Canada is North America’s up-and-coming startup center

Conrad Egusa and Victoria Stunt

They say that nice guys finish last — and Canada, with its reputation for polite citizenry and its charming prime minister, is used to being overlooked. Sure, Canada may tower over the United States in physical size, but many countries of similar stature — G7 nations, for example — dismiss the Great White North as nothing more than America’s top hat.

This is a mistake.

Canada, with nine percent of the world’s forests, is a land of plenty. As well as an enviable array of natural resources, Canada also boasts incredible support for entrepreneurs, both homegrown and international. Many household names, such as Slack, Hootsuite and Shopify — which may be mistakenly considered as U.S. products — hail from north of the border. This proves Canada is capable of delivering on startup success.

And it’s no surprise that startups excel in the country. Sure, there is less access to VC funding and the persuasive call of Canada’s southern neighbor, but the Canadian government is working hard to build and keep successful startup ecosystems. There is a huge selection of government aid available to small businesses, some of which includes grants that don’t have to be paid back.

Alongside substantial government backing is Canada’s array of world-class universities. The University of Waterloo — increasingly known as Canada’s answer to MIT — sees incredible numbers go to Silicon Valley every year, while others all over the country produce thousands of talented grads.

While eventually losing out to Colombia, Canada was shortlisted as country of the year by The Economist in 2016. The United States’ northern neighbor boasts world-class universities and resources to develop talent and, currently, the Canadian dollar is 0.75 cents to the American dollar. This means a highly educated workforce is available for less capital for entrepreneurs all over the world who are ready and willing to make the leap to Canada.

Origin story

Canada has a proud history of technological innovation. Communications company Nortel pushed expansion in the 1970s, bringing talented telecom engineers. In 1983, after a wave of deregulation, Nortel gave way to Bell Canada Enterprise (BCE), which signaled an era of telecom preeminence.

If that weren’t enough, a year later, in 1984, Research in Motion (RIM), which today is better known as BlackBerry, was founded. While the sun may have set on BlackBerry, the impact of their phones — and the eponymous messaging service — has left a lasting impact on cellular phone technology.

Fast-forward to the nineties and the Canadian government expanded its Scientific Research and Experimental Development (SR&ED) tax incentive program to allow for assistance to companies performing research and development. The legacy of this decision is clearly illustrated by Canada’s fervent support of startups in recent times.

Since the turn of the new millennium, Canada has been determined to churn out initiative after initiative to support new business. The opening of the MaRS Discovery District in 2005 — a 1.5-million-square-foot complex located in Toronto’s downtown — provided entrepreneurs with skills via its venture program, and included a network of 1,000 high-potential-growth startups that collectively generated more than $1.3 billion in revenue from 2008-2015. Just two years later, Maple Leaf Angels set up shop in the city center, with a focus on investing in early-stage companies.

Universities across the country have worked to provide space and support for startups to grow, too. In 2010, Ryerson University founded the Digital Media Zone (DMZ), a combined incubator/accelerator program that has assisted more than 130 companies.

In later years, a wave of funding opportunities and globally recognized accelerator programs took root across Canada. The Ontario Municipal Employees Retirement System (OMERS) deployed $180 million in early-stage startups between 2011 and 2014, while BDC Capital launched its IT Venture Fund II, a fund worth $150 million. 2014 saw U.S. heavyweight The Founder Institute, founded by Adeo Ressi and Jonathan Greechen, open its first Canadian branch. In March 2016, 500 Startups announced its $30 million Canada fund.

With such a strong foundation of startup initiatives and technology success, it’s no wonder that Canada is in such a strong position now.

Toronto-Waterloo corridor

Despite a population of just 2.8 million, Toronto has been named the most diverse city in the world. About half of its residents were born outside of Canada, and the city is home to 230 nationalities. As Canada’s largest city, it’s quite naturally the country’s commercial, industrial and financial center. It stands to reason that this would make Toronto stand out as the country’s biggest tech hub, too.

As an example, Toronto-born FreshBooks, an accounting platform for small businesses, has more than 10 million users, and a 43,000-square-foot office in the city, which houses 245 employees. Self-publishing company Wattpad, which lets writers share their work on the platform, has 45 million users worldwide. In November, the company signed a deal with Universal Cable Productions — the creator of Suits — with the idea to sift through the stories online to turn the popular ones into TV shows. On-demand platform AskforTask has more than 150,000 taskers, and has doubled its business each year since launching in 2012.

The Toronto and Waterloo corridor is sometimes billed — unsurprisingly — as the Silicon Valley of the North.

