Waterloo Investing Trends 4

6 responses

  1. Gary Will says:

    Hi Mark — I’ve also been disappointed by the number of fundable companies coming out of the area. I’ve never had trouble finding VCs eager to make investments in Waterloo, but finding companies to show them has been a challenge a times. But if your thesis really is “that Waterloo’s record of launching start-ups has dropped since 2003” then I think that’s a bit off target. There was a lull around 2002-2004, where there were some companies being started, but not a lot. But I would have no trouble listing 20 good startups from the last two or three years. I was introduced to many of them through WatStart, which I helped start in 2004. Its contact list of very-early-stage entrepreneurs is up to about 85 now. And at least six of them are now tenants at the new Accelerator Centre, which is close to full after opening last spring. So, there are plenty of startups and, if anything, the number has been increasing in the last couple of years.

    But has there been a decline in the number of startups that have the potential to be public companies (or at least of a value comparable to a public company, if they stay private or get acquired). That one’s harder to answer, and maybe that’s where the disappointment is. I think some people may overestimate how many companies in that category were being created here from 1990-2000. There actually wasn’t a single tech company started in the 1990s in Waterloo Region that went public on a major exchange — despite the tech stock boom for the last half of the decade (Open Text was incorporated in the 1990s, but its predecessor company, Open Text Systems, started in the 1980s). In 1996-97 Waterloo had three companies launch that would be acquired for $300 million or more. But those were all artifacts of the tech stock bubble, and two of the three ended up shutting down. Sandvine started in 2001 and it now has a market cap over $300 million, so you could say the 2000s are already running ahead of the 1990s. How frequently should Waterloo be creating a Sandvine? More often than it is? I don’t know.

    The idea of a commercialization fund is one that I’m sure would be enthusiastically welcomed in Waterloo Region, but remember that about three-quarters of the funded companies in the area were not created to commercialize IP invented at UW. So, if a fund limits itself to UW-created IP, it will miss out on a lot of opportunities. Twenty percent of the companies Tech Capital Partners has invested in have come directly out of UW. UW has been a phenomenal source of talent and ideas, but the relationship between the university and the tech business community is often misunderstood. UW already has a system where professors can give up part of their ownership in return for having the university assist with commercialization (suggested in something you quoted). Tom Corr will be running that soon, so I would expect to see some big changes coming.

    But maybe the real question is, could more be done to improve the quantity and quality of startups? Is this as good as it can be? Here I don’t think there’s any debate. Yes, more should be done. Much more is already being done. If you look at what has happened in Waterloo Region just in the last few years, there’s been the creation of the Schlegel Centre for Entrepreneurship, the Centre for Business, Entrepreneurship and Technology (which is helping create startups every year), the LaunchPad venture creation competition, the Accelerator Centre, WatStart, Entrepreneur Week events aimed at prospective and early-stage entrepreneurs — all created in about the last five years. Over the last year, Communitech has significantly expanded its services to startups (I help run many of those services, and for full disclosure work with WatStart, have helped the Accelerator Centre get a bit of funding, have done some work on Entrepreneur Week, and am starting to work with the LaunchPad folks at Schlegel).

    Last summer, the Ontario government announced that it is going to invest $1 million over three years in Communitech to deliver programs and services aimed at bridging the research and business communities — and to expand its programs for entrepreneurs (the funding hasn’t arrived yet). OCE has done a lot of work in Waterloo to commercialize research from UW, and seems to be ramping up its activities as well. IRAP is very supportive of initiatives in Waterloo Region as well.

    So I actually think things are looking stronger now than they have in a while. I remember a few years back someone was talking about having a venture fair (they may have been wanting your Orion VC tour to return) and thinking that the best the community would have been able to muster was a pretty sad group of presenters. It’s better now — a long way from perfect, but better. And, with the resources that are now coming together, it will be a huge disappointment if the results aren’t even better in another two years.

  2. Mark McQueen says:


    If there is anyone in the region with an objective view on this topic it is certainly you, and I appreciate the perspective.

    The figures I was quoting from refer to VC-funded firms, and I made a deduction that a drop in the number and amount of VC-funded firms could only be a result of a drop in great tech start-ups.

    This deduction is difficult to validate as I’m unaware of any independent database that tracks Waterloo start-ups. It may well be that the number of start-ups since 2004 has picked up after what you perceive to have been a lull from ’02-’04.

    What is verifiable and factual is that about $18 million of new VC money has been tracked by Thomson Financial from 2003-today, if you exclude the follow-on rounds for Agile, Sandvine and Sirific.

    Obviously, exciting start-ups launched in 2005 might not yet be seeking a Series A round, but I wouldn’t be surprised that the VCs that are active in the region (such as VenGrowth, VW, Edgestone and TCP) are already talking to them.

    Let’s put it in context (2003-present):

    Waterloo: 10 different IT firms raised $60 million.

    Ottawa: 71 different IT firms received a total of $840 million of VC funding post January 2003; a figure that is articifically low as 19 of those firms didn’t disclose the dollar amount of their raise.

    Vancouver: 54 different IT firms raised a total of $245 million (14 didn’t close raise size).

    Montreal: 95 different IT firms raised a total of $388 million.

    Calgary: 13 different IT firms raised about $20 million in VC funding via 18 rounds, the size for 7 of those rounds were not disclosed unfortunately.

