I recently attended a Material Insight event, hosted by VC and author Guy Kawasaki with a panel from noted success stories in Calgary. It’s premise: Calgary-based tech companies including VoodooPC, iStockphoto, StumbleUpon, Veer and NovAtel have all been acquired by international technology mega-players. We ask Calgary’s tech elite if our city is becoming a hotbed of sought-after technology?
I experienced a bit of this acquisition euphoria when our company, Greenpoint Software, was acquired by Intuit in 2000. But, nowhere in the stratosphere of the recent iStockphoto $50M sale to Getty Images, StumbleUpon to eBay for $75M, Bioware and Pandemic Studios to EA for $775M, or Veer Software to Corbis for an “undisclosed amount because it was a private sale.”
As readers of my blog know, I’m immersing myself back in the Calgary high-tech community after being myopically focused on my work with Intuit Canada over the last 7 years. So, when I walked into the coffee laden early morning crowd of the Guy Kawasaki event, I was expecting 50 or so stragglers. But, instead, I was taken back by how big and intense it was. I suspect 300+ people were in the audience, each with their own high-tech story.
In fact, in a report from the Calgary Economic Development office, the tech sector in Calgary includes over 2,400 companies and employs over 55,200 people, which is about 10% of total employment in the region. Correspondingly, the tech sector accounts for 10% of Calgary’s economic growth. That says a lot for a city swimming in oil and gas.
The interesting thing is that many of today’s start-ups have been created by many of the management spin-off from companies in the late 90’s and early 2000’s: like Material Insight, Mob4Hire and DO2. Thus, today’s high-tech scene consists of people who have the experience of 2nd and 3rd generation successful high-tech ventures as well as significantly more access to cash.
But, it’s not enough cash. “Alberta companies say their biggest challenge is securing financing from either equity markets or government.” – Alberta Technology Chamber of Commerce.
In Calgary, we have several Angel investors. Which is good, because it’s helped to create a good high-tech community. But, if Calgary wants to have a GREAT high-tech scene, formal, large $100M+ Venture Capital pools need to be created. This investment is required to take many of the fledgling world-class companies in Calgary to the next level. Kinda like what SUB-POP did for the Seattle music scene in the ‘90s, you know?
“Lack of a formal capital structure for raising capital is a big disadvantage for Alberta companies. Where do you start, etc…? Angel structure fills that gap, so people bootstrap at a slower pace.” – Kerri Lee Knull, CTI Innovation Centre.
A related issue in the tech sector is the preferential tax treatment that “flow through shares” have if you invest in the oil and gas industry. In simple terms, for every $1,000 you invest, you save $390 in taxes. For those that want to know more, this brochure explains.
Don’t get me wrong. I think “flow through shares” are a great thing. It gives the investor 39% return on their investment in the current year. This is a great way for government to invigorate growth into an economic sector without directly spending taxpayer’s money. Look how it’s worked for the oil and gas industry!
But, in addition to resources, the government needs to also stimulate the tech sector to diversify for the future… a “high-tech flow through share” to give it the same treatment as oil and gas. Investment will go into both sectors, creating a more diverse Alberta to help us prepare for the future. Thus, the high-tech sector needs to create a lobby group to work with the government so both sides can win.
While I’m pontificating/making wishes, I also want the Alberta provincial and municipal governments (along with industry) to move forward quickly with the high-speed rail between Calgary-Red Deer-Edmonton. The more we can really start acting like “Alberta,” and less like hockey’s “The Battle of Alberta,” the bigger we appear on the global radar. Likewise, I’d like to see at least those 3 cities in wireless hubs. Three big city wireless Internet bubbles so that anyone can access the web anywhere in the city for free. This would greatly accelerate growth in both the oil and gas AND high-tech sectors. I suspect adding Fort McMurray would be a good idea, too.
Them’s my thoughts. For my next post, I’ll start digging into some of Calgary’s great high-tech stories.