But how have these companies fared over the past 11 months? Have they demonstrated the savvy, fortitude and good fortune to fulfill expectations? The answer has proven to be yes, no and maybe. In one case, the startup's technology was in such a hot space it could barely get its feet wet in the market before bigger, more established rivals beat it to the punch and it was forced to close its doors. For another, a much-hyped cholesterol lowering drug has had little success in human trials.

Who is headed for a stellar finish to the year with great things on the horizon in 2008? The answer is in the following pages.

By Jeff Pappone

Special to the Ottawa Business Journal

AVOCA SEMICONDUCTOR

Year founded: 2001

Employees: 7

Venture capital: None to date

Product: Hardware and software

"Avoca's Digital Media server is the best way

to turn your CD collection into a voice-enabled digital jukebox - the world's first, and the most exciting new entertainment product. Call me for a demo!" – Iain Scott, president

ONLY ONE MONTH after appearing in the Startups to Watch issue, Avoca Semiconductor launched its first product at the annual IBM Speech Technology Day in New York.

The Ottawa outfit's voice-enabled media search technology was Canada's only company showing off its product line at the prestigious event.

Named one of the 2007-2008 Technology Competition Winners in OCRI's Canada's Top-10 company competition, Avoca's voice-activated technology allows users to search for digital music, videos and other content in home electronics.

Early this year, Avoca signed two significant deals.

The first was with Michigan-based entertainment media distribution technology maker All Media Guide to design products which will enable users to more easily search their music and video libraries. The second was an OEM agreement with IBM to use that company's embedded speech technology in the design of Avoca's voice control and search technology products.

"It's very exciting to be part of this team," said Avoca president Iain Scott. "Our leadership in creating voice-enabled music systems has gained us a new level of recognition on the global stage."

Since then, Avoca established a relationship with eSight, another local company, to voice enable its user interface and concluded a partnership relationship with Hewlett-Packard.

The company has also completed development of the Avoca VIP Music Edition, which is ready for early market users. It will be on display at the Consumer Electronics Show early next month in Las Vegas.

DISTIL

Year founded: 2005

Employees: 30

Venture capital: $3.15 million

Product: Software

"Distil is dedicated to leveraging our expertise in the new media industry to develop a technology that will change how training and assessment is conducted across all industries." – Jonathan Adair, CEO

WHEN DISTIL APPEARED on the 2007 Startups to Watch list, it had already attracted four tier 1 customers and promised to be the biggest software company in Ottawa in the next four years.

A big step on that path was raising $2.2 million in a Series-A funding round in June, which was quickly poured into supporting its product development. The cash came from GrowthWorks Canadian Fund.

"It's not every day that new media companies secure the interest of venture capitalists. We are excited to be working with GrowthWorks and are thrilled about its continued belief in our business model as a digital games-based learning company," chief executive Jonathan Adair said at the time.

The Ottawa educational platform maker develops automated teaching and testing products that run on the popular Flash platform, which are primarily used for professional certification by outfits such as Canadian Standards Association and the National Quality Institute. It has long-term agreements with a number of the world's largest certification bodies. The company added 10 workers since the beginning of 2007.

It also scored recognition as one of three finalists in the most promising startup category at the 2007 OCRI Awards, and made it to the finals in the Most Promising New Company of 2007 category of the Canadian New Media Awards (CNMA). Meanwhile, its Response Ready program, which teaches users the importance of advance preparation for an emergency through trial and error, took home first place in the Serious Games at the 2007 Arcademy Games Awards in Toronto.

Distil plans to come up with an easier to use platform that will help non-engineers add content and build the custom programs usually needed. It also wants to move the offering onto other programs, such as Shockwave, and investigate new markets, such as China and India.

GRIDPOINT

Year founded: 2005

Employees: 31

Venture capital: US$12.7 million

Product: Carrier Ethernet service management and switch/routers

"Gridpoint is delivering a critical missing piece which will enable service providers to deliver on Carrier Ethernet's promises of cost savings, quality of service and new service revenues ... this year we've established ourselves as leaders in traffic engineering." – Jim Arseneault, CEO

GRIDPOINT SYSTEMS WAS the odd one out in the 2007 Startups to Watch, making the list as the only company building a system rather than developing a component.

