Waterloo investing trends
It seems that an earlier post on Germany’s brain drain touched a few nerves in Waterloo. I had made the point that there was a general sense that Waterloo hadn’t churned out as many great new companies of late. I said similar things at a tech conference hosted by Communitech about 18 months ago. It is a lament, rather than a criticism.
We look for deals in the Tech triangle all the time. Our fund has closed deals (Meikle and MKS) in the area. We have family in the region. Our firm borrows its name (in part) from Wellington County. Those are more than decent bonafides.
A local VC challenged me a bit on the point, so I did what all numbers guys do: check the stats. Here is the data from public and industry sources for all “Information Technology” financings in Waterloo between January 1999 and February 2007. A few deals were announced where no data on $ raised was provided, but the results are so compelling that this wouldn’t change the theme. I’ve broken it down into two periods: Pre January 2003 and Post January 2003 (equal four year time periods):
January 2003 – February 2007:
Dollars Rasied: $60.0 million
Number of different Companies: 10
Number of companies that raised multiple rounds: 5
January 1999 – December 2002:
Dollars Raised: $174.6 million
Number of different Companies: 21
Number of companies that raised multiple rounds: 11
While the backdrop for venture investing has changed since 2000 and a big chunk of these funds went out during the heyday, the tap didn’t get shut off after the tech bubble. During the 2001-2002 period alone, $58 million was invested in Waterloo; get this, even in the post-bubble era, about the same amount was invested over the two year tech trough as in the past four.
Why does this matter? Despite a great engineering school, a liberal approach to patent ownership on campus, lots of local angels, a line-up of VC’s looking for deals in the region (Edgestone, Tech Capital, VenGrowth and Ventures West come to mind) and the presence of several wildly successful local tech firms, there appears to be a lull.
Local leaders need to think about how they can help to increase the rate of University of Waterloo IP commercialization. The schools shouldn’t just be a feeder program for RIM, Open Text, Microsoft, Google and MKS software engineers. The increase in money being invested into higher education and local brain building opportunities (Perimeter Institute) is tremendous. Where’s the commensurate growth in new businesses and novel ideas?
Money exists. Human talent exists. Experience and local success is everywhere. Where are the innovative new young companies?? There are a handful, of course. But the deal announcements suggest things have slowed tremendously.
Are the professors not getting comfortable with the Angel and VC world? Are they asking for a crazy pre-money value when folks knock on their doors? Are they spending time on ideas that can’t be financed still for years to come?
Open Text and RIM grow their local real estate empires in seeming competiton to be across the field/parking lot from the key U of W faculties. This can’t be a coincidence.
Back in the day, Ottawa grew in large part due to the multiple spinouts from Nortel et al. You can count on one thumb the number of corporate spinouts in Waterloo since 2000 (an Open Text online community idea in the summer of 2000).
As Jim Balsillie said once during a speech Q&A (and we love him btw) a couple of years ago: “It isn’t my job to build the next generation of the Waterloo tech community. My job is to build RIM.” Could it be that the Mike Lazaridis types of this graduating class are joining RIM, rather than trying to start their own RIM?
MRM
What unbelievable hubris you show! Has it not occurred to you that the current generation of entrepreneurs can (gasp) *exist without the services of traditional VC funding*? That self-funding and unpublished private placements are becoming the dominant form of financing?
Yes, there’s lots of money and talent around. Maybe they’re smart enough to avoid the VC route.
And this remark from your article:
“Are the professors not getting comfortable with the Angel and VC world? Are they asking for a crazy pre-money value when folks knock on their doors? Are they spending time on ideas that can’t be financed still for years to come?”
just goes to show that you have no real idea how academia is supposed to work.
Appreciate the perspective, and am not advocating a world where all start-ups require VC funding. RIM made the big time without a VC round, but they still raised institutional investor capital via their 1996 special warrant.
In my mind, the VC stats are a decent proxy for what’s going on in the community. But I could be wrong. If there have been half a dozen $500k Angel financings in Waterloo since 2003, that’s wonderful news. Please name the names.
As for not understanding how academia is supposed to work, I’m sure my sibiling, a tenured Univ. professor, might agree. But in terms of the IP commercialization, how should it work? Self-funding is one route, but not one I ever hear is the preferred one.
MRM
Requireless, which became Google Waterloo — originally self funded
Kaleidescape — originally self funded
Micohealth — self funded/angel funding
(another one the name of which I forget but which was started by a former colleague — makes software for the financial services/brokerage industry).
RapidMind — not sure about this one but I believe they’re still pre-VC
And that’s just off the top, by myself, without contacting any of my colleagues.
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I’ve read the subsequent post in this web-log in “Waterloo Investing Trends 3” there are some inaccuracies and typical CS undergrads reactions. There *is* a UW IP Transfer office and it’s been around since the 1970’s. It is presently (was recently) advertising for another IP lawyer. The point of the UW IP policy is precisely *not* to have UW take a stake. It wants individuals to take the risks and reap all of the rewards.
CS students, as a whole group, are known (in an endearing sort of way) for their inability to communicate effectively (and I’ve graded enough of their essays to know). The business/CS minor programs aren’t technical enough to foster real technical innovation (other than yet another web portal). I cringed the last time I took a CS major into a meeting with a VC — hopeless!
I have often thought that the best thing any CS undergrad could to is to get a job working for a couple of years with an established entity (with a consistent income). Learn how the real world works. Sharpen business and communication skills. Watch other entrepreneurial organizations in action. Then they’re ready to get funding and do something with that Great Idea.
I should also point out the Master’s program MBET — Master’s of Business, Entrepreneurship and Technology. Presently underutilized, it could become a useful stepping stone for students if there were a better scholarship/funding program in place.
Great to get some differing insights.
Had a look at the names. The entire blog theme was referring to start-ups post 2003, however. Kaleidescope was founded in ’01. Micohealth was ’02. Rapidmind took VC money from BDC, which supports both arguments….