Emerging Canadian software companies feeling positive: PwC

New and emerging software companies in Canada are feeling positive about their prospects for growth — a good sign for the IT industry — according to a new study from Toronto-based PricewaterhouseCoopers LLP (PwC).

“There is a real optimism in the market,” said Susan Allen, emerging company practice leader with PwC and author of the survey about emerging Canadian software companies.

The survey, which included a cross-Canada selection of 182 CEOs of Canadian software companies earning anywhere from $2 to $5 million in annual revenue, found that 95 per cent of those questioned expect some level of growth in 2004.

“We found that from the IT side and from the software purchasers’ perspective, they expect IT spending to increase,” Allen noted.

The PwC survey found that there would be spending increases of about 10 per cent in 2004, which is about five per cent higher than most research companies have been predicting. Increases in spending will also mean more job development, Allen said.

The companies surveyed anticipated the creation of about 1,300 jobs this year, with the crux of those jobs being in the professional services and marketing arena.

“I think the reason we did this study in the first place was because we feel we are on the cusp of something here in Canada,” Allen said.

After several years of downturn in the IT industry, Allen said that Canada has a strong track record of creating successful software companies from coast-to-coast. These companies are critical to the future long-term well being of the Canadian economy and to the future of technological development worldwide.

“We feel that the IPO window is opening, the purses are opening for valuations in the market and Canada has a track record for creating successful software companies,” she said. “The next successful Canadian startup is there — we need to talk to them and we need to see what that vision is and where they are going to be.”

Many of the emerging CEOs in Canada have a lot of information to share, Allen explained. These people have something to say and they also know what their challenges are and where they need help in order to continue to be on the cutting edge of development.

However, while almost half of the survey respondents are expecting a growth of over 50 per cent, there are still about 85 per cent that believe their greatest challenge will be to grow revenue with quality customers. This only confirms PwC’s expectations as far as the challenges that many CEOs face, Allen explained.

“Given the investment climate that they’ve been dealing with and the tough slug that they’ve had for the last three years since the tech bubble burst, it really didn’t come as a surprise,” she said.

The survey also indicated that the vast majority of the emerging software companies — 90 per cent — expect to be acquired and use that acquisition as their exit strategy from the market.

“That is not surprising,” Allen explained. “The history of the high-tech market in Canada is to exit though acquisition. What is a little worrying for the Canadian economy is where are these future technology leaders going to be if 90 per cent of these merging companies expect to be acquired. What’s going to happen to the future of the Canadian technology industry with so many great minds and companies to grow north of the border?”

Many of the survey respondents who are already profitable, about one-third, are also looking to raise capital within the next six months and another half of them are looking to raise capital within the next few years, Allen said.

“This is interesting because if they are already profitable and they already have positive cash flows then they are trying to get themselves to the next level to be an international global presence, finding new revenues in new export markets with new customer and as a result they need to fund that growth,” she said.

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