A WORLD OF TECH GIANTS
The Ottawa region’s modern hi-tech industry was built by a small group of entrepreneurs
Perhaps the best way to look at the National Capital Region’s $5-billion-a-year tech industry is that it survived the very worst that could be hurled at it.
Bruised by the collapse of internet share prices in 2000, the sector was brought to its knees by the telecom crash that followed. In 2008, after tech had nearly recovered, Nortel Networks — the anchor for the entire community — began its descent into bankruptcy.
Despite all that, despite the loss of tens of thousands of well-paying high-tech jobs and the deep ennui that followed, the sector did not implode.
It turned out to have been built on solid foundations. By some very solid people. And it has made Ottawa a capital built on more than just the bureaucracy.
Many are familiar with the three waves that transformed the capital into Canada’s most technology-intensive city. First, following the Second World War, military suppliers set up shop to chase federal government contracts; next, Nortel decided in 1958 to build its R&D headquarters in Nepean. The third wave, the arrival of entrepreneurs from abroad, proved pivotal in the creation of a teeming, self-sustaining mass of tech firms.
The most famous of the immigrants, Terry Matthews and Michael Cowpland, launched a rocket in 1973 called Mitel. At its peak, the maker of telecom gear employed more than 6,000 and operated manufacturing plants around the globe.
Matthews, a Welshman, later founded Newbridge Networks while Cowpland, who grew up in south England, created Corel, a graphics software company. But they weren’t the only builders.
Another Englishman, Michael Potter, showed every bit as much entrepreneurial flair in the early 1970s by acquiring a consulting shop, then transforming it into Cognos, which became the region’s most successful software company.
Even within Nortel, a leviathan that at the time sold telephone networks to slow-moving monopolies such as Bell Canada, there was plenty of entrepreneurial nerve. Scientists such as Rudolph Kriegler — a refugee from Hungary following the 1956 Soviet invasion — were laying the groundwork for the internet era by diverting R&D money into optical communications technology.
These and many other individuals contributed to the foundation of the region’s tech industry, today nearly 50,000-strong. Yet, unlike most of the personalities profiled by the Citizen in honour of the country’s 150th birthday — home builders, lumber barons, architects and artists — tech entrepreneurs operate in an industry that must constantly reinvent itself. As they have learned to their great pain in the past two decades, they can never be sure their achievements will last.
Nortel is gone, though its technologies live on in a multitude of foreign corporations that purchased Nortel assets out of bankruptcy court. Corel, its head count sharply reduced, was acquired 14 years ago by a private equity fund based in San Francisco. Newbridge and Cognos have disappeared into divisions of multinationals, Nokia and IBM respectively.
Of the highest-profile early pioneers, only Mitel carries on as an independent, Ottawa-based corporation. The company generates a healthy US$1 billion annually in sales, but most of its operations are in Arizona, Britain and Toronto. In its heyday, more than half its workforce was based in Kanata. Today, fewer than 600 of the firm’s 3,000 employees call the capital region home. (If the proposed merger with California-based ShoreTel goes through as expected in September, Mitel’s global workforce will increase to 4,300 with no change to Kanata operations. Company revenues will jump to US$1.3 billion)
Matthews reacquired control of Mitel in 2001 but his ownership stake has diminished over the past 16 years as the firm issued more shares to purchase other companies. He is still chairman of the board, however, and makes good use of that position.
Indeed, at 74, Matthews works a full schedule. He is at the centre of an intricate web of high-tech startups, entrepreneurs and financiers. You can add to this network hundreds of former colleagues and his many connections in academia and government.
“People ask me, ‘Why don’t you retire and enjoy your relationships?’ ” he asked rhetorically earlier this year. “Well, that’s what I’m doing now!”
What’s striking is the balance Matthews maintains between his tech businesses and the services that support it, in sharp contrast with the 1970s and 1980s when running Mitel and Newbridge absorbed nearly all his attention.
