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The technology business in Canada is on a roll. Even though venture capital is sparse, Canadian tech firms are growing rapidly with a mixture of innovation and expertise in new, niche areas such as environmental technology, wireless communication and server optimization.

Every year, Deloitte's Fast 50 tracks the progress of the industry by showcasing the 50- fastest-growing tech firms in the country.

Deloitte's head of research in the technology, media and telecoms, field, Duncan Stewart, will explain why the Fast 50 companies are leading the way, which technologies are on the rise, and what the future holds for the industry.

Mr. Stewart, a CFA, has almost two decades of experience in the industry. As an analyst and portfolio manager, Duncan has provided research or made investments in the entire Canadian technology and telecommunications sector. He has written research on names such as Nortel and Celestica, and been a venture capital investor in Research in Motion.

He was a co-founder of Tera Capital, Canada's first high tech and biotech money manager. At Tera he was co-manager of the Venture Capital Fund, where he focused on semiconductors, fibre optics and biotech startups. In the mid 1990s, Duncan managed a $120 million small cap high tech/biotech fund at a large Canadian pension fund manager.

Mr. Stewart was online to answer your questions and comments about the Technology Fast 50. Your questions and Mr. Stewart's answers will appear at the bottom of the page as the discussion takes place.

Editor's Note: globeandmail.com editors will read and allow or reject each question. Questions may be edited for length, clarity or relevance. HTML is not allowed. We will not publish questions that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Danielle Boudreau writes: Duncan, thank you for taking the time to answer questions from our readers today.

Many of the companies in the tech industry are new - more than two-thirds are less than 10 years old. What lessons have these new players in the field learned from their predecessors?

Duncan Stewart writes:

1. Go for sales, revenues and profitability. The Technology Fast50 winners from 2007 are uniformly more profitable and less speculative than those we saw in 1999-2000.
2. 
   
3. Diversify. Ten years ago we had too many from the telecom space. And like any excessive concentration, when something bad happened to telecom too many players got hurt. The Technology Fast50 these days is much more diversified across end markets.
4. 
   
5. Better sales forces. For years Canada had great technology, but a weakness in following through with distribution. Look at RIM — sure it's a great device family…but the relationships with the carriers who sell and distribute the devices are a key part of RIM's incredible execution and success.
6. 
   
7. Patience. In 1997 companies went public too early. More recent winners only listed when they were ready.

Brad Wilson from Toronto writes: What is your long and short opinion of Sandvine Corp. and what is the next most significant accomplishment that you are anticipating from this company?

Duncan Stewart writes: When I was a fund manager or brokerage analyst I often made long or short recommendations.

In my role at Deloitte (Director of Research for Technology, Media and Telecommunications) I don't offer individual stock "picks" or forecasts about share prices.

Sandvine is an amazing company in a very hot space. I have been focusing on the Deep Packet Inspection market for years, and I think that the industry will continue to be important for service providers everywhere. However, Sandvine's share price (like most stocks) is a more complex issue. Some analysts on Bay Street still love it, even after a run up…some think it has gotten too expensive.

I don't know about that — but it is a very well run company with strong technology in one of the few parts of the tech market with hypergrowth.

Joe Ribar from Burlington Canada writes: Hi ! I bought win-t ,,, wi-lan ,,, and am wondering what the situation is with the proprietorship of the wireless networks , with all of the wireless users out there, that are using it ? (Do they have to pay a royalty fee for this technology or not ?)

Duncan Stewart writes: As before, I can't make specific stock recommendations.

But Wi-Lan certainly has a lot of wireless patents, and has demonstrated some early success in licensing them. What we haven't seen is how much revenue they generate from those in a more adversarial situation. The real acid test of the value of patents usually comes in court…and that hasn't been tested with Wi-Lan so far.

They are in an important space though — at Deloitte we continue to see wireless and mobility as key longer trends…and many people believe that Wi-Lan's patent family (especially in OFDM) could be important, especially if WiMAX takes off.

Shiraz Nasser from Canada writes: I bought some shares in Fibre Optics Systems (FOX-X) which have taken a substantial loss. Could you please give me your outlook and price target on this stock and whether I should hold, sell and buy more to average down. Also, I invested some $40,000 in Altamira Science and Technology fund few years ago and its worth about $7000 today. A heavy loss. What is your outlook on this fund and whether I should hold and adopt a different strategy.

Duncan Stewart writes: I can't make specific recommendations about stocks or mutual funds.

That being said, we are looking for the fibre optic space to start showing signs of life. Then again…I thought that last year too and we haven't seen much evidence of that yet in 2007! We did have a couple of Fast50 winners from the fibre space: BTI Photonics and Enablence.

Simona Walker from Victoria, Canada writes: What are the most fertile new growth areas in technology? Which technologies seem to have the most market potential?

Duncan Stewart writes: We are seeing some great growth out of social networking, virtualization and deep packet inspection. WiMAX could be huge…although it is a bit early to tell. At Deloitte we also continue to like wireless and new media companies.

But the REALLY new candidate is Green Technology. In an era of what looks like high and rising energy prices, growing concern about the environment, and with few obvious industry titans already established and squeezing out new players, we think the companies who have proprietary intellectual property for better use of energy and cleaning up the air, the soil or water offer great potential. (Boy that was a long sentence!)

