RealTime IT News

Venture Capital Shortage Crippling Calgary Dot-Coms

[Calgary, ALBERTA] It might have been one of the hot bets of the Canadian Internet industry not long ago, but these days the Calgary dot-com business is giving the phrase 'royal flush' new meaning. Economic woes and employee dissatisfaction are rocking the bedrock of this erstwhile sanguine IT paradise.

Recent carnage is all over southern Alberta's wired wonderland. All 12 employees at NextClick Ltd. opted to resign rather than wait for the company to crumble. Internet service provider Cybersurf Corp. recently battled an attempt by disgruntled shareholders this month to seize control as the company's share price plummeted. And at Cell-Loc Inc., Michel Fattouche, co-founder and chief executive, has promised to invest up to $20-million (CDN) of his own money into the company to aid the construction of a network for its wireless location technology.

What ails the Internet industry in Calgary is, of course, not an isolated economic phenomenon. With tech markets crumbling and venture capital drying up, the industry that has played a major role in reshaping Calgary's economy is preparing for more layoffs, closures and restructurings in the new year.

This isn't to suggest, however, that venture capitalists aren't taking any risks these days. The Canadian venture capital industry is on a record-breaking streak. More deals were closed and more money was invested in the first nine months of this year than for all of 1999.

An indication of the weakening credibility of dot-com companies is evinced by the relative healthy state of the VC industry in Canada. More than $3.4-billion (CDN) worth of equity financing deals were completed by the end of September, easily passing last year's total of $2.7-billion (CDN) according to figures compiled by Toronto-based Macdonald & Associates Ltd.

In the third quarter, nearly $1.1-billion (CDN) of venture capital was invested, more than double the figure for the same period last year. But that number is slightly off the $1.2-billion (CDN) in financing completed in the second quarter. The number of deals closed in the quarter increased to 330, up from 314 the previous quarter and 231 during the same time last year.

However, word on the street is that relatively little of these VC funds are making their way to start-up or struggling Internet ventures because of the sector's instability. Until there are some real signs of dot-com revitalization, capital is likely to be in short supply within Calgary's Internet industry.

Unfortunately, experts warn that today's struggling dot-coms won't be able to get back on their feet without VC backing or some other form of fiscal support - all of which could have an increasingly negative effect on Calgary's Internet industry.