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Lessons from the king of the startups

Billionaire stresses optimism

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SIR Terry Matthews has a lot to say about remedies for what ails the technology sector in Canada.

The Ottawa-based Welsh/Canadian technology billionaire was in Winnipeg this week to speak at the annual meeting of the Information and Communications Technology Association of Manitoba.

He said while the Canadian technology sector may be struggling, some relief is in sight.

Among other things, he applauds the federal government's latest budget that proposes to make $400 million available for venture capital activities and doubled funds available to the National Research Council's IRAP (Industrial Research Assistance Program).

After having a hand in about 90 technology startups, mostly in the Ottawa area -- including companies such as Mitel, Newbridge Networks, March Networks and Bridgewater Systems -- Matthews figures he's got it down to a science.

And the outspoken industry veteran is passionate about sharing what he's learned to make Canada's technology sector work better.

Among other things, he said he hires new university grads who aren't married and don't have a mortgage who are willing and able to work long hours for relatively low pay, but with the possibility of earning stock options. (He claims Mitel was the first Canadian tech company to offer stock options.)

Another key element to the Matthews technology startup model is to make sure the technology is client-driven.

"You need to start with a relationship with a customer because if you're not careful, it becomes curiosity or idea development," he said. "And that invariably leads to failure."

Matthews likes to ask how many members of audiences at his dinner speeches have the financial wherewithal to invest in startup companies and how many of them actually do.

"That's not enough," he said after a dozen or so people raised their hands from a group of more than 200.

Although Matthews practises what he preaches when it comes to investing in startups, he acknowledges he's guilty of being part of another debilitating trend in the Canadian sector -- the sale of growing technology companies to larger foreign -- typically American -- companies.

He referenced a report the Information Technology Association of Canada is about to release that details about 250 Canadian technology companies that have been sold to foreign buyers in the last several years. (The list includes last year's sale of Winnipeg's EISI to a Milwaukee company.)

He said when that happens, it hollows out the local economy's stockpile of expertise and their relationship with clients, as well as the associated legal, accounting, banking and other professional services that serviced that company.

"All that's left is the (research and development) department," he said. "The typical R&D spend of a company that is a going concern is between five and 10 per cent (of a company's total budget). Don't be proud of that."

But he maintains there is still plenty to be optimistic about. He said the British Columbia Investment Tax Credit program was rated as the most successful public sector program when it comes to job creation by the U.S. Commerce Department.

He said it's a program every province and the federal government should participate in.

Jim Kilgour, head of the business services division of Manitoba Entrepreneurship, Training and Trade, said Manitoba's four-year-old small business venture capital tax credit program was modelled after the B.C. program.

But the call for more government involvement in innovation and technology enterprises is often problematic.

One provincial official said, "I think the issues that this government is facing on numerous fronts are challenging them with respect to looking at issues like this one where the timelines are longer and outcomes are less certain."

A public-private partnership has recently launched an ambitious Innovate Manitoba program that may or may not have enough resources to be effective.

"It speaks to the fact that the only way we will succeed, given the realities of this province, is by working together and taking a co-ordinated effort in order to make it happen," the official said.

Sir Terry Matthews

-- founder and chairman of Wesley Clover, his own investment vehicle and holding company;

-- co-founded Mitel in the early '70s after starting his career with Northern Telecom;

-- in 1986, founded Newbridge Networks that became a leader in the worldwide data networking industry, and sold it to Alcatel in 2000, making him a billionaire;

-- in the last year, two companies he was chairman of and in which he held significant equity -- March Networks and Bridgewater Systems -- were sold for hundreds of millions of dollars;

-- has founded or funded 90 companies and averages about four new start-ups a year;

-- lately, he's branched out into hotels and golf courses, most notably he owns the Celtic Manor Resort in his hometown in Wales which hosted the 2010 Ryder Cup;

-- in 1994, he was appointed an Officer of the Order of the British Empire;

-- in the 2001 Queen's Birthday Honours, Matthews was awarded a knighthood;

-- in 2011, he was appointed Patron of the European Cancer Stem Cell Research Institute.

Republished from the Winnipeg Free Press print edition April 27, 2012 B4

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