BlackBerry’s meltdown sparks start-up boom in Canada’s Silicon Valley

(Reuters) – The troubles at BlackBerry Ltd, which fired more than half its staff and lost more than 90 per cent of its market value as consumers shunned its smart phones, might have spelled disaster for the company’s hometown of Waterloo, Ontario. Instead, there are hot sports cars in the streets and new companies filling the refurbished office buildings.

More than 450 start-ups opened for business in the twin cities of Waterloo and Kitchener last year, more than four times the number begun in 2009, according to Communitech, a local company that advises them. Often, the new companies are being founded by former BlackBerry employees chasing their entrepreneurial ambitions in a community that’s Canada’s answer to technology hubs in California and elsewhere.

“For those who are trying to get a new tech business off the ground, get it funded, and not get lost in the shadow of Silicon Valley, Waterloo can be the best place to get your company on the map,” said Sean McCabe, vice-president of engineering at drone manufacturer Aeryon Labs Inc in Waterloo.

Take Adam Belsher, 39, who left BlackBerry in 2011 after 13 years at the company because he wanted to run his own business and felt the impact he was having at BlackBerry, which was formerly known as Research in Motion (RIM), was eroding as the company got bigger.

Today, Belsher is chief executive of Waterloo-based Magnet Forensics, a company that makes software used by police to recover deleted information from computers such as e-mails, financial records and photographs.

“I saw RIM go through so many stages of growth and I take lessons from every one of those experiences,” said Belsher, who managed BlackBerry’s business with the biggest US wireless carrier, Verizon. “There are very few companies that disrupt a mature market like wireless and create an entirely new multi-billion dollar category, so I believe I have more than a few good nuggets that I can apply to Magnet.”

Belsher is one of many former BlackBerry employees who chose to stay in Kitchener-Waterloo, rather than move to the Canadian financial hub of Toronto, or to California’s Silicon Valley.

BlackBerry became Canada’s most valuable company in 2007, just before Apple Inc released the first version of its iPhone. At its peak in 2008, the company was valued at more than $80 billion, compared with about $4 billion now.

“BlackBerry actually made many, many millionaires who still live locally, who started investing in tech companies,” said Michael Litt, CEO of video analytics start-up Vidyard, based in Kitchener.

This, in turn, has attracted venture capitalists.

“I have seen … investors in town, private jets landing at Waterloo regional airport straight from Menlo Park and Silicon Valley,” said Litt, whose company has said it could float its shares within two years. “It has changed so fast.”

The region’s turnaround story is similar to that of Oulu in Finland, where Nokia Oyj more than halved its workforce of 5,000. The city is slowly finding its feet again.

Oulu is now a leading candidate to host a data centre for Microsoft, which is taking over Nokia’s phone business. Former employees have also become entrepreneurs, doing especially well in the mobile gaming market.

In the year ended April 30, 2013, more than C$214 million ($235 million) was invested in start-ups in the Kitchener-Waterloo area. Three years earlier, the figure was just $500,000, according to Communitech.

These investments include an $80 million infusion into Desire2Learn, which is developing online learning systems, and $14.5 million for Thalmic Labs, the maker of the Myo arm band that allows people to control electronic devices through arm motions and gestures.

“When BlackBerry was letting off thousands of people, there was a big concern in Waterloo that it would create an exodus of people,” said John Ruffolo, chief executive of OMERS Ventures.

OMERS Ventures, the venture capital arm of Canadian pension fund Ontario Municipal Employees Retirement System, along with U.S. venture capital firm New Enterprise Associates, made the $80 million investment in Desire2Learn in 2012.

OMERS Ventures has also invested in other businesses including HootSuite, Shopify, Visioncritical and BuildDirect, all of which are targets for IPOS in the next two years, Ruffolo said.

It became more confident about investing in Desire2Learn after the start-up hired Dennis Kavelman, a former chief operating officer of RIM, Ruffolo added. “Many great talented people left to join a variety of other start ups and brought a nice stimulus of experience to some of these fledgling start-ups that has caused them to mature at a much faster rate,” he said.

Spark Capital, an early investor in Twitter Inc, and Bridgescale Partners, which invested in Shutterfly Inc, are also putting money into the region.

Spark Capital bought into Thalmic Labs and mobile messaging company KIK, while Bridgescale has invested in Rypple, a company later acquired by Salesforce.com that makes software to allow workers and managers to register feedback about each other’s performances.

The Canadian government has also backed a C$200 million ($183 million)-plus fund to indirectly invest in and support early and mid-stage start-ups.

Relatively cheaper housing has helped persuade ex-BlackBerry employees to stay. In February, the average price of a house in the Kitchener-Waterloo region was C$335,000 ($305,700), compared with a median price of $669,000 for a home in San Jose, California.

