Terry Matthews: Ottawa’s declining corporate presence

Peter
Peter Kovessy
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'We don’t want … to be only R&D people'

It took barely 15 minutes to seal the fate of one of Ottawa's largest technology companies earlier this month.

Bridgewater chair Terry Matthews. (File photo)

In a meeting presided over by Bridgewater Systems Inc. chair and local tech titan Terry Matthews, company shareholders voted almost 99 per cent in favour of a $211-million friendly takeover offer from Missouri-based Amdocs Ltd.

Mr. Matthews told those in attendance at the Brookstreet Hotel meeting room that the Bridgewater team will become a valuable part of the much larger Amdocs, and that the Amdocs relationship will deliver the Ottawa firm's technology to many more top-tier wireless carriers than Bridgewater could have landed on its own.

But in a conversation after the meeting, Mr. Matthews said the Bridgewater sale signals a troubling trend in Ottawa's tech sector.

OBJ: There have been several cases of larger companies from outside the city buying local tech firms in recent years. Are fears of Ottawa's corporate presence being hollowed out justified?

MATTHEWS: Yes, because (Ottawa) is becoming an R&D centre ... Every time we lose a corporate headquarters, you are reducing the (the company's presence) down to R&D, which is one person in 20. What we don't want in our society is to only be R&D people. If you don't have deep-rooted headquartered companies here, you lose 19 out of 20 jobs. Should we rename Ottawa Business Journal to Ottawa Research-Only Journal? That's what it is boiling down to. You may as well only talk about the research, because that is all we've got. Nortel is gone. You used to talk about Nortel's business - they've got a contract here, a contract there - but the piece parts are mainly R&D centres. So you can only talk about what R&D is being done, because the business is not seen here. It's seen in Ericsson in Sweden, or it's seen in Genband in the States, or it's seen in Avaya in New Jersey. But it isn't seen here. We only see the R&D piece. What we want is deep-rooted companies.

OBJ: You said you had mixed feelings about the sale. Could you elaborate?

MATTHEWS: The (Bridgewater) board members are shaking my hand because they are no longer board members. Is that good or bad? Personally, it isn't what I would like. On the other hand, business is business. If you look at Bridgewater, it is going to become a very good division of another company. You have to do what is sensible. This is sensible (and) it will be good for the R&D team. (But), no directors, no more board meetings, no more shareholders - I think that's a downside ... There are more companies being acquired than new ones coming up and being substantial. How many billion-dollar-plus companies do we have in Canada? There are not many. And even some of the biggest companies in Canada are actually divisions of foreign companies. Is that good or bad? It's not good in my view.

OBJ: Are there public policies that can help reverse that trend?

MATTHEWS: It begins in creating an environment that is fertile for the growth of companies. If it isn't fertile, it isn't going to grow. It is no different than putting seeds in the ground. If it is rocky ground, with no earth and no water, it isn't going to do well. So what do you do to make it a nice fertile piece of land? It gets back to who controls the land. Now you are into governments. They control the fertility of the land ... It is not very complicated. We could be doing a lot better.

The British Columbia angel tax credit program allows relatively wealthy people to invest up to $200,000 in a high-tech company, and the government will immediately give them a cheque of $60,000 back. That immediately encourages them to make investments into technology and innovation companies. After only five years, the B.C. government found that for every dollar passed out, $2 came back into the treasury. That was for B.C. And (another) dollar came to the federal government.

There's a proven program that's not budget-neutral, it's budget-positive. There are some remedies to get some seed companies growing into strong companies. But you have to create the environment.

In our society, the banks don't put any funding into the growth of companies. The pension funds don't put any money into the growth of companies. What does that mean? You just removed two of the largest sources of funding to grow companies, because they are not in that asset class at all. If you want venture capital money because you have something that looks very promising, in Canada it is like looking for water in a desert.

OBJ: Why don't the banks and pension funds play a larger role?

MATTHEWS: The pension funds have no obligation to Canada. They don't have to invest in Canada. Secondly, the banks, because they are under extreme pressure not to get into anything other than plain banking, are out of it. And they were big sources of what you might call venture funding, putting money into promising companies that need capital to grow. This is a serious removal of capital earmarked for the growth of exciting companies. It affects our entire society. If you are an engineer and you say, "I work at Google," that sounds good. "I was working at Nortel but it went bankrupt," doesn't sound that good. Where is the national strategy to regain some prominence in technology? Have you seen it? Neither have I.

 

Organizations: Nortel, Avaya, Google

Geographic location: Ottawa, Canada, Sweden New Jersey British Columbia

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Recent comments

  • Ace
    August 26, 2011 - 10:21

    Terry hits the nail on the head - without easier access to risk capital, we have not seen companies to fill the void of Newbridge/Nortel/etc.. And we're far too focused on telecoms, not on truly disruptive technologies. Unfortunately, it's exactly these types of companies that require savvy and patient investors. While I enjoy obj.ca, this kind of message needs to be heard by a wider audience. Terry has got a ton of capital and experience, why not become the Paul Graham of Canada?

  • George
    August 25, 2011 - 11:33

    Terry Matthews is a shrewd and successful businessman, and knowing when to get out is as important as knowing when to get in. As Robert Herjavec noted, Information Technology businesses have an 80% failure rate, so the industry is inherently risky. The rewards for taking such risk, as evidenced by Mitel's IPO for example, are too insignificant to draw the attention of more traditional institutions such as pensions and major financial institutions. Venture capital has shifted into new areas such as biotech, biomedicine, and green power. Generally speaking, Electronics & IT is maturing as an industry just like plastics did in the early 1970's. Consolidation is a normal part of the overall lifecycle. With Silicon Valley's unemployment rate at 10.5% (1% higher than the U.S. national average), it's not that Canada is losing to other areas, but rather on par with the overall industry. The drumbeats about engineers migrating the U.S. has long died off. But Mr. Matthews does have a good point -- Canada, frankly, sucks when it comes to *internationally competitive* business. Our current corporate engines -- resources, banking, and the service industry, succeed because of their captive markets nature where land/regulation/location present obstacles to competition. Canada has lower productivity than the U.S., and its business culture lacks the killer instinct & fear of failure that drives many of its American counterparts. If Canada wants to be a corporate anchor as much as an engineering anchor, it needs a business culture with high expectations of its employees, a well validated business execution plan, accountability, and a radar screen full of potential acquisition targets. Tax credits and subsidies are great gimmicks that keep weak companies unsustainably alive but thwart market forces from percolating talent into more productive enterprises. The industrial revolution was not initiated from subsidies, why should the late phases of the dot com bubble be any more deserving?