And its Ethernet traffic engineering and management technology may just be the solution to the problem facing network operators worldwide as they try to meet increasing demand for bandwidth in the YouTube Facebook-powered world, while also ensuring their prices remain competitive.

The company's products that promise accelerated Internet network speed by improving carrier Ethernet switch/router (CESR) efficiency and packet optical transport system deployment attracted one of the city's larger venture capital wins in 2007.

In July, Gridpoint announced a US$8 million series-A funding round involving Skypoint Capital, BDC Venture Capital and the company's founders. The VC deal is the third-largest disclosed deal in Ottawa so far this year, tied with Trigence Corp.'s funding round in the first quarter.

The company's first customer revenue generating deployment in a tier 1 service provider will take place in early 2008.

Gridpoint is also seeking Series-B funding that it will allow it to expand its marketing, sales, and professional services as it looks to grow in North America, Europe, and the Far East.

Infonetics Research report pegged total revenues for the CESR market at US$9.6 billion last year and predicted the market would expand to $13 billion by 2010. Indeed, the September issue of the Carrier Ethernet Switch/Router Quarterly Market Tracker by Heavy Reading reported that equipment sales in the CESR space hit an all-time high of $468 million in the second quarter of 2007.

Gridpoint's successful demonstration of its Provider Backbone Transport attracted rave reviews from industry experts at Carrier Ethernet World Congress, who identified its traffic engineering technology as a solution to PBT's biggest operational concern.

IMASIGHT

Year founded: 2001

Employees: 9

Venture capital: $4 million

Product: Digital X-ray equipment

"Raising capital today is difficult and painful. It feels so good to be cash flow positive in such a short time." – John Brooks, CEO

LATE LAST YEAR, ImaSight chief executive John Brooks knew he had something good after visiting the North American Veterinary Conference in Orlando, Fla., with his affordable digital X-ray sensor.

Designed to replace traditional film-based X-rays and targeted at smaller medical operations and the veterinary market that normally cannot afford full-blown digital systems, the technology combines optics, digital signal processing and software into a life science application.

And the veterinarians present at its debut loved it. Upon his return, Mr. Brooks predicted that the product would fly off the shelves once it became widely available. A year later, his problem is a simple one.

"Orders are coming in faster than the company's production capacity," he said. "Initial sales started in November and the product has received rave reviews regarding its picture quality. Significant industry players, AFP Imaging and Apexx, have switched to the ImaSight sensor and have promoted it in at least five trade shows."

The brisk sales have helped the company get onto the positive side of the accounting ledger, which will help ImaSight fuel growth, but may also make it an attractive takeover target.

In addition, the company's value proposition is one that's difficult to ignore: the technology offers the resolution and contrast

of high-priced digital X-ray sensors found

in large medical facilities, yet at a price affordable by small clinics, veterinarians, and hospitals.

ImaSight raised about $2.2 million in venture capital in the past year to help get the product through the last stages to market. It also added two staff.

Another major milestone in 2007 was the granting of a U.S. patent on the main technological breakthrough in the product.

JADED PIXEL TECHNOLOGIES

Year founded: 2005

Employees: 9

Venture capital: $850,000

Product: Hosted e-commerce

"We help small businesses by providing the smartest and easiest to use e-commerce application for becoming and staying successful at selling online." – Scott Lake, founding partner

ALTHOUGH THEY PROBABLY spent some time snowboarding through the winter, the Jaded Pixel founding partners were also hard at work for the first half of 2007 bringing the latest features online at the Shopify.com website.

In mid-August, the new Shopify Marketplace went live after six months of development on the upgrade. The marketplace allows visitors to search for products from all participating Shopify stores.

"Shopify is a hosted e-commerce application that allows small businesses to sell their products online with a great focus on simplicity and aesthetics," said founding partner Scott Lake.

"We are currently powering the Christmas sales of several thousand stores."

