Walking through the wreckage of the former Kodak offices at 3700 Gilmore Way this past January, it was hard not to feel wistful about the fate of the province’s tech sector. The sale of the portfolio of buildings the company used to occupy in the Lower Mainland was testimony to the cash-strapped condition of many firms in an investor-beware market.
But many tech companies found ways to thrive in the depressed economy, providing services that have become without rival in the digital age of business. Tech companies are abundant on this year’s list of the province’s fastest-growing companies by revenue, including Cardiome Pharma Corp., which posted significant gains thanks to revenue from its collaborative partner Merck & Co. Inc. Also posting double-digit growth in 2009 were Verb Exchange Inc., an education software firm; laptop tracker Absolute Software Corp.; and broadband provider Radiant Communications Corp.
While some observers point out that the number of new entrants to the sector in 2009 was not significant, B.C. Technology Industry Association president and CEO Pascal Spothelfer says local tech companies were able to weather the recession by building on their relationships with other companies.
“The big majority of our industry is serving – if you look at the number of companies and jobs – the rest of the economy with technology solutions,” he says. “They’re really delivering core capabilities to the other sectors of the industry.”
The sector is good for B.C. because its stable growth is proving to be an anchor for the province in a post-industrial era in which many resource sectors have been hit hard by various macroeconomic factors.
“This sector is relatively stable, it generally has companies with positive cash flow and will have a relatively moderate growth rate,” Spothelfer says.
Companies such as Day4 Energy Inc., Intrinsyc Software International Inc. and Ballard Power Systems Inc. may have led the province in terms of job losses (all posted double-digit drops relative to 2008), but Spothelfer says the resilience of the sector is highlighted in reports for his association that indicate jobs lost since 2008 should be recovered by the end of 2010. “What this tells me is that our companies, before the great recession, were operating on a pretty lean basis,” he says. “The tech industry really seems to have learned its lesson from the tech bubble bursting in the early 2000s, and they have made sure that they’re managing their staff levels very carefully.”
Kyle Hall, CEO of Vancouver’s PNI Digital Media Inc., has first-hand experience of the shift to more careful management. PNI launched in 1995 and during the last tech boom was known as PhotoChannel Networks Inc. It adopted its current name in June 2009 and now provides online and in-store services to consumers through photo kiosks and other means at retailers including Wal-Mart, Costco, CVS/pharmacy and Tesco. All told, PNI claims more than 14,000 retail locations. The sector has been a good fit for PNI, which piggybacked on the success of its retailers to enjoy revenue growth of 43.4 per cent in 2009.
In 2008 the velocity of the tech sector absorbed talent, leaving growing companies like PNI scrambling, but when the funding taps turned in the fall of that year the shedding of staff began. Within six months, a selection of great talent could be found on Craigslist, seeking work. “Companies just became so cautious in hiring,” Hall says.
PNI now has 93 staff and is looking at expanding the range of services it offers at retail to include business printing services and social stationery. “Even with . . . the economic downturn, our core customers have thrived in these markets,” Hall says. “The Costcos, the Wal-Marts, the mass retailers have done fairly well, so we’re consistent and we’re growing in our stated range of 15 per cent to 20 per cent [a year].”
Now a mature company, or at least no longer a struggling tech venture, PNI is able to pursue organic growth rather than scramble after financing, Hall says. If anything, it’s the major change he’s seen from the boom – and subsequent wreck – 10 years ago. “We’re in control of our own destiny,” he says.
But if Hall’s company doesn’t need financing, others do. While various government incentives exist for tech companies and angel investors have some funding for upstart companies, an overall caution prevails in the market that Spothelfer says has helped slow investment and, in turn, new entrants to the sector.
BCBusiness columnist Brent Holliday, who heads the technology practice for Capital West Partners in Vancouver, is more optimistic. He points out that while the latest report on venture capital financing in Canada from the Toronto-based Canadian Venture Capital and Private Equity Association indicates investment in startups dipped below 2009 levels in the first quarter of 2010, angels are stepping in. “Their money source has increasingly become, at the early stage, angels,” Holliday says, opining that the sector will likely pick up quickly.
Randy Garg, managing director of PricewaterhouseCoopers’s corporate finance practice, agrees. “The angels went quiet for a while there as the economy went quiet,” he says. “Now, as they look forward at getting liquidity on their investments, they’ll get back in the game.”
