Tech companies aren’t always where you expect to find them, and their founders and backers aren’t always who you expect them to be.
I was reminded of this the other day, when I walked into a nondescript office building at 180 King St. S. in Waterloo, boarded the elevator and rode to the sixth floor.
There, I entered the offices of WatServ, a cloud computing company founded by a 55-year-old executive in 2006. It’s a company that goes unmentioned on the building’s sign out front, and one that is set to double in size over the next year, thanks to a recent private equity investment from an unlikely source.
Brookfield Asset Management, the Canadian-based global property, energy and infrastructure conglomerate, has bought a majority stake in WatServ, which hosts, manages and supports Microsoft Dynamics business software used by large corporate customers.
The investment from Brookfield, which manages US$225 billion in assets worldwide, will allow WatServ founder Tom Doerner to double his headcount to 50 within a year, and solidify the company’s leading position among a select field of competitors.
“There are few players in our market, and those who are players are quite small players, so Brookfield saw tremendous upside,” Doerner, 64, said in an interview in his Waterloo boardroom. “And it was the growth potential that attracted them to our industry.”
Brookfield’s private-equity arm, which has deployed US$33 billion over the past three decades, has typically invested in industrial companies, so the WatServ investment charts new territory for the Toronto-headquartered multinational.
“With data storage we felt it was an up-and-coming industry, and we felt the management team here at WatServ was terrific,” Brookfield spokesman Andy Willis said, “so we made this investment to really back a growth story.”
It’s a story that began unexpectedly for Doerner in 2006, when he was Vice President in charge of IT at OpenText, the Waterloo-based enterprise information management company. With 118 people in seven countries reporting to him, Doerner was looking for ways to cut costs.
“OpenText ran [Microsoft] Dynamics GP in North America and SAP in the rest of the world,” he said, referring to the two major software platforms. “I looked at the 27 people we had in the IT organization who were responsible for keeping that running reliably.”
As large software makers like Microsoft were moving away from selling packaged software and moving to cloud-based subscription models, Doerner figured he could save a bundle by outsourcing the management and support of these platforms. But after investigating a few references to cloud services companies he had obtained from Microsoft, he realized no one was out there doing what he needed them to do.
Seeing a market opportunity, Doerner successfully pitched his boss, OpenText’s then-CEO John Shackleton, on a plan to pursue it as a new line of business.
“I got the budget approval from OpenText to proceed into this market,” Doerner said, “and then that budget was quickly pulled in June of ’06 when OpenText announced they were buying their biggest competitor in Canada, Hummingbird.”
At that point, Shackleton told Doerner, ‘Tom, this little $5-$10-million business idea of yours is really just a rounding error for us now, and we can’t be distracted with these tiny little business ideas, and I really need you to focus on the integration of these two companies now, and I need you to stop all this work that you’ve put into this.’
Perhaps sensing he had taken the wind out of Doerner’s sails, Shackleton encouraged Doerner to consider leaving OpenText to follow his passion and start his own company, and offered him a severance package to help him along.
“Well, at 55 years old, that was the furthest thing from my mind,” Doerner said, laughing. “And I have to tell you, I certainly can’t believe I’m sitting here doing this today, but I am. I left OpenText in October of ’06 and started this business within 30 days of leaving.
“And within six months the company was profitable, and it’s been growing rapidly ever since.”
In fact, WatServ’s revenues have grown 35 to 40 per cent, year over year, since its founding, he said.
In part due to his age, Doerner decided just over a year ago to seek investment to help accelerate that growth.
“I’m 64 years old, so my runway is a little shorter than most,” he said. “The shorter your runway, the less you want to make those kinds of investments yourself. So we looked at different ways to do that, and in the end we decided that an equity investor was the best way to go for our customers, our employees and so on.”
WatServ hired a consultant to scout for potential investors, but it was Doerner’s son, Tyler, who suggested they approach Brookfield, since he had previously worked with the company.
“I think we all laughed and we all thought, ‘Brookfield? They’re not going to look at a very small company like us.’ But Tyler insisted and said, ‘All they can say is ‘no.’”
Indeed, they said yes, and Doerner couldn’t be happier. Brookfield, which often puts its own money into its private equity investments, is not subject to the pressure for quick exits from the various partners in a typical venture capital round.
“My experience with venture capital firms hasn’t been pleasant,” Doerner said. “I’ve seen what they’ve done to other companies, and how they’ve restructured and everybody’s out of a job. They take the capital and they take the assets and sell off the rest.”
By contrast, he said, “I really, really like the success and track record of Brookfield with their investments, and their approach to growing the businesses and the active role they play.”
Brookfield has made multi-decade investments in several companies, “and they’ve been really successful; we’ve grown them into industry leaders,” Willis said. “The difference is, Brookfield’s structure allows for long-term investing, and that’s in contrast to a lot of the private equity funds and the VC funds.”
Whatever the difference, Brookfield’s stake in WatServ will mean immediate growth for the company, which has 20 employees in Waterloo and another five spread between Europe, the United States and India.
The challenge, as with most tech companies in Waterloo Region, is finding top talent.
“That’s absolutely true,” said Doerner, who aims to fill seven new positions in Waterloo in the coming days. “Staffing is the most difficult part of the job in our business and in the tech business in general, I think.”
Difficult, yes, but in a fast-growing market in a tech-savvy town, one of the better problems to have.
