Company Logo Sunday, August 14, 2005

Venture capitalist keeps the faith in potential of 'disruptive' technologies

DAVID PADDON, CBS News, Canada

Unlike investors who felt burned when the dot-com and telecom bubbles burst a few years ago, venture capitalist Andrew Abouchar never lost faith in "disruptive" technologies with the potential for changing the world.

Now he and his partners at Tech Capital Partners have raised $50 million in fresh capital, which will be used to nurture a handful of new information technology companies - all in the Waterloo Region of southwestern Ontario.

The region surrounding Kitchener and Waterloo, Ont., has long been one of Canada's most important breeding grounds for cutting-edge technology companies.

It is the birthplace of Research In Motion and its BlackBerry e-mail device, for instance, and home to Open Text Corp., Com Dev International Ltd. and Dalsa Corp., to name a few of the publicly traded high-tech companies based there.

But as venture capitalists, Abouchar and Tech Capital are focused on early-stage companies that aren't publicly traded and still have a way to go before they're ready to sell their products.

"We never went away from tech investing," Abouchar says in an interview.

"We subscribe to the theory that technology will change our lives over the next generation, and therefore there are going to be opportunities there."

But it can be tricky to invest in the small, private companies that can turn ideas into winning technology - particularly since there's little public information about them.

"We believe that the early-stage technology market . . . is inefficient in classical, investment-management terms," Abouchar says.

"That is to say, not everything is known about a market or a company or an industry by everybody at the same time."

That implies that an active investor, like Tech Capital, with a focused portfolio can yield investors enhanced returns by virtue of its expertise.

"We are looking for technology where we can assess the potential . . . and then we apply our expertise in building and growing companies to generate enhanced returns for our shareholders."

For venture capitalists, the payoff typically comes when the companies they've nurtured either do a public offering or when they're sold.

"Obviously, the method of exit changes depending on what markets are doing," Abouchar says.

The original $30-million Waterloo Tech Capital fund was created in January 2001 and invested in six companies.

One of the six companies in the original Waterloo Tech Capital fund, VideoLocus Inc., received $600,000 in seed capital in June 2001 and was sold 17 months later to LSI Logic Corp.

Tech Capital continues to work with the other five, all based in Waterloo Region: Covarity Inc., DiskStream Inc., Handshake VR, Sandvine Inc. and Sirific Wireless Corp.

"We think our strategy has worked at Waterloo Tech Capital. We're very pleased with our portfolio. We want back to the market saying the only challenge we have is that we're running out of capital."

The subsequent Tech Capital II fund, which closed in July with $50 million from institutional investors, is aiming to grow by 20 per cent annually, on average, over the coming years.

Since the companies within Tech Capital's portfolio are at various stages of the development and none are publicly traded, the best was to gauge their progress is how their customers are reacting.

"How do we know if our portfolio companies are making good technology? Well, are their customers buying it?" Abouchar says.

"There seems to be a general acceptance again of new technology from younger companies, which is a good thing."

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