Globe and Mail
Ottawa's Innovance Networks lands record financing round
SIMON TUCK
TECHNOLOGY REPORTER
Tuesday, December 5, 2000
OTTAWA -- Innovance Networks Inc. is set to announce today that the fibre-optics startup has landed $115-million in its latest round of venture capital, the largest financing deal ever for a private Canadian tech firm.
Ottawa-based Innovance attracted a blue-chip roster of U.S. investors, led by Morgenthaler Ventures and Thomas Weisel Partners and including Advanced Technology Ventures, Banc of America, KPL Ventures and Azure Capital, the lead investors in Innovance's seed round of financing.
Executives at Innovance, founded only six months ago, say they will use the money almost exclusively for research and development and don't expect to have a prototype ready until some time next year.
The monster deal provides fresh evidence that the Canadian technology industry is attracting more notice than ever within U.S. financial circles and that the red-hot fibre-optics industry hasn't come close to cooling down. A recent survey found that Canadian technology companies attracted $1.21-billion during the second quarter of this year, almost double the total investment made during the same period a year earlier.
Mary Macdonald, president of Toronto research firm Macdonald & Associates Ltd., said this latest huge deal "clearly demonstrates that the U.S. venture capital industry has developed an interest in the key spaces in Canada.
"There's nothing like a little success to breed more."
Peter Allen, the company's chief executive officer, said Innovance could have taken more money if it had needed it. "Fibre optics is the only technology that can deliver the bandwidth that is going to fuel the information economy."
Innovance, which attracted about $30-million in seed financing shortly after it set up shop, has about 100 employees -- 70 in Ottawa and 30 in Piscataway, N.J. The company expects to triple its staff over the next 12 months or so, company officials said.
Yet despite the company's youth, Innovance isn't without big-league experience. Many of its leading executives and researchers have moved over from networking leaders Nortel Networks Corp. of Brampton, Ont., and Lucent Technologies Inc. of Murray Hill, N.J. Kevin Kalkhoven, former chief executive officer of fibre-optics components giant JDS Uniphase Corp. of San Jose and Ottawa, is an investor and board member at Innovance.
While great news for Innovance, the huge financing deal is also a strong sign for the fibre-optics industry that it can still attract hordes of investment dollars.
"It's a good place to be," said James Frodsham, Innovance's chief operating officer.
The sector was given a major scare less than six weeks ago when Nortel Networks suffered a market meltdown after posting disappointing quarterly results.
Nortel's results fuelled earlier concerns that telecommunications carriers - the fibre-optics industry's most important customers -- will halt their dramatic spending increase some time next year.
While many investors still believe the slowdown will occur, most analysts say the long-term outlook for the industry remains rosy.
The fibre-optics industry, which makes much of the electronic piping that carries today's telecommunications traffic, has been on a torrid pace for more than three years.
Most analysts say the industry should remain hot for years to come, despite the recent slowdown, as the business world moves more of its operations to the Internet and consumers feed their seemingly insatiable appetite for the Internet and its various applications.
The Innovance deal is just the latest sign that the Canadian technology industry -- and the fibre-optics sector in particular -- is attracting considerably more venture capital money than it did a year or two ago. Whereas deals worth $10-million or $15-million would have been considered exceptional just a couple of years ago, the best and brightest were getting at least two or three times that earlier this year. Innovance has further raised the bar.