Still No VC

This is a regrettably long-running story: there is no venture capital money around, and especially not in Ottawa. There is some hope that the situation will change, but that is only a hope, not reality as yet. Knowing all this, it was with some interest that I read this article about the effect Nortel has had on the Ottawa high-tech industry. What Pat DiPietro had to say in that article is very much on point even if it is nothing we don't already know.

First, there is a dearth of seasoned technology executives in Ottawa. This is true, and has been true for a long time. This is not to say we don't have them, it's just that their numbers are disproportionately small in comparison to the engineering talent. As Pat says, much of the blame must be laid at Nortel's doorstop. Bell-Northern Research was constructed on the AT&T Bell Labs model where the technology and research organization was kept separate from the business units. For anyone who has not experienced it directly, this must seem a perplexing concept. After all, how can it possibly make sense for the product builders to be disconnected from the product marketers and sellers? It is ineffective except in the now-extinct monopolistic telecommunications industry structure. It had its good points, but speed, efficiency and relevance were not among them. In Nortel's case, since the vast bulk of the business talent was not in Ottawa we now don't have enough of it to spread around.

Second, we seem not to have people with the needed skills. While it is true that a talented engineer can quickly come up to speed on new technologies, it is less so as the engineer ages. The most productive and creative engineers are young. This is of course not always true, just true enough that it is a valid generalization. A good engineering team should combine the energies of the young guided by seasoned professionals, thus most profitably exploiting the best of both groups. The old Nortel hands are often not found in these senior roles. Many have left the industry, taken on junior roles in government or elsewhere, or are otherwise uninvolved for a diversity of reasons. This is a subject all its own which I won't get into here. The result is that we do have a pool of telecommunications software and hardware professionals in town, but telecom infrastructure products are not where the buzz is these days. The younger folks who are well-versed in the new technologies and customer-facing services are somewhat adrift in their various "hobbyist" start-ups without either funding or experienced leaders. There is too often a large gulf between the young and the old in this town.

Third, we sell too soon, and thus fail to maximize the value from our limited pool of small, successful companies. I think that Pat is off base on this point. For one thing, the reason many start-ups in Ottawa sell too early is that the VCs won't or can't make follow-on investments (a recent example is Third Brigade selling itself to Trend Micro). The money is usually needed if growth is to be stimulated rather than allowed to proceed organically while generating modest profits. Pat can look in the nearest mirror to spot the problem. Apart from the lack of VC money, I am not convinced that the rate of acquisitions is too high; it is a normal sequence of events. It is also to be expected that the acquirers are American since they have the companies with the size and incentive to do these deals. I believe the real problem is that we are not creating enough new, well-financed start-ups to replace those that are acquired. It probably takes 5 of these for every acquired company for the technology industry to thrive; the talent gradually moves into new companies, using money from the acquisitions to grow the local technology industry. Unfunded start-ups don't count in this scheme; these orphans are often little more than lottery tickets.

Ultimately it is money that is the fuel that will light the fire of entrepreneurship in Ottawa. If it stays away too long the talent we do have will drift away. If that does happen it will not soon return.