High-rise condominiums have sprung up, along with new hangouts, bars and boutique stores, revitalizing the downtown areas and adding excitement to the street scene, said Communitech CEO Iain Klugman.

“We are seeing more Lamborghinis, Ferraris and Porsches on the roads,” he said.

Unemployment in the Waterloo region fell to 6.5 per cent in 2013 from 8.3 per cent in 2010, and is also lower than the Canadian average of 7.0 per cent.

Demand for commercial real estate, some of which has been sold off by BlackBerry, has also risen.

The average rent in Waterloo rose 10 per cent to $12.42 per square foot in 2012, according to real estate services company CBRE. As more commercial space has been built to meet growing demand, the rate of increase slowed to 4 percent in 2013 and is expected to flatten out soon.

Vidyard’s Litt knows first-hand how tough the real-estate market has gotten for start-ups. His company leased about 10,000 square feet of the approximately 1 million square feet available for start-ups in downtown Kitchener at the beginning of 2013.

“We took that with the assumption that, when we need more space, it would be easy to find,” he said. “When we spoke to our landlord later, there was nothing available anymore.”

Kitchener, historically the blue-collar twin to the university city of Waterloo, is today home to chic offices such as the Communitech building – a converted brick structure in the historic Tannery District, adorned with modern art, which acts as an unofficial clubhouse for many small tech companies.

“These downtown properties were able to provide an urban lifestyle that many of these technology companies’ employees are looking for,” said CBRE executive Peter Whatmore.

Latest in Business

Guyana Metal Recyclers Association President Michael Benjamin

Metal exporters want urgent presidential intervention

– business ministry working on new procedures Piqued over what it says has been the suspension—without either notice or official notification—of the scrap metal trade by the APNU+AFC administration since June last year, the Guyana Metal Recyclers Association (GMRA) the official umbrella body for local exporters has told the Stabroek Business that the protracted inability of businesses to ply their trade is wreaking havoc with the industry and denying legitimate businessmen the right to earn a living.

The Far Rockaway Hotel

Kwakwani $$$M hotel investment seeks to breathe new life into community

Gavin August may well be unique in the extent of his financial investment in Kwakwani: an estimated $50 million to create a 12-room hotel, which he hopes will pay him back down the road, when the fortunes of the community change.

default placeholder

Does crowdfunding have the power to grow Caribbean economies? (Part 2)

By A Cecile Watson   A Cecile Watson is the founder of pitchandchoose.com. She is a former senior regional banker, an international speaker, a certified financial education instructor and the Women’s Entrepreneurship Day Ambassador Regional Leader for the Caribbean.

20160624gold prices June24

Kitco Market

Gold Prices for the three day period ending Thursday  June 23, 2016Kitco is a Canadian company that buys and sells precious metals such as gold, copper and silver.

IDB Chief Economist Jose Juan Ruiz

Caribbean facing savings crisis – IDB

A new study released earlier this month by the Inter-American Development Bank (IDB) has put countries in Latin America and the Caribbean on notice that they are confronted with a savings crisis that might do damage to their economies in the years ahead.

20160624pricesjune24

Prices Prepared by the Guyana Marketing Corporation

(Prepared by the Guyana Marketing Corporation and published by Stabroek Business as a public service)*Prices only represent the average Wholesale Farmgate and Retail Prices at the above mentioned markets and are NOT prices set by the Guyana Marketing Corporation or Ministry of Agriculture.

Aunty Picky

Placing a premium on education: Annandale businesses support growth of secondary school

As the story goes, the name Annandale is said to honour the two daughters of the proprietor of the tract of land to which the name was given.

Talks underway: The respective delegations from the Guyana Public Service Union and the Government of Guyana face each other on Wednesday at the start of what could be the country’s most important industrial relations encounter since the Armstrong Arbitration Commission.

GPSU, gov’t pay hike talks opening ‘a transformational moment’ – Yarde

The Guyana Public Service Union (GPSU) is treating the current public service wages and salaries negotiations with the Government of Guyana as “the start of a process aimed at bettering the lot of public servants in a manner that goes way beyond the monetary benefits which we expect will derive from the process,” its President Patrick Yarde has said.

Comments

About these comments

The comments section is intended to provide a forum for reasoned and reasonable debate on the newspaper's content and is an extension of the newspaper and what it has become well known for over its history: accuracy, balance and fairness. We reserve the right to edit or delete comments which contain attacks on other users, slander, coarse language and profanity, and gratuitous and incendiary references to race and ethnicity.

Stay updated! Follow Stabroek News on Facebook or Twitter.

Get the day's headlines from SN in your inbox every morning: