Nathoo, a partner at Apax who is on the Smart Technologies board of directors.
"We invested in Smart because it was a category-defining company playing to three technology global growth trends-technology in the classroom, touch technology and collaboration," says Nathoo. He added that before writing a cheque, Apax went to schools to see the technology in action. "Every teacher we spoke to said how much of a difference the Smart board made to enlivening the classroom."
An IPO from Smart would come on the heels of a successful debut by Promethean World, a British company that also makes electronic classroom aids, including whiteboards, and was also backed by Apax. While Smart, being private, does not release financial information, sources say it recorded twice the 2009 sales of Promethean, which posted revenue of $315 million in 2009.
Going public isn't expected to make a difference to the lifestyles of Smart's founders-Oracle CEO Larry Ellison, say, isn't going to face yacht racing competition from Knowlton. Long-time advisers such as Selfe expect the founders will keep showing up for work every day, but indulge their philanthropic interests.
Intel and Apax are expected to cash in part of their holdings, but bankers working on the IPO say the founding couple will not sell any of their shares in the IPO.
Indeed, the pair plan to keep building their company, expanding from its existing niche into new facets of electronic education. The former basketball star isn't done scoring yet.
Andrew Willis