by David Akin
The Financial Post, Tuesday, April 10th, 2001.

Q9 Networks Inc., a Toronto-based provider of Web hosting and network management services for business customers, said yesterday it raised $88.5-million in a second-round financing.

As the Financial Post reported last month, Q9 will use the cash to build data centres in Montreal, Ottawa and Vancouver. It already operates a data centre in Toronto from which it serves customers like Grocery Gateway Inc., Descartes Systems Group Inc., and Noranda Inc.

"I think a lot of people are mistaken that there's no more money to invest," said Osama Arafat, Q9's chief executive. "I think there's still lots of money. It's just that everybody's a little more selective and they're looking for a lot more out of the company that they invest in than they did a year or two ago."

Over its first two rounds of financing, Q9 has raised a total of $115-million. The first round was led by Vengrowth Capital management Inc. of Toronto and J.L. Albright Venture Partners Inc. of Toronto. Vengrowth and Albright also participated in the second round of financing, each contributing $7.5-million.

The balance of the second round financing was shared among Scotia Merchant Capital Corp., Ontario Municipal Employees Retirement System, TD Capital Canadian Private Equity Partners, e-Scotia Acquisition, Shaw Ventures Inc. and Working Ventures Canadian Fund.

Mr. Arafat said the second financing took about 90 days to complete.

Q9 opened its first facility in Toronto last fall. Mr. Arafat said the 20,000 square foot data centre is about 20% full. It plans to operate a national network of five data centres totaling 100,000 square feet.

Data centres, typically, are buildings equipped with special security systems, air conditioning, multiple connections to Internet backbones, and back-up power facilities that are used as the physical locations for the powerful servers that run corporate networks and Internet Web sites. Companies like Q9 offer basic co-location services in which a corporate customer essentially rents a locker for computers it owns and operates and more advanced managed services, in which Q9 will own and operate the customer's server and the applications running on that server.

The market for such services has exploded in the United States. While it is growing in Canada, it has developed more slowly in this country.