The tech meltdown of 2000 brought a whole new reality to the Ottawa high tech scene. The most painful and visible effect on people was that fortunes, both hard and easily gained, evaporated with the hyperbole about the digitization of the economy.

The high tech entrepreneurs left standing today face a different landscape. Today there are no more lineups to give money to start up ventures. The most challenging part of any new technology venture is getting the start-up capital.

Hojjat Salemi, the CTO of Cortina systems, says that the tech boom in the late '90s was mistaken for being "normal. Today is just the way it's always been for new companies. Except for a couple of years during the tech boom, it's always been tough to get capital, we're just back to normal."

So what are the successful companies doing that allows them to grow and survive, even thrive, in this tough climate?

Mr. Salemi observes that there are three things you need to be convincing. First, you have to prove you can penetrate a market. Second, there has to be a seasoned team that has done it before and third, you need a compelling technology.

The three things above may seem obvious but it's the order of priority that has been the big change. In the tech boom years you could get by with an exciting technology. If you had an experienced team that was a great bonus and marketing was good, but really, the thought was that if you built a better mousetrap; the world would beat a path to your door. Today, it's quite different. The money people need proof that you can capture market share.

The large, established technology firms that are buyers of technology products and services are typical of the marketing mountains that must be climbed. These huge firms are most concerned with keeping their global supply chains intact. Penetrating the market these supply chains represent is very difficult as these chains cannot afford to be disrupted. The challenge is trying to convince the conservative people who manage these supply chains to give a start-up company a chance.

Humberto Aquino, a private equity manager from Toronto, adds that "a lot of technology firms in Canada have not learned to package and market themselves to the people with the money. There is no shortage of money for good deals, we just need to be a able to recognize it as a good deal."

Mr. Aquino also observes that the venture capital industry is relatively new in Canada. "There are not a lot of people with deep technology backgrounds who have made the leap to private equity. As a consequence, the Canadian private equity managers tend to focus on leveraged buyouts, mezzanine financing deals and not on venture capital."

With relatively few Canadian venture capital funds, technology venture capital often flows up from the south. There are many established venture capital funds in the U.S. who understand the space and have people who are well versed in the industry. A number of Ottawa startups have sourced their financing from our southern neighbours.

"The problem," observes Paul Labarge, a founding partner of LaBarge Weinstein (a long time player in the tech space) "of leaving things the way they are is that technology entrepreneurs will continue to look south of our borders. We'll become more and more like a branch plant to the U.S. Why should Canadian technology CEOs waste their time looking for funds in Canada when they can be in front of 10 venture capital funds a day in Silicon Valley?"

Mr. LaBarge maintains the government has a role to play. "Look what flow through shares have done for Canadian resource exploration. We now have an industry that is second to none in the world because Canadians are and were encouraged to deploy their capital through tax incentives. It could easily be the same for the technology sector."

Technology is a very broad brush. There are as many different forms of technology as there are tech entrepreneurs; and we are fortunate to have a sizeable number of tech entrepreneurs building their companies here in Ottawa. At the end of the day, being a technology entrepreneur takes the same grit as being any other type of entrepreneur. Experience, marketing savvy, and a compelling product are all minimums to entry. (You might also need a few million in start up capital and a graduate degree in engineering). n

Alan MacDonald is an investment advisor with TD Waterhouse Private Investment Advice who works with technology entrepreneurs in Ottawa. He can be contacted at alan.macdonald@td.com

By Alan Macdonald

Special to the Ottawa Business Journal