It’s a rare day when a Waterloo Region startup sells for more than half a billion dollars.

Then again, 2000 was a rarefied time in the tech world, as twin bubbles in the internet and telecom sectors ballooned inevitably toward bursting.

That summer, California-based giant Cisco Systems snapped up PixStream Inc., a Waterloo-based upstart that made hardware and software to move video across then-new broadband networks. The stock-swap deal was worth $554 million in Canadian dollars.

The euphoria was blunted four months later when Cisco announced a major downsizing, including the shutdown of its video networking business unit, and by extension, PixStream.

When the axe fell, Dave Caputo, who had joined the company as marketing VP in 1998, wasted no time in moving on. Within 12 hours of the shutdown announcement, he and three PixStream colleagues – Brad Siim, Tom Donnelly and Don Bowman – got to work on building a new company called Sandvine.

Their new venture quickly became a global leader in a field that has become ever more central to modern life over the past decade: management of network traffic on the internet.

Today, Sandvine has customers in 85-plus countries, representing hundreds of millions of broadband internet users. Its shares are traded on the London and Toronto stock exchanges, and the company employs more than 350 people.

As CEO, Caputo has overseen tremendous growth and faced the challenges that come with being a publicly traded, globally oriented technology company.

We sat down for an interview on a recent snowy morning at Sandvine’s Waterloo headquarters.

Q – Bring me up to speed on where Sandvine is now, and what we can expect for 2012.

A – Sandvine got started back in 2001, so we’re entering our 11th year.

I often joke that there’s really no word in English that describes the feeling of, “It feels like yesterday, yet it feels like a lifetime ago.”

That word might be “Sandvine.”

I’m extremely proud that the initial premise that we founded Sandvine on is one that we’ve stuck to, from the sense that back in 2001, when you looked at your phone bill, you spent more on call waiting, call display and voicemail than you did on just dial tone access.

And we thought, “Why wouldn’t broadband and the internet evolve the same way?”

If you fast forward to 11 years later, I think we’ve never been closer to that reality of having many different ways to consume and pay for bandwidth. That is the intelligence layer that we are trying to build across the consumer internet.

So what does that mean, practically speaking?

In the not-so-distant future, you’re going to have tens, if not hundreds, of devices connected to the internet, but you’re not going to be expecting to pay a $40-a-month subscription for them.

Some you’ll buy on a transaction basis, like the Amazon Kindle; you buy a book and pay for the bandwidth right then. Some of them you will pay for through ancillary services; you’ll buy a camera that is a 4G device, take a picture, it stores on the cloud, and when you print the picture or store the pictures beyond five years, you’ll pay for the bandwidth that way.

Maybe it’ll be monetized with advertising beside the photos that you have there.

And so, there are going to be many, many different ways to consume bandwidth in the future, and there are going to be many different ways of monetizing that bandwidth.

That is the initial, central and continuing premise of Sandvine.

Q – Are you saying things have developed the way you predicted they would in 2001?

A – Certainly we were ahead of our time back in 2001, and I think there were around 16 million broadband subscribers, wireline subscribers, back at the end of 2001.

There’ll be 600 to 800 million by the end of this year, so the concept of broadband becoming ubiquitous was a good bet in the beginning, and as subscriber growth slows, but subscriber consumption of bandwidth grows unabated, there are some economics that need to be fixed in the service providers,’ or ISPs,’ business model.

Those unstoppable economics of subscriber growth, bandwidth growth and average revenue per subscriber being flattish have to be fixed moving forward, and Sandvine plays a central role there. That’s our bet, anyway.

Q – Speaking of economics, there was some receding in Sandvine’s revenue in 2011. Is that a symptom of these economics that you’re talking about?

A – There are a lot of dynamics that have conspired against us over the past year, largely around our shift to resellers; around shifting resellers to existing customers. It really slowed our ability to develop those customers.

And so, if you look at our growth over the past five or six years, it’s been incredible. Over the past year, we didn’t have the growth that we needed and expected to have.

Q – Do you see that as a temporary thing until other issues get sorted out?

A – Let me ask you: Do you think broadband’s going away? Do you think broken business models are fixed? We don’t think so.

We’ve taken the path that we truly believe the technology we’re working on is trying to solve some of the most difficult problems on the planet – I shouldn’t say that; that sounds a little bit presumptuous – some of the most difficult problems in networking.

And that is, to look at every packet in real time and apply a policy on those packets in real time.

We can’t think of a more difficult problem that needs to be solved in networking.

Q – Waterloo has a reputation for taking on these kinds of difficult problems. What is it about Waterloo Region, and tech people here, that makes them want to engage with these heavy-duty, core issues in technology?

A – I think it has to do with not shirking away from the most difficult problems out there. Life is short and you might as well make a difference while you’re trying to make the technology world better.

I think people in the Waterloo tech community want to make a difference with their technologies, and making a difference usually means tackling the most difficult technology problems.

Q – There are a lot of places around the world that have tech clusters now, and incubators are popping up all over the place. What do you think sets Waterloo apart from other places like Silicon Valley or Boston?

A – My sense is that the tech community in Waterloo is a real community, where we feel that we’re in it together, and that’s likely in no small part due to Communitech.

That facilitation of technology companies working together, being informed about each other and having a true willingness to help each other out really has created this community, and my sense is that it’s one of the best-developed technology communities on the planet.

Q – What kinds of things do you hear about Waterloo when you’re travelling? How would you gauge the general awareness in the tech world about what we’re doing here?

A – It doesn’t matter where I go in the world; everybody has heard of the University of Waterloo and everybody has heard of Research In Motion.

Those two stalwarts have put us on the technology map.

Q – Take me back to when PixStream was sold. How old were you when that happened?

A – That’s a good question. It was 2000 and I was born in ’67, so I guess I was 33 when that happened.

When PixStream was sold to Cisco, it seemed like a great day for the technology community here in Waterloo, bringing a great company like Cisco here.

When they decided to shut their video networking business unit down [and thus close PixStream] just a scant eight months later, it seemed like the worst day, but I now look back and think it was a great day, because there was a team ready, willing and able to start a technology company with some pretty good scale 12 hours later, and that was Sandvine.

Q – 12 hours later?

A – 12 hours later.

Q – What do you remember about that 12-hour period?

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About The Author

Anthony Reinhart
Director, Editorial Strategy
Google+

Anthony Reinhart is a veteran journalist who left the Globe and Mail to join Communitech in 2011. Tony has covered everything from crime, politics and courts to business, the arts and sports, and his writing has won numerous journalism awards. He is Communitech's Director of Editorial Strategy and senior staff writer.