Techopia recently gathered a diverse swath of leaders in tech and related businesses, as well as representatives from our Techopia champions, to discuss a series of issues affecting Ottawa’s startups and established tech companies alike.
The roundtable gave honest feedback on issues such as access to capital and the availability of suitable office space in the market. We asked whether we’re back in the golden days of funding flowing into Ottawa and about how the trend towards co-working and shorter-term leases are affecting commercial real estate in the city.
What follows is part of an edited transcript of our two-hour discussion reflecting on the year – and decade – that was in Ottawa tech. Additional topics such as LRT and Ottawa’s talent pool have already been posted here, while transcripts on the impact of Shopify on Ottawa businesses and challenges in the year ahead will be published in the coming weeks.
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Capital
What’s your impression of the access to capital in Ottawa right now?
Rob Kinghan, partner at Perley-Robertson Hill & McDougall: I’ve seen two bought deals in the last two years, which are uncommon. That’s where the underwriter will say, “Yep, I’m gonna buy 10 million of your shares, I’ll take all the risk.” So that’s not very common here. Those two companies were Martello and Leonovus.
There are lots of debt and equity options out there as well. So there’s money. It’s just whether you’re situated properly for it.
Jim Roche*, president and CEO of Stratford Managers: It depends on the company, of course. Strong companies will find access to capital, either through high-net-worth individuals, angel investors here in town or through VCs. But there are tons of VCs in Toronto and other markets that we have access to from Ottawa, including in the U.S.
Susan Richards, co-chair of Invest Ottawa and managing partner at numbercrunch: I don’t think there’s enough. I think that there’s enough rope to hang, not enough rope to sustain.
I think in Canada, in general, we’re just not giving enough money to give a 12-to-24 month runway. I think most companies are used to having less than 12 months of a runway and that’s what they live with on a regular basis. So it’s difficult to make decisions, difficult to experiment. It’s easy for a startup to attract money, there’s angel money, there’s startup loans, BDC’s great. But the money that’s there is not enough to get to a series-A.
Feel free to challenge my thoughts but from a CFO perspective, that’s what I see, that companies don’t have enough capital to be able to transition to to the scale size. So I think we’re working on that.
I have a portfolio of 100 clients that I get to look at to collect data points. So I’m gathering the data now, but I’m just generally seeing that it’s oxygen tank to oxygen tank, and people are heavily distracted on fundraising, as opposed to product market fit, scalable customer acquisition, because they just don’t have enough money.
We have a few examples where companies are doing big raises, and then they have that leeway to execute. But there’s way more companies out there trying.
Around the city, I’m hearing a renewed focus on bootstrapping as an alternative or precursor to raising capital. Has anyone else seen this?
Allan Wille, co-founder of Klipfolio: Yeah, I’ve got wicked strong opinions on that, but it’s so complicated.
On the one hand, I’m a huge fan of, get product market fit or raise as little as you can, don’t dilute. On the other hand, if you’re raising, raise twice as much money as you need to. It’s very complicated and I think it’s all contextual.
There’s certainly a lot of money still out there. And I think it’s still flowing. (Private equity) firms are starting to be more “growth” PE firms. The banks are starting to get into the game. There’s a lot of different (funding) vehicles out there all of a sudden.
There’s many cases where too much money can completely put you down the wrong path. And there’s just as many cases where running out of money can really make you find that next big thing.
Patrick Houston, CFO of Calian: I think back then (10 years ago), there was this perception of Ottawa that, “Hey, this is smart money. We’re going to get in there, other people don’t know about Ottawa, I think I can get a good deal.” For whatever reason, I don’t think people see Ottawa that way anymore.
Keira Torkko, VP of employee experience, Assent Compliance: But you compare it with the U.S., we’re still a better deal in some regards.
Allan: I remember when we first started raising, we’d be talking to investors who would say, “Well we don’t really know how to do a deal in Canada.” I don’t hear that anymore.
Keira: Scale is a lot about speed. It’s being first to market. So once you have product market fit, (it’s about) being able to sustain that at the growth multiples that are being expected.
Allan mentioned earlier, PE firms are coming earlier, which is exactly the situation that Assent is in. We’ve had U.S.-based Warburg Pincus make a pretty large investment in us, which I would expect is earlier than some of their typical portfolio investments. Speed at scale is really what’s trending.
Real estate
Have you found the space you need to accommodate your growing headcount?
Keira: We’ve actually expanded across the street. And you know, it’s interesting how even 450 steps seems like 10,000 when people have to walk outside in the middle of the winter.
We are looking at what the next step is for us, because we will soon grow out of these two spaces. So we have gone out to take a look at what’s available.
We’ve seen from Kanata all the way along the 417 corridor, from existing space to new developments to creative use of retail space – landlords are being pretty creative around that.
So we have some decisions that we have to make, but we’ve seen a number of options.
Martin, you’re finding you’re able to accommodate expanding tenants within your portfolio?
Martin Vandewouw, president of KRP Properties: We’re in a really unique position because we have 35 buildings to work with, most landlords don’t. And those 35 buildings are all within one geography.
If you’ve got a tenant that needs to expand and they’re in a longer-term lease, let’s say, but they’ve ran out of space in the building and they’re landlocked, we’ll tear up that lease if they move to another one of our buildings. So we’ve been able to do a lot of that throughout the year.
Despite the fact that the majority of tech companies are growing, there are still some that are shrinking and we’ve been really lucky with having somebody that’s growing beside somebody that wants to give back space, and there’s been some real win-wins over the last couple of years.
With the rise of co-working, are you looking at doing more short-term leases?
Martin: I mean, we’re already doing short-term leases, because we know the nature of business. And I don’t mean to bad mouth the brokerage community, because they bring us a majority of the business, but I really get frustrated when you have a broker come to us with a tech tenant saying they want to sign a 10-year lease. Ten years is forever in the tech world. Like, how can you even crystal ball out more than three years? Right? And a lot of that’s commission, things like that. And there’s always a five-year out. But we’re basically giving tech tenants whatever they’re looking for.
“Ten years is forever in the tech world. Like, how can you even crystal ball out more than three years?”
We have 260 tenants. Half of them occupy less than 4,000 square feet. Everybody is trying to attract employees. Everyone has a culture and a brand. And part of that is reflected in the space that they’re in.
Can a 4,000-square-foot guy provide the same kind of space that a 100,000-square-foot guy with deep pockets can provide? The answer’s probably no, so as a landlord, now we’re starting to look at, “Well, what can we do to provide the amenities that the small guy can’t afford, not lose our shirt on it, and still keep it affordable for the tenants that are occupying the space?”
Like everybody wants food, everybody wants a place to go walk at lunch, all of those things. We’re now looking at taking on that responsibility to provide that, as opposed to a little guy that can’t.
So a lot of the smaller tech tenants that are coming to us are willing to take the space as-is because generally it’s kind of built out and it has something there, some infrastructure, but it’s too hard to kind of crystal ball on a space-by-space basis. If you build something out, chances are you haven’t built it out right. So you’re kinda throwing away money, they’re going to want to change it.
