For the past decade, the undisputed technology capital of Canada has been the corporate headquarters of Research In Motion in Waterloo, Ontario. But to witness the future of Canadian tech, you might drive 1 mile south, to neighboring Kitchener and the offices of Desire2Learn.
RIM, now known as BlackBerry, has seen its smartphone sales, market share and stock price plummet and is in the midst of a turnaround effort. But analysts and investors say it’s a mistake to think of it as an emblem of the Canadian tech space.
Desire2Learn, founded by CEO John Baker in 1999 while a student at the University of Waterloo, offers an educational software product to schools and corporations that helps educators do away with old teaching methods and improve outcomes.
It operates in the $1 trillion-plus education market, and it received roughly $77 million in venture capital investment in September. Desire2Learn may exemplify the potential of the Canadian technology sector.
“The Canadian tech industry is probably among the strongest operationally in the world, and probably the most undervalued, because people just aren’t paying attention to it,” said Ron Shuttleworth, a tech analyst at the Toronto brokerage M Partners.
No one is saying Desire2Learn or other young Canadian tech companies will be as big as BlackBerry in its heyday, but they still represent tremendous potential. Desire2Learn’s products are already used by 9 million students at more than 700 schools, colleges and companies.
“With a visionary CEO and over 500 employees, Desire2Learn is poised to become the next great Canadian technology story,” said Damien Steel, a director at Omers Ventures, one of the recent investors in the company.
There are dozens of other burgeoning companies in Canadian tech. Among other prospects:
• Descartes Systems, which lets shipping and freight companies plan their trips and track their inventory in real-time online. Also based in Waterloo, Descartes’ products allow its worldwide clients to share and process information via the Internet.
• Sierra Systems, based in Richmond, British Columbia, delivers a variety of hardware and software for the so-called Internet-of-things, in which machines are connected and communicate over networks.
• Redknee Solutions of Mississauga, Ontario, provides cloud-based billing and customer-care solutions for mobile providers.
• CounterPath of Vancouver makes mobile voice-over-Internet protocol solutions that allow telecom carriers to compete with Skype or Apple FaceTime.
Canada doesn’t have a lot of consumer tech companies, so investors might not recognize many of the names, notes Robert Young, an analyst with Canaccord Genuity.
But one thing many of these companies have in common is that they’re potential takeover targets for larger U.S. rivals.
Companies listed on the Nasdaq or on the Toronto stock exchangetend to have low valuations, and unlisted companies can have difficulty securing equity investment from the country’s less developed venture-capital market.
“The really good small tech companies will typically get acquired by their U.S. peers, because they can buy them at lower valuations than U.S. companies,” Shuttleworth says.