No Place for Nerds
While we were busy toasting the energy boom, another could-be big technology slipped away to Silicon Valley. Will the brain drain ever be staunched?
by Malwina Gudowska
But Murgatroyd doesn’t take it lightly. He says it’s a critical problem and Alberta has to start diversifying the economy now to create new sources of wealth to sustain our standard of living when the oil economy wanes. But until then, startups that are not part of the oil and gas world will have a hard time staying and will relocate in order to connect to existing infrastructure and capital in areas where they already exist.
or Camp and Smith, aside from the investment money and their investors’ “strong preference” for relocation, one of the fundamental attractions of Silicon Valley was the network of people.
“It’s part of the culture here,” says Camp. “There are people here and all they do is organize parties to try to get startups and VCs together… and they don’t have those kind of events in Calgary.”
A solid network also allows companies to take more risks. “Here, they don’t assume that if your company doesn’t work out, you are a failure,” says Camp. “They just say, ‘Oh well, just try again.’”
Their short time in California has convinced Camp and Smith that resisting the pull of the Bay Area is not just Calgary’s problem. “New York tried to duplicate Silicon Valley’s success with the ‘Silicon Alley’ and they couldn’t pull it off,” says Smith. “And if New York couldn’t do it, it’s going to be a challenge to replicate… outside the Bay Area no matter what city you are.”
But according to Perry Kinkaide, president of the Alberta Council of Technologies, this is the type of attitude the province and country need to overcome to retain these companies and allow them to successfully grow where they began. “There is no sense in portraying to the world that we are going to be a Silicon Valley,” says Kinkaide. “[But] there is every reason to believe we could be better than we are today.”
The council, founded last year, attempts to create a single voice for all the non-oil-and-gas, knowledge-based companies and industries in hopes of diversifying Alberta’s economy. According to Kinkaide, the lack of infrastructure in turn results in a perceived lack of funding. Many Albertans don’t appreciate the investment opportunities right here in Alberta in the early-stage technology sector even though there is funding available, says Kinkaide.
Murgatroyd, who also specializes in policy research for the council, isolates two problems when it comes to funding. One, at the angel investment stage and the other, later on down the road where companies need later-stage venture deals. Many startups are finding it hard to track down funding; at the same time many angels want to invest but management for these startups is difficult to find. Ultimately, both problems stem from local startups that are strong on the research and development side but weak when it comes to commerce skills and many of them fail because of it. “What we need to think about is not what good ideas we have because we have lots of those. It’s how do we get them to market,” says Murgatroyd.
Randy Stewart Thompson, general partner with Argon Venture Partners, is hoping to help startups do just that. Thompson founded Alberta Supernet Inc., the first private ISP in Alberta in 1992 (acquired by Norsat Communications in 1996) and a software distribution company before moving over to what he calls “the dark side” of running an angel group in Edmonton and Calgary. In 2003, he started Keiretsu Forum Calgary (now Venture Alberta Forum) and recently funded his 22nd startup company. His newest project, Argon, is an early-stage, cross-border venture capital firm that is based in both the Silicon Valley and Calgary. Argon’s mission is to work with IT startups in Western Canada and combine senior local presence with a Valley investment team that has access to the right people in the top market. “It’s still a Canadian company but the reality is that if it’s here, it sells to 30 million people but if it opens up the headquarters in the States, it’s selling to 360 million.”
Thompson says he doesn’t see a lot of companies migrating to the U.S. entirely but what does happen is what he calls the “classic Canadian-built strategy.” The R&D and operations remain in Canada but senior executives and sales and marketing gravitate to the U.S.
“We lack senior management acumen to build really good early-stage companies,” says Thompson. “In the States they have people with job titles such as ‘Startup CEO’ and that’s what they do for a living.” When the talk turns to StumbleUpon – a hot topic of discussion in the tech world these days – Thompson says he didn’t see the young company founders at the angel forums because they had no one to act as a guide for them and had to create their own cross-border relationship.
lthough Michael Sikorsky has spent his 12-year IT career based in Calgary, during which he’s launched two companies and is still working with a number of other projects, he echoes Thompson’s sentiment. “When it comes to technical engineering talent, it’s dripping in Calgary,” says the CEO of Cambrian House, a crowd-sourcing software company he founded last year. “Finding people who understand consumer marketing, or consumer sales, it’s void, it’s barren.”
When Sikorsky graduated university with a degree in computer engineering in the mid-1990s, he walked straight into the dot-com bubble. Although there were offers from the States, he decided to stay in the Calgary – a decision he would reverse if he knew then what he knows now. “I did strategically think that it didn’t matter what city I lived in, I would just build up a network,” he says.
He founded Servidium Inc., an enterprise-class software developer in 1999 that was later acquired by Thought-Works Inc. (where he served as vice-president until starting Cambrian House). But he quickly learned that it did matter what city you were based in.
“What attracts any tech company to Calgary? There literally is nothing,” he says. “Oil and gas are the shit here, people would fly from all over the world to talk to someone here. But who would come here to talk to anyone in tech?” He calls the issue one of gravity, or a lack thereof when it comes to tech companies that are not affiliated with oil and gas in the city. But beyond angel funding and venture capital, Sikorsky says the issue is propelled by the conservative nature of Canadians in general when it comes to selling their companies, a process that occurs often.
“Most Canadians will exit their venture when they can see about $10 million in personal wealth,” he says. “So when you think about it, an average company, let’s say one or two founders…. You get all these deal sizes between $25 million and $100 million always occurring. You hear $50 million and you think, ‘Wow, it’s a lot of money,’ and I don’t mean this disparagingly but it’s not from a company standpoint.”
As a recent example, Sikorsky cites the acquisition of iStockphoto, an online broker of low-cost photography, by industry giant Getty Images for $50 million. Sikorsky thinks that deal should have involved a higher sum. Sikorsky’s solution for creating gravity in Calgary could only come in the form of a billion-dollar firm and a well-led, 10-year program to develop a cluster of spinoff companies around it. Nonetheless, when asked if he plans on selling Cambrian House when the time is right (he’s already received acquisition gestures), he says yes without hesitation.
“If we really pop, Yahoo, Google or AOL will buy us. We’re going to say yes and then in three years there won’t be anyone left here.”
With the perfect balance of heart and realism, Sikorsky shrugs his shoulders and says it is how it is.
“Imagine if you are the guys at Google and you are sitting on billions in cash, and you hear about these StumbleUpon guys,” he says. “All the gravity is in the Valley so the unfortunate thing is that if you make anything interesting, there’s always a price on it.”
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