    This is the elephant in the room, but I’m delighted if you think there’s been a recent upswing. But let’s not leave it to chance – we certainly seem to agree that new approaches should be developed before another two years passes.


  3. Gary Will says:

    I can’t access VCReporter to look at the numbers there (the only organization I know in town that subscribed no longer does), but I have an old spreadsheet from them that lists 14 companies in Waterloo Region receiving VC funding in the period starting in 2003. Since this list was made, there have been two more companies here receiving money from Tech Capital and one from GrowthWorks, so that puts it up to 17. And that doesn’t include funding raised in that period by RapidLabs, Navtech, IMS, Symbility, and ARISE, or companies like Desire2Learn, Tangam, Miovision, Terapath, and several others that have never announced any funding rounds. So, it’s safe to say that “10” is misleading.

    But whatever the number is — n — the question then becomes, is that good? And that’s harder to assess. Almost all of the companies on the list came out of the city of Waterloo, population 100,000. Waterloo will probably always be well behind Toronto and Ottawa in total numbers. Hamilton has a larger population and also has a top engineering school (which contributed significantly to RIM in its early days in wireless), but it doesn’t seem to produce the number of startups Waterloo does.

    Whatever the number is, I think it could be better, but I wouldn’t rely on Thomson data to conclude something is “verifiable and factual.”

  4. Mark McQueen says:


    Navtech and Arise are both publicly-traded, of course, so I don’t think we should include them in any list of private VC-backed companies. I don’t believe any of RapidLabs, IMS, Symbility, Desire2Learn (great company; founded in ’99), Tangam, Miovision or Terapath have taken VC funding either.

    Thomson counts every disclosed Tech Capital and Growthworks deal post Jan. ’03, from what I can see on the database. But maybe they’ve missed some, as they may have missed some in the other regions of Canada I referred to in this post: http://www.markmcqueen.ca/2007/02/14/waterloo-investing-trends-5/

    I think you are talking about neat tech companies in the region (founded over a variety of years), and I’m tracking known VC-funded companies from 1/03-1/07. Thomson’s a US$27B market cap. company with a specialty in this area, but they do rely on VCs to send deal data in, unless the information is otherwise available via a press release – as most local VC deals seem to be.

    Re: Hamilton area. About $76 million in disclosed VC funding went into that region during the same timeperiod, although almost $50 million of that went into one deal. And $5.5 million was a follow-on. If you back that big deal out (although I’m not sure why one would), $22 million in new VC deals is still more than Waterloo’s $18 million, unfortunately.


  5. Gary Will says:

    You have to decide what point you’re making. If it’s that “Waterloo’s record of launching start-ups has dropped since 2003” — which you said was your thesis — then limiting your data to a non-comprehensive set of numbers of VC fundings is not really arguing to that point.

    On the other hand, if your point is that there hasn’t been a lot of VC money coming into Waterloo Region, then that’s a different question.

    The VC numbers aren’t high compared to Toronto and Ottawa, and never have been, although neither are they as low as you state. Even the old Thomson data I have shows over $95 million in deals in Waterloo Region from 2003 to May 2006 — with nine deals where the dollar amount is missing, and at least another four VC deals that aren’t here (but may be in the database now) — so either you’re running a filter that is eliminating deals or information has gone missing.

    If you’re counting dollars to emerging companies, then discounting Arise and Navtech because of the path they chose to raise funds just distorts the picture. Arise’s IPO was under $1 million. Navtech has evolved out of a company that had an U.S. OTCBB listing (if you can call that a listing). It’s not like including RIM’s billion-dollar offering.

    If we’re counting funded startups, then choosing not to include companies because you don’t know where they got their money also paints a distorted picture. I don’t think any of the companies in the Accelerator Centre have announced the source of their funding, but they’re all there, paying for staff and some fairly pricy office space.

    I’m surprised that you don’t know about the issues with Thomson data. I’ve heard it discussed many times, from Ottwawa to Toronto to Waterloo. They do they best they can with what they’re given, but there are plenty of errors, inconsistencies, and omissions, none of which fix themselves out of deference to Thomson’s market cap. Just looking at 2000, the Thomson data I have show three deals with public companies, as well as two rounds of funding with a company founded in Pittsburgh and based in Silicon Valley but listed as a Waterloo company. It lists some angel deals (source “not disclosed”), but not most. It shows one investment from F.J. Stork Holdings but not five others that I know about. Thomson is a great starting point for research, but it’s not more than a starting point.

  6. Mark McQueen says:

    The thesis in the first post referred to a drop in VC funded deals. And the assumption that this drop was a result, in part, of a drop in new great start-ups.


    If you throw in Kitchener and Cambridge deals, and cover all sectors and not just Information Technology as I was (as I was for every region across the country) another $33 million in VC deals get added to the list. That could be the deal list that you’re looking at, but I’m not including other cities nor non-IT stuff.

    As for the Stork Family, they are a fabulous group and make large investments when they so choose. But the database excludes all Family Foundation types (unless they identify themselves to the world as a VC fund) and large Angel rounds, so the analysis is as fair to Waterloo as any other region.

    Just focused on VC-backed IT deals in Waterloo. And trying to find any themes that might explain the relative paucity of VC IT deals over that 4 year period. In both relative and absolute terms.


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