Tycoon plans fund to fill Nortel void Matthews seeks $100M-$200M to finance startups before ex-Nortel staff leave area
By Bert Hill, The Ottawa Citizen: CATA Teleforum MP3 Presentation by Mr. Matthews is Now Available
January 22, 2010

For a Copy of yesterday's Recorded Teleforum where Mr. Matthews discusses Wesley Glover, industry trends and opportunities and Canada's eco system for the Innovation Nation, please email Emily Boucher at eboucher@cata.ca


Technology magnate Terence Matthews is starting a $100-million investment fund to drive development of new companies to fill the gap left by the collapse of Nortel Networks.

The funding will be aimed at both the tiny companies he has traditionally nurtured and a new generation of billion-dollar players in advanced wireless and communications software.

With Ottawa technology employment and venture-capital funding at the lowest levels in five and 10 years respectively, the ebullient billionaire isn't worried.

"Whenever there are bad times, it is usually a good time to start new companies," he told a forum held Thursday by CATAlliance, formerly the Canadian Advanced Technology Association.

"I have started over 80 companies and I have lost only five companies," he noted, adding a warning that the Nortel talent pool will quickly disappear unless there is funding to support the creation of companies.

"The company that once generated 20 per cent of Canadian research and development is gone. Get over it.

"But the Nortel ecosystem is still there. There is still lots of research and development capability in Ottawa. But the ecosystem has a shelf life of seven years at most. This is a really good time to start a new company before the talent disappears."

Matthews is busy talking to wealthy investors, investment banks, pension funds, big companies and governments. A launch is still several months away. Matthews said he won't start the fund unless he raises at least $100 million and he will cap it at a maximum of $200 million.

Fundraising for what he calls the Wesley Clover Technology Acceleration Fund has begun and "is going incredibly well."

CATAlliance chief executive John Reid said the Matthews initiative "promises to raise a significant amount of capital for new companies. Hopefully, others will now step up to fill a significant gap."

While Matthews has long championed small startups, he is now also focusing on the need for the rapid development of larger companies to fill the Nortel gap.

"I believe that, in five to 10 years in Canada, we can have at least half a dozen new companies with sales of at least $1 billion per year.''

He said Nortel failed in part because "it was probably the worst on the planet" when it came to partnering with other firms, from 2000 when it dominated the industry, to the end.

Matthews last ventured into the venture capital market with Celtic House Venture Partners, which helped finance several Ottawa companies. He is no longer involved with Celtic, preferring to fund his startups directly from his fortune.

He is nurturing six tiny companies in Ottawa and two in Britain and France. As they prosper, they move out on their own -- or fail and go out of business.

Matthews said the new companies are identifying market opportunities and developing new products in affiliation with established Matthews companies, including Mitel, Bridgewater, DragonWave, Belair and others in Ottawa.

He is also working with business and governments across Canada to support startups on Vancouver Island, in Alberta, the Maritimes, Ottawa and across Ontario.

Matthews urged governments to change tax and other legislation "to make Canada a magnet for capital." Rules ranging from capital gains taxes to registration laws that make it difficult for foreign capital to sell a Canadian startup must change.

Funding should be stepped up for successful federal programs, ranging from Export Development Canada to the National Research Council's Industrial Research Assistance Program (IRAP), he said.

"There should be another billion dollars into IRAP because it is working."

Matthews also said too much funding is going to university research, which is slow to generate commercial products.

Matthews has had his share of startup trouble in the recession, shutting once-promising companies ranging from Newport Networks in Britain, to Natural Convergence in Ottawa. He rolled two Ottawa startups into Counterpath, a company that continues to struggle.

Matthews said he starts about five new companies each year with a formula that works: Hiring bright young university graduates, paying them half the salaries they would get at bigger companies, but giving them half the equity in the new companies.

Each new company is expected to develop a business plan even before they have a working product, based on specific market needs identified by customers. Then, working with existing Matthews companies, they develop products and relations with major customers.

Matthews said the huge demand for Apple and RIM smart phones shows the need for more specialized services. He said the growing congestion in corporate phone networks and data centres is also creating demand for virtualization software and cloud computing, which makes systems work faster, more efficiently and consume less energy.

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Technology investments held through Terry Matthews' holding company, Wesley Clover:

- Benbria, Kanata
- BreconRidge Manufact., Kanata
- Bridgewater Systems, Kanata
- CounterPath Solutions, Vancouver
- DragonWave, Kanata
- Encore Networks, Virginia
- Enfils, Wales
- Fractal Edge, London
- Inuk, U.K.
- Isca Networks, Wales
- March Networks, Kanata
- Martello Technologies, Kanata
- Mitel Networks, Kanata
- Solace Systems, Kanata
- Teldio, Kanata
- TrueContext, Kanata- Wesley Clover Solutions, Kanata