Venture capital situation for tech firms dire: Deloitte
Canada's technology sector is in dire need of new venture capital investors and is at risk of shrivelling up if it doesn't get it, according to global auditing and tax consultancy firm Deloitte.
And the number of eventual success stories — such as Waterloo, Ont.-based BlackBerry maker Research In Motion Ltd. — will be even fewer, said John Ruffolo, leader of Deloitte's technology, media and telecommunications practice.
"I'm nervous about that," he said. "If you throw enough money at the sector, you're going to get some good stars. Now that we're throwing nothing at the sector, five years down the road we're going to see some pretty big decreases. The possibility of seeing another RIM will be much, much lower."
Venture capital firms are those that provide seed moneythat enablessmall start-up companies to grow into medium and large enterprises.
The amount of venture capital available to Canadian technology companies has been in decline since the tech market crashed in 2001. Venture capitalists, stung by the number of technology companies that went belly up in the bust, have moved their money elsewhere.
Deloitte is lobbying government to reinstate tax credits and incentives for venture capitalists, and to change the tax laws that prevent U.S.investors fromgetting involvedin Canadian companies in an efficient manner, Ruffolo said.
Failing to make the changes will result in talented Canadians moving to theU.S. to start their technology companies.
"I think the government is finally starting to catch on and saying, 'Oh oh, we've got a big problem here,'" he said.
Leading the way
The venture capital findings were part of Deloitte's Fast 50 survey, released Thursday, which charts the fastest-growing technology companies in the country.
Leading the way, with a five-year revenue growth rate of 42,210 per cent, is Waterloo, Ont.-based Sandvine Corp., which designs software that helps telecommunications companies manage their network.
Many of the companies on the list fit into software, wirelessor so-called green technology categories. The software firms, however, are not the standard kind most people think of, Ruffolo said.
Rather than creating software for personal computers, these companies are instead making programs for servers and for wireless networks and devices.
Green technology companies, or those designing processes to help other firms do their jobs with as little environmental impact as possible, are especially taking off.
"It's been explosive on the green side," Ruffolo said. "A lot of it is on the manufacturing side, whether it's ways to manage your air-conditioning and heating or lighting, or a better and smarter piece of technology that's saving energy usage."
Surprisingly, Research In Motion placed 41st on the list with a five-year revenue growth rate of 436 per cent. Most of the companies on the listare small, so RIM —a global heavyweight — sticks out.
Deloitte tracks growth of technology companies globally, and RIM is the only firm in the world to have made the list 10 years in a row, Ruffolo said.
"It's pretty incredible."