Tech CEOs fear domestic VCs becoming irrelevant

TORONTO: Deloitte Canada’s annual survey of Fast 50 Tech CEOs reveals concern about the ability of tech companies to finance their innovations.

Almost 80% of respondents say Canadian-based venture capital firms are in danger of becoming an irrelevant source of financing and 83% see this development jeopardizing future generations of technology companies in Canada.

Seventy-six per cent of the companies said their main source of financing was cash flow from operations, higher than in past years, while angel and VC funding was ranked as less than half as important.

“Although this year’s winning companies are doing incredibly well, who knows how much bigger they would be today if they had had access to more growth capital in their formative years?” said Deloitte’s John Ruffolo, national leader of the technology, media & telecommunications industry group.

“This persistent weakness in the country’s venture capital ecosystem began around 2004, it has now reached crisis levels and it has serious implications for the future of our technology sector and the future of Canada,” said Ruffolo. “We need to rapidly adopt key policy responses that will help build our Innovation Economy, create jobs, and make future Technology Fast 50 lists even better.”

Seventy-three per cent of Tech CEOs said performance was negatively affected to some extent by the recent recession. At the same time, 68% predict either weak or negative growth over the next 12 months.

On the job front, more than 53% of CEOs indicate their firms have benefited from current conditions thanks to the greater availability of skilled labour at a reasonable cost.

Of respondents who saw carbon credits as relevant to their businesses, Deloitte said a surprising 40% indicated future carbon credits were a major part of their strategic thinking.

Deloitte said the winners of the Deloitte Technology Fast 50 delivered a five-year revenue growth rate of 5,638%, an all time high. But Ruffolo cautioned that while some of this success was due to the economic rebound and exciting new technology niches, some was also due to the small size of these companies five years ago.

Among the winners were several manufacturers such as:

• Seventh place ProSep, an oil and gas process equipment manufacturer, which showed 10,203% growth.

• Arise Technologies, a Waterloo, Ont.-based developer of solar technologies was 11th with 2,777% growth.

• H2O Innovation, a Quebec City manufacturer of water treatment systems, was 23rd with 989% growth.

• Research in Motion, the Waterloo, Ont.-based manufacturer of smart telecom devices was 30th with growth of 719 per cent.

• Tantalus Systems Corp. a developer of smart grid technology, was 31st with growth of 681 per cent.

• 5N Plus Inc., a manufacturer of high-purity metals and compounds, was 36th with 574% growth.

• Nexterra Systems Corp., a Vancouver developer of biomass gasification systems, was 39th on the list.

Deloitte’s Fast 50 ranks companies based on their previous five-years revenue growth. Click here for other winners and additional information.