Kanata is the epicentre for Matthews’s KRP Properties — which serves as landlord for more than 180 corporate tenants, the vast majority of them high-tech. The vast majority of his KRP office towers are in north Kanata. Many overlook the Marshes golf course and the BrookStreet Resort, also owned by Matthews. The Welshborn businessman controls more than 600 acres in the Kanata area.
Yet, despite his enthusiasm for his leisure properties, the business of technology continues to hold the most allure for Matthews. He considers it his life’s mission to help sustain the tech sector in the capital region.
His portfolio of equity investments through Wesley Clover, the holding company that manages his many corporate, real estate and philanthropic interests, tops 30 companies. Roughly half are headquartered in the Ottawa region.
One in particular, Solace Systems, gives a flavour of the complexity of the tech industry’s foundations in Ottawa, and Matthews’s role in it. Matthews invested seed money in Solace in 2001, the same year the telecom industry crashed.
He liked the idea of developing technologies — universal translators — that expedite the flow of traffic among computers, smartphones and software applications. Indeed, Solace Systems’ products could play a key part of tomorrow’s internet.
Fast-forward to April 2016. That’s when Bridge Growth Partners paid US$100 million to purchase a majority share in Solace Systems.
As is typical in deals of this size, Tom Manley — the senior principal at Bridge Growth Partners — took over as chairman of Solace Systems. Manley is well-known in Ottawa tech circles. He served as a former senior executive at both Nortel Networks and Cognos. It’s not surprising that he and Matthews were well acquainted.
You can find these kinds of personal links nearly everywhere in the region’s tech sector. The business networking site LinkedIn features more than 3,300 former Newbridge employees, many of them actively engaged at local tech firms. LinkedIn’s database also lists 4,700 former employees of Nortel Networks and hundreds more each who learned their skills at Corel and Cognos.
Indeed, the DNA of the region’s tech pioneers — including those not associated with Matthews — is present in many of the capital’s current tech champions.
The résumés of employees at Kinaxis, the supply chain management software firm now valued at $2 billion, are studded with references to previous positions at both Corel and Cognos. Most have accumulated valuable experience and scar tissue along the way.
Some tech jewels survived thanks to exceptional work by employees who safeguarded the work of the pioneers. Such is the case of Nortel’s former optical products unit, whose products still form the core of the internet. During Nortel’s stunning descent from 2001 to 2009, Dino DiPerna, the head of R&D for the unit, used a variety of tactics to protect the most important research from savage budget cuts.
Ciena, a Maryland-based firm, was impressed. Not only did it shell out US$774 million for Nortel’s optical products business in 2010, Ciena made it a key part of its global operation. The result can be seen along Kanata’s Terry Fox Drive where Ciena has been building one of the city’s largest tech campuses. By September, when the 424,000-square-foot operation is expected formally to open, some 1,600 employees will be working there.
In terms of physical space, that’s similar to the expansion underway at Shopify, the electronic commerce software company cofounded in 2004 by German-born CEO Tobias Lutke. The company’s Ottawa workforce — close to 800strong — could match that of Ciena in several years on its current trajectory. Shopify’s revenues are expected next year to surge past $1 billion, part of the reason stock markets recently valued the company at roughly $12 billion. Indeed, Shopify is showing signs it could one day take over the role of anchor tenant for the region’s tech community.
Given the trauma associated with the loss of Nortel, the exit of JDSU — the region’s other big optical products company — and the collapse of so many startups since the late 1990s, no one is counting on Shopify’s success. Permanence simply isn’t a part of high-tech’s makeup, at least not when it comes to the physical world.
The mindset? That’s another thing. Several generations of entrepreneurs have clearly shown you can build world-beating firms from a base in the nation’s capital. And that, furthermore, it is possible to recover from great disaster. That’s a pretty good legacy on which to keep launching new firms. And building a prosperous future for the city.