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Half of today's tech firms will fail, says financier
By Kate Chappell, Ottawa Business Journal Staff
Mon, Oct 20, 2003 12:00 AM EST
Andrew Waitman
More than half of the city's high-tech companies will be bankrupt within two years, says one of the city's most powerful venture capitalists.
At last week's Ottawa Real Estate Forum, Andrew Waitman, a managing partner at Celtic House Venture Partners, made a presentation that included a list of local tech companies, more than half of which, he guaranteed, would not exist in two years.
"There is not enough revenue to support those companies," he said. "It's not a pessimistic statement, it's not an optimistic statement, it's just a reality. There was a bubble, there was a whole bunch of companies funded and they won't all make it."
Waitman, who was recruited back to Ottawa from Toronto eight years ago by Newbridge founder and tech tycoon Terry Matthews, told the audience it's simply a truism within an economic ecosystem.
"You are going to have a lot of rationalization, which is a euphemism for bankruptcy," he told the audience.
This year, some of the city's best-funded startups have gone out of business or are on the brink, including Ceyba, Silicon Access Networks and Innovance.
Waitman said when the turbulence is over in a couple of years, there will be about 50 companies left to provide the basis on which the local tech industry will diversify.
René Seguin, director of venture capital at the Business Development Bank of Canada, said Waitman's prediction is "a bit harsh". He predicts only one-quarter of local firms will go bankrupt, with the remainder swallowed up through mergers and acquisitions.
"We are still in consolidation phase and there will be more bankruptcies to come, with the big companies swallowing up the leftovers," he said.
Local firms continue to suffer from a lack of revenue as larger firms aren't buying their products, Seguin added.
Therefore, he said, local firms "aren't increasing the value of their companies".
Waitman also told the audience the city will probably never regain the celestial levels of venture capital funding it attracted during the tech boom.
"In the next 20 years, maybe, but we have to see high-growth, profitable, cash-positive companies.
If we don't see that, investors won't be investing."
So far this year, the city has attracted $112 million in venture capital, compared to 2000, when local firms enticed investors to sink more than $1.29 billion into their ventures.
The way to get the local high-tech economy thriving again is to encourage companies that export, Waitman said, rather than relying on the safety net created by the city's largest employer, the federal government.
"The government doesn't create wealth, export industries create wealth."
In addition, the city needs a stable of seasoned CEOs who can guide companies to compete successfully on a global scale.
"We need a bit of expertise on the management side," Waitman said. "One of the challenges in Ottawa is that we don't have a gene pool of people who know how to compete on a global scale. Terry (Matthews) brought ambition to the city and we need more ambition and drive."
Nevertheless, Waitman said there's no reason Ottawa companies can't play on the international market and create another Amazon, ebay or Google.
By Kate Chappell, Ottawa Business Journal Staff
Mon, Oct 20, 2003 12:00 AM EST
Andrew Waitman
More than half of the city's high-tech companies will be bankrupt within two years, says one of the city's most powerful venture capitalists.
At last week's Ottawa Real Estate Forum, Andrew Waitman, a managing partner at Celtic House Venture Partners, made a presentation that included a list of local tech companies, more than half of which, he guaranteed, would not exist in two years.
"There is not enough revenue to support those companies," he said. "It's not a pessimistic statement, it's not an optimistic statement, it's just a reality. There was a bubble, there was a whole bunch of companies funded and they won't all make it."
Waitman, who was recruited back to Ottawa from Toronto eight years ago by Newbridge founder and tech tycoon Terry Matthews, told the audience it's simply a truism within an economic ecosystem.
"You are going to have a lot of rationalization, which is a euphemism for bankruptcy," he told the audience.
This year, some of the city's best-funded startups have gone out of business or are on the brink, including Ceyba, Silicon Access Networks and Innovance.
Waitman said when the turbulence is over in a couple of years, there will be about 50 companies left to provide the basis on which the local tech industry will diversify.
René Seguin, director of venture capital at the Business Development Bank of Canada, said Waitman's prediction is "a bit harsh". He predicts only one-quarter of local firms will go bankrupt, with the remainder swallowed up through mergers and acquisitions.
"We are still in consolidation phase and there will be more bankruptcies to come, with the big companies swallowing up the leftovers," he said.
Local firms continue to suffer from a lack of revenue as larger firms aren't buying their products, Seguin added.
Therefore, he said, local firms "aren't increasing the value of their companies".
Waitman also told the audience the city will probably never regain the celestial levels of venture capital funding it attracted during the tech boom.
"In the next 20 years, maybe, but we have to see high-growth, profitable, cash-positive companies.
If we don't see that, investors won't be investing."
So far this year, the city has attracted $112 million in venture capital, compared to 2000, when local firms enticed investors to sink more than $1.29 billion into their ventures.
The way to get the local high-tech economy thriving again is to encourage companies that export, Waitman said, rather than relying on the safety net created by the city's largest employer, the federal government.
"The government doesn't create wealth, export industries create wealth."
In addition, the city needs a stable of seasoned CEOs who can guide companies to compete successfully on a global scale.
"We need a bit of expertise on the management side," Waitman said. "One of the challenges in Ottawa is that we don't have a gene pool of people who know how to compete on a global scale. Terry (Matthews) brought ambition to the city and we need more ambition and drive."
Nevertheless, Waitman said there's no reason Ottawa companies can't play on the international market and create another Amazon, ebay or Google.
