Company Logo Thursday, October 06, 2005

Tech investors find region appealing

KEVIN CROWLEY, RECORD STAFF

 


Tech Capital Partners co-founder Tim Jackson (left and shown here with associate Jacqui Murphy and partner Andrew Abouchar) hopes a new investment fund to finance local tech startups will attract $200 million in co-investments.

WATERLOO REGION -- The numbers are in -- Waterloo Region is a lucrative place to invest in technology companies.

A report prepared for the Communitech Technology Association by PricewaterhouseCoopers found numerous ways in which local tech companies have generated above- average returns for their investors.

The report, released last week, will be used to promote Waterloo Region as a great place to start a tech business and to invest in one, according to Communitech.

"Waterloo Region is one of the most significant and diverse technology clusters in Canada," the report says. "Technology companies in Waterloo Region have created more wealth for shareholders than their peers in other major tech regions."

The full report can be viewed at www.communitech.ca. Some of the highlights include:

Those who've invested in Waterloo-area technology companies earned a seven-fold increase in their investment by the time they cashed out, compared to a five-fold average increase across Canada.

More than $1.8 billion was spent over the past 10 years to acquire 19 privately-held tech companies in Waterloo Region.

A portfolio of 10 local tech companies that trade on the TSX generated an internal rate of return of 26 per cent between 1994 and 2004, outperforming the Nasdaq Computer Index and the S&P/TSX Capped Info Tech Index.

Waterloo Region ranked among the top three markets for information-technology investment in Ontario in 2004, behind only Toronto and Ottawa. The value of information-technology investment in the region doubled over the past four years.

Waterloo Region has enjoyed a higher level of merger-and-acquisitions activity, relative to the venture capital invested here, than other Canadian tech centres. Since 2000, four of the top 50 technology mergers and acquisitions in Canada involved Waterloo-area companies.

Local companies accounted for 10 per cent of all the tech-related initial public offerings on the TSX between 1996 and 2004.

The statistics highlighted in the report were reinforced in July when Waterloo-based Tech Capital Partners introduced a new $50-million investment fund that will be used to finance local tech startup companies.

Based on the company's past experience, the new fund could attract an additional $200 million into the community in the form of co-investments in local companies, according to Tech Capital co-founder Tim Jackson.

The new fund attracted several prominent institutional investors, including the Business Development Bank of Canada, the Ontario Municipal Employees Retirement System and Toronto-based Edgestone Capital Partners.

Their involvement shows just how attractive the Waterloo area is to institutional investors, Jackson said.

That kind of success is important, both for the direct investment in the community and for the message it sends to other investors, said Iain Klugman, president of Communitech.

"It's really exciting and, of course, these funds always have a multiplier effect," he said.

Jackson said the Communitech report reflects the same high level of activity that his venture-capital firm has been seeing.

By the end of August, Tech Capital had participated in more deals than in all of 2004.

"It's a great place to be doing business and it keeps on growing," Jackson said.

In the past, one of the knocks against Waterloo Region's tech community was a lack of seed funding and access to venture capital.

Jackson and Klugman both said that criticism no longer applies.

With the launch of its new fund, Tech Capital manages a total $85 million in investment money that is available to finance local tech startup companies.

The Waterloo area also has an active group of angel investors, and the region is clearly on the radar of Toronto-based venture-capital firms.

"We get two or three big VCs come through the community every week to see what's going on," Klugman said. "So there is a lot of interest right now from the investor perspective."

Jackson said entrepreneurs always want access to a wider pool of venture capital, "but I think good deals in Waterloo Region have always found a way to get funded and I think will continue to."

He said one of the most attractive features about Waterloo from an investor's point of view is the diversity of the local tech sector.

Unlike Ottawa, which has a heavy dose of telecommunications companies, the Waterloo area has a deep mix of software, hardware, wireless, medical imaging and radio technology.

Another key feature -- one that is emphasized in the Communitech report -- is the area's extensive support network for entrepreneurs.

"Compared to other communities, we take startups seriously here and we take technology seriously here," Klugman said.

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