How Magnet Forensics launched a new chapter for itself and the Waterloo tech scene

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Hopes that the first IPO in 15 years will usher in a new wave of entrepreneurship

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Research In Motion Ltd.’s $115-million IPO back in 1997 helped usher in a wave of entrepreneurship that made its Waterloo, Ont., home a hub of high-tech innovation envied around the globe.

It seems serendipitous, then, that the city’s latest tech darling, Magnet Forensics Inc., which happens to employ plenty of BlackBerry (née RIM) alumni from the board to the C-suite on down, also managed to raise gross proceeds of $115 million — outpacing RIM by a fraction — during its debut on the Toronto Stock Exchange in May.

For Waterloo, the listing marked the end of a 15-year drought during which the region boomed despite failing to bring a tech company to market.

For Magnet and its founders, it launched the next chapter in a story that began in 2009 in an unusual place.

We’ve always wanted to build a Canadian cybersecurity champion

Magnet Forensics CEO Adam Belsher

Jad Saliba, an officer with the Waterloo Region Police Service, had recently survived a bout with cancer and he felt compelled as he recovered to ensure his work had a meaningful impact in the community. He saw his chance when he was assigned to digital forensics.

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Driven to help the victims in the cases he worked on, Saliba spent his spare hours at night and on weekends coding software that would help him and his fellow officers discover, organize and analyze the digital evidence associated with investigations, which were growing in size and complexity amid the rise of the internet.

“Some of the really impactful cases I worked on were child-exploitation-related cases,” he said. “We were helping protect the most vulnerable people in our society. That definitely made me pretty passionate about my work.”

Saliba provided his custom software for free to local colleagues, as well as to members of police departments and services in other jurisdictions who were also struggling to leverage digital evidence.

“I started getting feedback over time from detectives around the world who were reaching out just to say thank you and sharing stories about how it helped them either rescue a child or bring a murderer to justice,” he said. “I saw the impact and how it was being used by so many different people in so many different countries. I knew there was potential to do much more beyond my own technical capabilities and with more time.”

Saliba realized that his extracurricular labour might also be a fantastic business opportunity, but he wasn’t sure how to make it happen since he didn’t have any business experience or knowledge about things such as sales and marketing that are key in growing a business.

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But in 2011, Saliba’s accountant, a local CPA named Mark Young, hooked him up with Adam Belsher, who was working at BlackBerry but itching for a new challenge. His acumen navigating the tech industry’s treacherous waters was exactly what Saliba needed to take the next step.

If Saliba, Magnet’s chief technology officer, is the company’s impassioned heart, then Belsher, the chief executive, is its strategic brain.

Belsher says he was initially attracted by Saliba’s mission to use technology in new ways to bring criminals to justice and justice to victims, a cause that still “resonates with everyone in the company.” He just needed to figure out a workable business path.

Instead of immediately searching for venture capital, Belsher’s instinct was to connect with customers and bootstrap the company.

“It really forces you to make sure you have a sound business model,” he said. “You have to ensure that the features and capabilities you’re delivering actually solve the problem. Our philosophy has been to focus on customer experience and value to the customer. Jad and his team have done an awesome job both in iterating on our existing products and introducing new products.”

Some of those new products have tweaked and augmented its existing Axiom software to fit the needs of corporations investigating cybersecurity threats.

The combined focus on both corporate and law enforcement markets seems to be working. Magnet’s most recent filing shows a 25 per cent increase in year-over-year quarterly revenue to $14.7 million. The company posted total revenue of $51.2 million in fiscal 2020, with a two-year compound annual growth rate of 38 per cent.

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The company says maintaining significant and predictable growth and profit is a big part of what distinguishes it from many other tech companies. Even before the IPO, the business was fiscally disciplined, Belsher said, and strongly committed to setting and meeting internal targets.

It is incredibly important for Canada’s prosperity and security for companies like Magnet to grow from Canada

Jim Balsillie

Not a lot has changed since going public, even though there has been plenty of hype surrounding what was the first IPO by a Waterloo company since telecom-equipment maker Sandvine Corp. in 2006. (Sandvine was bought in 2017 for $562 million by Procera Networks)

“We’ve hired additional people in legal, finance and business systems to make sure we’re meeting all of our requirements,” Belsher said. “But Jad and I still own the majority of the company, so that allows us to stick to and execute on the long-term vision while hitting quarterly targets and obligations.”

Magnet’s TSX debut was fully subscribed and the IPO was priced at $17 per share, above the original range, with shares surging on the first day. On Wednesday they were trading north of $25.

Former BlackBerry co-CEO Jim Balsillie is chairman of Magnet Forensics board of directors and has offered guidance from his experience taking RIM public in 1998.
Former BlackBerry co-CEO Jim Balsillie is chairman of Magnet Forensics board of directors and has offered guidance from his experience taking RIM public in 1998. Photo by Tyler Anderson / National Post

It helped that they had plenty of former BlackBerry/RIM employees at their disposal. Magnet is managed by a former RIM executive, its present staff of 270 includes plenty of ex-BlackBerry employees and its board of directors is chaired by former BlackBerry co-CEO Jim Balsillie, who offered guidance from his experience taking RIM public in 1998.

Balsillie said he has faith in Magnet’s business model, as well as what the company represents for Waterloo’s tech ecosystem.

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“There has been too much hype and cheerleading,” he said in an email, when asked about the region’s IPO dry spell. “Not enough focus on properly supporting the companies that have the potential to grow and become real anchors in the community.”

Balsillie has long been a proponent of Canadian companies retaining Canadian ownership, and he provided input to help structure Magnet’s IPO in such a way that the majority of Magnet’s voting shares remain with its founders.

“It is incredibly important for Canada’s prosperity and security for companies like Magnet to grow from Canada,” he said. “It’s not just the jobs they create, but all the wealth effects that come from their headquarters being located here, such as private ventures, philanthropy and executive management knowledge transfer. In a shifting national security and defence landscape, Canada needs advanced cybersecurity capability in both our public and private sector.”

Belsher puts his hopes for Magnet’s role in the Canadian tech scene in simpler terms.

“We’ve always wanted to build a Canadian cybersecurity champion,” he said. “I hope people will start thinking, wow, we can take a company public in Canada. There’s appetite from investors, both in Canada and globally, for tech companies that are well run.”

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By retaining voting control, Magnet’s founders say they are telling investors that the company is here for the long haul and that it will keep building out its technologies, rather than just cash out.

Indeed, it’s tough not to be moved by Saliba’s unrelenting focus on the original mission he had as a police officer more than a decade ago.

“Technology is cool, but what I’ve always been really passionate about was, what can you do with that technology?” said Saliba, who, it’s clear, is still deeply interested in working with law enforcement and making an impact on people’s lives.

“If I or my team can write a line of code that makes someone’s life better or helps bring someone to justice or prove someone’s innocence,” he said, “that’s an amazing use of technology and definitely very fulfilling work.”

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