The Ottawa Citizen Kit Fung, centre, and a group of former Nortel engineers formed Seaway in January 2001 to work on a Nortel project that was about to be cut. Seaway includes, from left, Seamus Ryan, Mitch Kaminsky, Allen Lengacher, Vince Hendricks, Neil Frenette, Mark Schellhorn, Jonathan Adair, Fung, John Pillar, Cathy Haydon, David Lapp, Alistar Boyle, Sathish Vallipuram and Eric Englert.

A small group of confident engineers have taken the remains of a cancelled Nortel Networks project and created a multi-million dollar company.

Seaway Networks Inc. was to announce today the $18 million in first-round financing it secured earlier this year to further research microchips that help defend computer networks against viruses and hackers.

Seaway was formed in early January 2001 when 13 Nortel engineers discovered the project they were working on was about to be cut.

At the time, the group was putting together a microchip capable of scanning every information packet passing across a network without slowing down the flow of data. By doing so, viruses, hackers and even the dreaded denial of service attack could be detected and dealt with before any damage could be caused.

But for Nortel, which was on the verge of a sales meltdown that would lead to the company slashing numerous projects and cutting back 50,000 positions globally, the microchip technology was not a priority.

"We were cutting things last year, and this involved a lot of the businesses that were divested or shut down, to streamline our business around our core market areas," said Nortel spokesman Dave Chamberlin.

"Those (core) areas are much larger businesses in terms of billions of dollars."

Realizing the chip was doomed unless they took over its development themselves, "a bunch of Nortel engineers quit the company to pursue this project," said Kit Fung, president of Seaway Networks Inc. and one of the engineers who left Nortel.

A majority of those who left had well-paying positions in Nortel's upper echelons. Mr. Fung was vice-president of research and development for Nortel's popular Passport product.

In January 2001 the group of 13 walked away from Nortel and into the living room of one the company's founders.

"It was a small townhouse with a couple sofas and people just used to grab a table and work a bit," Mr. Fung said. "We quickly realized we needed to borrow some money and rent a place."

In March 2001 Seaway took a small personal loan and moved in to the corner office of a medical building in south Nepean.

"Eventually when we got some more seed funding from investors and we rented more space in that building," said Mr. Fung.

There the company quietly worked, leaching talent from Nortel and growing its staff to 42 employees. It was also during this time that Seaway ironed out a licensing deal with Nortel for the microchip technology.

Mr. Fung said Nortel gave up the rights to the intellectual property of the chip in exchange for some equity in Seaway.

He said he is not concerned about Nortel trying to reproduce Seaway's technology, should it prove to be a smashing success because, "all of the people who invented that chip are here in this company."

"If they want to use it, they have to take the whole team back," said Mr. Fung.

Seaway received more than $18 million in venture capital investments from JK&B Capital, Novacap Inc. and Ottawa's Venture Coaches during the first three months of this year.

The new money allowed Seaway to move from its crammed Nepean corner office to more spacious quarters in the Chrysalis-ITS building in Ottawa south.

Seaway has also struck a deal with a major semiconductor manufacturing firm and said prototypes of its product will be available by the end of this year.

The company said it is targeting the big networking firms such as Nortel, Cisco Systems and Lucent Technologies as its primary customers.