And it seems to be working, as Shopify's stores generate sales of more than $1 million monthly, boosting the company's revenues by 690 per cent over the same period last year. Jaded Pixel gets a commission of three per cent of the first $10,000 in monthly sales from each client, and takes two per cent of all other sales above that initial amount. Channel and affiliate programs should be up and running next month.

Shopify is enabled for use in 85 countries and the checkout process has been translated into 29 languages.

The company also grew its employee count by almost 50 per cent, with three of the past four hires starting in the past month.

While there was an infusion of $500,000 in angel investment to help move things along, the company continues to look for Series-A venture investment to take it to the next level.

KAKILOC

Year founded: 2006

Employees: 2

Venture capital: None

Product: Location-based social networking service

"In the end, the fierce competition within the social networking space and the service's generic nature prevented us from actually gaining a sustainable user base." – Martin Dufort, CEO

THE E-MAIL FROM chief executive and founder Martin Dufort was blunt and to the point: "The Kakiloc Service is now closed."

In the end, it seemed, the company's great idea was killed by too much interest in the specific area where Kakiloc operated.

Its technology added geographical positioning to entries in a handheld device's address book, which could then display them anywhere on the planet.

"Say a buddy is coming to Ottawa, I can get an instant notification on my cell phone when he shows up at the airport," Mr. Dufort told the OBJ last January.

"You could go to a conference and know which of your contacts are there, and it also allows you to see if there are people there who you want to meet."

Kakiloc began in December 2005 as an experiment in mapping a person's location while on the move and blossomed into a full-blown beta test earlier this year.

Although Mr. Dufort and partner Alain Lavoie recognized the potential of the technology, so did a number of other players.

"We knew this was the direction the industry was going," he said. "Now look at all the initiatives out there: Google Android, Nokia's new handsets, and SkyHook Wireless."

After two years of refining the service and developing a website to support the application, the company made a difficult decision in the face of stiff competition and turned off its servers to close down the service. Now the servers are actually off-line.

While Kakiloc's core technology continues to attract some interest from other companies as an add-on service for another larger and undisclosed product offering, no deal has been completed.

"I would like to thank all our members for registering and helping out and providing feedback about the service," Mr. Dufort said in announcing the decision. "A big thanks goes out to Alain for sticking with me and my crazy ideas and trying to push this further."

LIPONEX

Year founded: 2000

Employees: 12

Venture capital: None, but raised $11.5 million in August 2005 IPO

Product: Medical drugs related to high-density lipoprotein (HDL), or so-called "good" cholesterol

"We very much believe in the product, but drug development is a long and complicated business and sometimes you get setbacks." – Bill Dickie, CEO

SIMPLY PUT, 2007 was not a great year for Liponex.

The biopharmaceutical company's CRD5 drug that increases the amount of high-density lipoprotein (HDL) or "good cholesterol" took a huge hit in March after the first human trials did not deliver any statistically significant results.

Then earlier this month, Liponex discontinued animal trials for a coated version of its drug after no significant effects have been observed for CRD5 relative to control in this model. In other words, the drug doesn't deliver the goods.

The good news is that the problem may be related to the "mini-pig" animals used in the trials rather than a fault with the drug. It's apparently well-acknowledged that there aren't any good HDL animal models, chief executive Bill Dickie said.

One of the company's biggest problems is its decision to go public two years ago as a way to raise cash rather than look for venture capital. The result is that it must report any stumbles to meet its requirements of a public company. Had Liponex remained private, no one would know about the troubles with CRD5.

While the search for the right animal to test continues, the company's board of directors and management will assess the next steps for the CRD5 program in light of the latest results and also continue efforts around strategic options to leverage the company's assets and resources. There are a number of alternatives currently under consideration by the board.

"We have a significant amount of resources left, so we're not in a problem as far as cash is concerned and we have some time to consider our options," said Mr. Dickie.

"We're proud of the effort going into CRD5 and we continue to believe in that promise, but we need a practical plan going forward."

MERCURY GROVE

Year founded: 2006

Employees: 9 (as of Jan. 2007)

Venture capital: None

Product: On-demand software

TALK ABOUT a web-based startup. Mercury Grove's website is up and running and the company now apparently sees no need for the old fashioned telephone. Unfortunately, the lack of non-virtual contact information meant that Mercury Grove did not get a proper checkup.