That's why we introduced the Green15 this year as part of our Technology Fast50 program. We were seeing more and more environmental companies on our list, and we though we should recognize the Canadian leaders in the space. The winners include a number of public companies (Xantrex, Azure, VRB, Westport, QuestAir, Plutonic) as well as a bunch of exciting private players. They cover a wide range of subsectors and come from all across Canada.

Definitely a space to watch!

D Mores from Toronto Canada writes: Good afternoon Duncan, it's a pleasure to have this opportunity to ask you a few questions.

Outside of the IT hardware, software, and western Canada's oil exploration technology spaces (that appear obvious to me), what growing businesses are there? Can you elaborate on these environmental businesses: what are they, and where are they in their business plan?

Also, how about technology businesses in the East Coast for things like marine oil & gas, or aquaculture? Thank you Duncan.

Duncan Stewart writes: The environmental companies we selected for the Deloitte Technology Green15 all had to have strong business plans.

I'll be honest with you — we looked at some really intriguing technologies — but they had no revenues or upcoming contracts. We wanted to identify those who were ALREADY on the road to success…and we were thrilled to have so many great candidates.

The best way to think about the business markets they target are by using the old four Greek elements. The Greeks believed that everything was composed of Fire, Water, Earth and Air. If we think of Fire as Energy — that also describes GreenTech companies. They clean the air…or reduce emissions. They clean up dirty water…or use less clean water. They reduce toxins in landfills…or clean up already polluted soil. And over and over they use less energy, they produce it cleanly, they distribute it more efficiently, store it, and so on. These aren't businesses that rely on subsidy or a temporary enthusiasm for the environment — these are good long term businesses that will make a buck AND make the world a better place.

We have seen some good businesses out of Atlantic Canada. In fact, the only company ever to have won the #1 spot on the Fast50 TWICE is Rutter Inc. in Newfoundland! Even in tech…the Rock rocks.

In terms of aquaculture etc, there remains some interesting potential, but we haven't seen those companies use proprietary tech to deliver revenue growth…at least not yet.

Geo Perdis from Canada writes: What opportunities do you see for Canadian companies in the social media space? As you know, adoption and use of services like Flickr, Facebook, Meetup, MySpace is high in Canada, but are there opportunities for Canadian tech/media companies to develop such services that get traction at home and globally?

Duncan Stewart writes: Great question.

There is no reason why Canada shouldn't be at the forefront of the social networking space. Toronto has the highest Facebook penetration in the world. (Even I'm on it — which kinda freaks out my kids!)

Deloitte Canada believes that we WILL build that kind of company in Canada. In addition to the Technology Fast50 we also sponsor the Company of the Year at the Canadian New Media Awards. I was there this year, and I am confident that the "next great Canadian social networking company" is already out there. They are still small…and I am not sure who they are yet…but I bet I will end up giving them a Lucite award sometime in the next few years.

Angela Bennett from toronto Canada writes: Hi Duncan. Innovation - A popular term. How do you define that in your business?

Duncan Stewart writes: Innovation can be applied any industry…even Alcan produced almost 30% of their revenues from non-commodity forms of aluminum.

Innovation is doing something new, or in a new market, or in a new way.

In the Technology, Media & Telecommunications space that I am responsible for, we tend to see more innovation. It is a tough industry that way — innovation is expensive and risky. Doing new things or doing old things in new ways always has the risk of failure. And even if you get it right…circumstances change and what was groundbreaking last year can be outmoded next. Hard to keep up!

But let's look at some examples from our Technology Fast50 this year.

1. Sandvine finished in first this year with 42,000% five year revenue growth. (Wow!) The technology they invented didn't exist 6 years ago. Instead of just worrying about transmitting packets over the internet faster and faster, they actually look at each IP packet and try to prioritize it. That is smart engineering: don't just build bigger pipes…using the existing pipes more efficiently is a brilliant (and cheaper) solution.

2. Imaging Dynamics in Calgary (almost 5,000% growth) takes plain old boring X-rays. Ho hum, right? Except their DIGITAL x-rays are faster, better, easier to examine and use no consumable films. X-rays have been around for a century — but Imaging Dynamics is revolutionizing a business with innovation.

3. Rugged.com (1,600% growth) makes routers. Tough to compete against Cisco in THAT space. So they innovated and designed equipment that work where the other network equipment players don't. Inside harsh environments (like hydro substations) they are growing by leaps and bounds. Rugged.com went public this year…showing that great Canadian tech companies are back from the aftereffects of the 2000 tech bubble.

4. One of our Green15 winners is 6N Silicon in Mississauga. They make silicon for solar…which lots of other people are doing too. But their innovation is they take waste silicon that is scrap from the semiconductor industry and recycle it for solar. Great idea, great innovation!

The best thing about talking about innovation (in Canada) is that we should be good at it. It will always be tough for us to compete with the US or China or Europe on something that requires scale (hundreds of millions of people or economy or whatever.) There just ISN'T a level playing field. But we CAN innovate…because that requires one man or one woman with an idea.

And this years' 75 Deloitte Technology Fast50, Companies to Watch, and Green15 award winners demonstrate that Canada is having a bumper crop of men and women with innovative ideas!

Danielle Boudreau writes: Duncan, thanks so much for participating in this discussion and for your thoughtful responses. That's all the time we have for questions today.