The aforementioned MaRS Discovery District is a tower of strength in the city’s startup community, too. The four-story brick building takes up almost one city block, and is one of the world’s largest innovation hubs, offering funding, mentorship and facilities to the city’s creators. Ryerson University’s Digital Media Zone incubator is also a resource for early-stage companies worldwide, as are a range of University of Toronto incubators and accelerators. BetaKit, a news publication led by Douglas Soltys that documents Canadian startup news, is also based in the city.

As Canada’s financial hub, Toronto is home to much of the country’s investment. OMERS Ventures has had arguably one of the biggest impacts on the Canadian startup scene. The VC firm backs startups directly, including Shopify, of which the firm owns six percent. Canada also boasts the Venture Capital Action Plan (VCAP) to encourage more Canadian private investors. For every $2 in funding, the government gives another $1 to early-stage companies.

Other financial support includes 500 Startup’s Canadian fund; the Scientific Research and Experimental Development Program, a federal tax incentive for companies conducting research; and the Industrial Research Assistance Program, which provides entrepreneurs with funding and advisory services to help them develop technology.

Yet despite this, Toronto is yet to birth a homegrown unicorn. While there are up to 4,100 active startups in the city, none are valued at over a billion dollars, and aren’t necessarily household names outside the tech scene.

Just 60 miles west of Toronto, however, is Waterloo, a small city of 134,000 residents, which holds much of Canada’s tech talent. Like San Francisco and the Bay Area, Toronto and Waterloo form a corridor of startup innovation between them. Yet, while Toronto is yet to see any businesses hit that magical unicorn status, Waterloo has.

Waterloo is the home of telecoms giant BlackBerry, as well as newer companies that include video optimization platform Vidyard — which last year raised $35 million in Series C funding — and Bridgit, a communication app for construction teams that won Google Demo Day: Women’s Edition in 2015. Similarly, Shopify, considered one of the country’s most successful startups, has an office in Waterloo (as well as offices in Toronto, Ottawa, Montreal and San Francisco).

Waterloo boasts the MIT of Canada — the University of Waterloo — which sends talent to startup ecosystems. In fact, every year, recruiters from Apple, Google and Facebook, among others, flock to this Canadian tech hub to onboard new employees; graduates of the University of Waterloo are the second-most-frequently hired in Silicon Valley after students from University of California, Berkeley. The university’s students are famously inventive, too. In 2009, Kik Interactive was founded by a group of students who wished to create new technologies for use on mobile smartphones; it has gone on to become an incredible success.

The Toronto and Waterloo corridor is sometimes billed — unsurprisingly — as the Silicon Valley of the North. Toronto mayor John Tory has said that the Toronto-Waterloo corridor has all the elements for huge success, much of which comes from the quality of universities in the area. The University of Waterloo ranks 24th in the world for computer science and information systems, and the University of Toronto — one of Canada’s most prestigious schools — ranks 16th.

While many tech giants already have a presence in these cities, there are efforts underway to make Toronto-Waterloo rise to the top of the world’s tech scene. Following the release of the City of Toronto’s Startup Eco-system Strategy in 2015, the city launched StartUp HERE Toronto, a website built and managed by startup influencers to feature startup news and events and put a spotlight on entrepreneurs in the Toronto-Waterloo corridor.

Other notable leaders in the region include Sanjay Singhal, partner at 500 Startups; David Crow, advisor at Venture for Canada; Mike McDerment, CEO at FreshBooks; David Ossip, CEO at Ceridian; Matt Golden, founder at Golden Venture Partners; Marcus Daniels, CEO at HIGHLINE vc; Mark Organ, CEO at Influitive; Salim Teja, executive vice president of Ventures at MaRS Discovery District; Lauren Robinson, COO at Highline BETA; Neha Khera, partner at 500 Startups; Heather Payne, CEO at HackerYou; Saadia Muzaffar, founder at TechGirls Canada; Eva Lau, co-founder at Two Small Fish Ventures; Carol Leaman, CEO at Axonify; and Janet Bannister, general partner at Real Ventures.

Vancouver

Vancouver is found in British Columbia (BC), amongst the mountains on Canada’s west coast. With a population that just exceeds 600,000, the city’s easygoing vibe makes it one of the most attractive places in Canada. In fact, Vancouver is rated the fifth city for quality of life in the world by Mercer, the only North American city to make the list.