The company's site focuses on its latest offering called Web Groups, aimed at consultants, small businesses, departments, partners, and associations to help them collaborate in virtual teams online.

The delivery of software over the web for a fee continues to be part of the company's offering, but it appears to have taken a backseat to the newer Web Groups.

The Web Groups also provides management of the service, custom training, and data input. A "jump start" program is also available to ensure the customer hits the Web Group running.

The service works on a basic subscription model with monthly prices ranging from $99 for five users in small- and medium-sized businesses to $450 for an unlimited number of enterprise users. Some special pricing is available for community-based organizations or groups.

MODASOLUTIONS

Year founded: 2002

Employees: 40

Venture capital: $14 million

Product: Software

"MODASolutions and eBillme brings something unique to the Ottawa technology sector. I encourage anyone looking to be on the leading edge of alternative payments and e-commerce, to look to eBillme." – Marwan Forzley, CEO

IN THE 11 MONTHS since it was featured as a Startup to Watch, MODASolutions doubled its workforce to 40 and continued to secure a toehold in the lucrative online billing space.

Essentially, it wants to bring the same types of payment options to online stores that customers enjoy when shopping in the local mall. The company's flagship eBillme product allows customers to pay for purchases both on websites and through call centres using their bank accounts.

Much of the effort in expanding its reach and bringing new features to the product was made possible by an $11-million venture capital injection led by Celtic House in September 2006. Some of the cash was also used to fund surveys and a YouTube contest to find the best secret purchase story.

With the marketing ramping up, the company also made some other noise in 2007. Its eBillme offering earned recognition from Forrester Research as a leading checkout tool that boosts e-business, while chief executive and founder Marwan Forzley snagged a spot on the Ottawa Business Journal's top Forty under 40 list.

The opportunity for eBillme, which targets the alternative online payment market, is about US$5.5 billion and includes both retail e-commerce and call centre industries. And with 84 million people in North America alone using online banking and that number expected to hit 110 million by 2009, the rewards of success promise to be huge.

So far, the company has attracted a number of online sites, including TigerDirect, PC Universe, and Shopperschoice.com, but it still hasn't gotten that one big flagship seller onboard.

But it has been rounding out the service by adding a comprehensive buyer protection program for online shoppers, which offers safeguards for purchases similar to those available through higher-end credit cards.

SIDENSE

Year founded: 2003

Employees: 32

Venture

capital:

$5.5 million

Product:

Embedded non-volatile memory cores

"We have come a long way in the last 12 months and have licensed our products to tier 1 customers, raised venture capital, secured additional patents and have an excellent team to grow this company to be the #1 embedded NVM supplier in the world." –Xerxes Wania, CEO

WHEN SIDENSE'S XERXES WANIA was interviewed a year ago as the chief executive of a startup to watch, he insisted the company had the right combination of the three things that bring success: timing, product, and people.

He also boldly predicted that the company would hit $1-million in revenues in the first quarter of 2007.

"We exceeded $1 million," he said, but would not elaborate. "I don't want my competitors to find out how much more."

And others are noticing, too. In September, Sidense was one of the two finalists for the National Research Council/Industrial Research Assistance Program Regional Canadian Innovation Award for New Technology sponsored by Canadian Manufacturers and Exporters.

Part of the increase in revenues came after three significant customer design wins with Toronto-based video processing solutions company ViXS Systems, software defined silicon developer XMOS Semiconductor of England, and Japanese outfit Silicon Library Inc.

On top of the boost in sales, Sidense also attracted about $2 million in additional financing from angel investors, as well as Tech Capital of Waterloo and NTT Finance of Japan.

The company also added another seven staff in 2007 and increased its foundry partnership through a deal with Semiconductor Manufacturing International Corp. of China.

In the past year, Sidense hit a number of key technology milestones, including first time right silicon in 65 nanometres. The smaller chips help ensure devices keep adding functions despite their shrinking size.

But don't expect Sidense to sit back and enjoy the success. Look for a new Non-Volatile Memory product in the next two months as the company continues to look

for new customers and expand its product offerings.

 >BackTrack <