Company Logo Thursday, October 21, 2004

Tech sector continues to thrive

KEVIN CROWLEY, RECORD STAFF

WATERLOO REGION -- It has been a good year for technology in Waterloo Region and Guelph. There have been huge leaps in research infrastructure, amazing success by the area's largest tech companies and encouraging signs of startup growth and new financing deals.

"We are really excited about the state of the community," says Andrew Abouchar of Tech Capital Partners, which manages two locally based venture-capital funds. "We are very bullish on Waterloo and the quality of companies and technology here."

Like many technology centres, the Waterloo area went into a quiet rebuilding mode following the market downturn in 2001. But 2004 has clearly been a breakout year and the renewed optimism is palpable.

Consider a few of the highlights:

Research In Motion has been on a roll. The maker of the BlackBerry e-mail device raised $905 million US with a share issue in January; it is on track to exceed $1 billion US in revenue this year; it has nearly two million BlackBerry users; and it has hired more than 800 people in the past year, boosting its workforce to about 3,000 people.

Open Text Corp. has also grown despite finishing short of revenue expectations in two recent quarters. The content-management software firm had revenue of $291 million US in the year ended June 30, up 64 per cent. It also started work on a new headquarters building in the University of Waterloo Research and Technology Park.

In addition to the Open Text building, the UW Research and Technology Park announced in May that a 90,000-square-foot multi-tenant building will be started later this year. That brings to three the number of committed tenants to the new 48-hectare (120-acre) park. The first tenant, Sybase Canada, moved into its building this month.

Dalsa Corp., which makes digital imaging products, finished 2003 with revenue of $137 million, up 21 per cent. Its Origin digital cinematography camera continues to garner positive reviews from the international film industry. Dalsa also supplied the CCD chips at the heart of nine digital cameras on board the NASA Rover vehicle that landed on Mars in January.

The Perimeter Institute for Theoretical Physics, which was launched four years ago with a $100-million donation by RIM founder Mike Lazaridis and his wife, Ophelia, moved into its permanent home in Waterloo.

Passenger airline service returned to the local airport, which was renamed the Region of Waterloo International Airport. QuikAir Inc. offers several flights daily to Ottawa and Montreal. Northwest Airlines offers three flights daily to its international hub in Detroit.

EDUCATIONAL INSTITUTIONS

It's often said that this region's technology success is based on its wealth of local post-secondary educational institutions.

There are three universities in the area -- the University of Waterloo, Wilfrid Laurier University and the University of Guelph -- plus the Conestoga College Institute of Technology and Advanced Learning.

The University of Guelph has an international reputation in life sciences, agriculture and biotechnology. The University of Waterloo is well known for its engineering, computer science, math and accounting programs, but it also boasts new inter-disciplinary programs such as health informatics. Wilfrid Laurier University has carved out a reputation for business and entrepreneurship studies. And Conestoga College continues to lead the province in applied technology education, producing many of the engineers and technicians who staff local tech companies.

While the area's tech sector is best known for information technology and advanced manufacturing, Waterloo officials have partnered with their counterparts in Guelph to promote the area as a life-sciences and biotech cluster. They formed the Guelph-Waterloo Partnership in Biotechnology last year to pursue government funding to commercialize research that springs from this region, which is known as Canada's Technology Triangle.

Despite the success over the past year, the local technology community faces a number of challenges. One is office and research space.

While there are lots of opportunities available in the UW Research and Technology Park, there is still a shortage of office space near for small companies and emerging startups.

The result? Small players are being pushed further away from the UW neighbourhood, which is known as "centre ice" in local tech circles.

"I think that is going to be an acute problem," says John Whitney, chairman of the Communitech Technology Association and president of commercial real estate company J.J. Barnicke Whitney Ltd.

Waterloo's suburban office vacancy rate stands at about three per cent, well below the six-to-seven per cent that Whitney says would be healthy for this area. He suggests that the City of Waterloo needs to re-examine zoning regulations in order to convert industrial buildings into office space.

Another challenge cited by Whitney and others is the lack of spinoff companies created by employees of larger tech firms. These so-called second- and third-generation companies are said to be key to future growth.

"I don't see the next Open Text or RIM," says Whitney, echoing a common concern.

Andrew Abouchar of Tech Capital Partners has a slightly different perspective. He agrees that Waterloo must discuss the spinoff issue and look for ways to foster new companies, but he says there are a number of young companies with tremendous potential.

He points to Sirific Wireless, which develops cutting-edge chips for mobile devices and which has raised $54 million in venture capital since it started four years ago. He also mentions Sandvine Inc., a three-year-old firm that has attracted more than $30 million in private and public investment financing and has won international awards for its broadband networking equipment.

"There is no question we aren't spinning out second- and third-generation companies the way Ottawa did a few years ago," he says. "But I do not believe we are losing momentum or losing ground in this community."

FINANCING DEALS

Another encouraging sign, says Abouchar, is that Tech Capital Partners has seen an increase in deal-flow (the rate at which investment offers are presented to funding institutions) since late last year, and the quality of the deals is very good.

In the end, Abouchar and Whitney's outlooks are similar. And Tech Capital and Communitech have worked together on numerous projects to encourage aspiring entrepreneurs to start their own technology companies. These initiatives include the well-attended "Chapter One" and "Chapter Two" seminars and WatStart, a new website (www.watstart.com) that provides local entrepreneurs with practical startup information.

Many in the Waterloo technology community are pleased with the past year and optimistic about the future.

"These things always take longer than you think," says Whitney, who helped launch Communitech in 1997. "But we've got the best of all worlds now. We just need to keep it."

kcrowley@therecord.com

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