Tuesday, July 03, 2001
High-tech financing on the rise
Kim Hanson, Financial Post
The landscape for financing technology startups in Ontario has dramatically changed. Just ask Steve Spooner, an entrepreneur in Toronto who raised $62-million for his communications and networking firm, making it one of the country's top deals last year. The relative ease at which Stream Intelligent Networks Corp. secured venture capital is no longer an exception to the rule.
"A few years ago, you typically had to go to Silicon Valley if you wanted to raise money for a technology startup," said Mr. Spooner, who is also the former chief financial officer of CrossKeys Systems Inc. "But certainly, that is not the case today."
Without doubt, Ontario has become a hub for many young companies, and the new environment is owed to a multitude of financial institutions, venture capitalists and other investor groups that recently notched up their investment activity in the province.
Last year, an unprecedented $3-billion, or almost half of the $6.3-billion in venture capital, went to Ontario-based companies, according to figures compiled by Macdonald & Associates Ltd., a Toronto research firm. Of the 50 largest financing deals completed in 2000 (worth more than $20-million each), Ontario firms took the largest slice of the pie, capturing 70% of the total.
Not all of these happily funded ventures will succeed. In fact, a large number are likely to fail. More sadly, some good companies caught in the market downturn could also disappear. But it is the hope of creating just one high-tech darling that has some investors putting their risk capital on the line.
Every venture capitalist has dreams of building the next Nortel Networks Corp. or Research In Motion Ltd., says John Eckert, president of the Canadian Venture Capital Association. "We are the crazy optimists," he said. "We tend to take a more romantic view of building companies. We will suffer some losses in the hope there will be enough value in the deals that are successful. And we are probably the group that is most plugged in to the network of entrepreneurs. So we'll probably hear about innovation in advance of any other group."
About 47% of venture capital goes into Ontario, and that number has been increasing each quarter. A big reason for the increase is the emergence of the high-tech cluster. Academics define the clustering concept as a regional "human ecosystem" made up of people who have a shared interest in technology. A research centre or university -- both leading in technology innovation -- tends to be at the centre of the cluster. The participation of a multitude of entrepreneurs, financiers, academics and technical workers is also essential to the success of the cluster.
Added to the tech cluster are a handful of mentor capitalists, serial entrepreneurs and angel investors who have emerged as vital players in sustaining high-tech development in the region. This group is critical to new companies, who often depend on them for capital and advice at an early stage of their development.
Terry Matthews, founder of Newbridge Networks Corp., a telecommunications equipment maker sold last year to Alcatel SA of France for US$7-billion; and Antoine Paquin, a former Philsar Semiconductor Corp. chief executive, are two of Canada's most noted serial entrepreneurs.
Tim Jackson, a former executive of Pixstream Inc. in Waterloo, Ont., says it is the "entrepreneurial bug" that gets people motivated to try new things. Mr. Jackson started a $30-million venture fund with partner Andrew Abouchar after the sale of Pixstream to Cisco Systems Inc. of San Jose, Calif., in August for US$369-million in stock. Mr. Jackson's fund, which operates under Tech Capital Partners, only invests in companies based in the Kitchener-Waterloo area, but he takes time to help companies that do not fit into his email@example.com