Vancouver residents aren’t shy about being in the greenest, and arguably most beautiful, city in Canada. They’re also getting pretty good at representing their rising tech scene. The entire province of BC now boasts more than 100,000 people working in the tech sector. Employment in the industry rose 2.9 percent in 2016, compared to the national tech sector’s growth at 1.1 percent. Tech in BC employs more people than the mining, oil, gas and forestry industries — combined.

Boasting mountains and ocean just like Silicon Valley, Vancouver also has seen some of the biggest Canadian acquisitions. Vancouver’s PlentyofFish, the popular dating website, was purchased by Match Group in 2015 for US$575 million, for example. Even more, Vancouver is home to OMER Ventures-backed Hootsuite — which is valued at US$1 billion — as well as everyone’s favorite, Slack. Although Slack the company is technically based in San Francisco, CEO Stewart Butterfield also works out of Vancouver, or Vancity as it’s often called.

In the hopes of fostering more unicorns like Slack and PlentyofFish and fastening BC’s startup scene on the world map, the provincial government set up a $100 million fund for early-stage funding in December 2015. Since then, there have been about 14,000 new tech jobs in the province. Also located in Vancouver is the BC Tech Association. Founded in 1993, BC Tech provides growth, talent and advocacy programs to tech companies in the province.

Canada provides affordable development talent, and thousands of people graduate each year from some of the best universities in the world.

Being on the west coast, and therefore the same coast as startup hubs in San Francisco, has its advantages. Startups in the city attract a lot of outside attention, including from Silicon Valley stalwarts. In February of this year, Vancouver-based TIO Networks, which offers online and mobile solutions for bill payments, and processed more than US$7 billion in fiscal 2016, was acquired by PayPal for $304 million. Similarly, Kickstarter opened its first office outside of the United States in the same month, after acquiring Vancouver-based startup Huzza.

Traction Conference, hosted by Launch Academy and Boast Capital, is one of a number of popular conferences in the city, and, according to BetaKit’s Jessica Galang, puts an emphasis on helping startups learn actionable ways to accelerate their businesses. Cube Business Media, led by Mark Stephenson and Dave Tyldesley, is another organization hosting events throughout the city.

Like Toronto and Waterloo, Vancouver boasts world-class universities, such as the University of British Columbia and Simon Fraser University. SFU Innovates is a program from the latter, which seeks to build and support innovation and entrepreneurship across the university. It has so far contributed $1.3 billion to BC’s economy. Similarly, UBC’s Startup Weekend event inspires would-be founders to get set up within 54 hours in a do-or-die race to success.

Said investor Ali Saheli of 7 Gate Ventures over the phone, “Vancouver allows founders to remove all of the noise that you would get from the Valley and to focus on building products. In the past couple of years the number of early-stage startups has significantly grown thanks to government grants and communities such as Launch Academy and The Next Big Thing.”

Additional notable leaders in the city include investors Boris Wertz and Markus Frind, entrepreneurs Stephen Ufford of Trulioo, Ali Davar of Qudos, Ray Walia of Launch Academy, Carol Newell, founding investor and principal at Renewal Partners and Shahrzad Rafati, CEO at BroadbandTV. Additional startups and events are well-documented by Alex Chuang of Launch Academy on TechCrunch here.

Montreal

One of North America’s most European cities, Montreal, Quebec, is also the second-largest primarily French-speaking city in the world, just after Paris. The city has an undeniable allure — with tons of public art displays, miles of bike lanes and world-class festivals, such as Festival International de Jazz de Montreal, as well as Startupfest.

Although Montreal may host a less mature ecosystem when compared to other cities, it boasts world-class universities, including McGill University and Université de Montréal, and a host of government programs. Additionally, Montreal is home to almost 50 percent of all Startup Weekends in Canada, training close to 1,000 entrepreneurs a year.

“Local government provides the best programs in North America with millions of dollars in grants, loans, innovation tax credits, and even government backed incubators without any cost to the entrepreneurs,” said Montreal Founder Institute Director Sergio Escobar over the phone. “As any emerging ecosystem, Montreal has many challenges. Among them, Montreal counts very few seed-stage investors and no pre-seed ones. Many times, seed investors tend to function closer to Series A investors with non-friendly term sheets and low valuations.”

Startupfest is a three-day festival that takes place in a relaxed “Tent Village.” It features keynote speakers, how-to sessions and $200,000 investment opportunities from festival angel investors. Even more, the festival features a panel of infamously tough Grandmothers, to whom entrepreneurs pitch their startups.

While the city is considered the cultural capital of Canada, Montreal is also an artificial intelligence stronghold. Just in January, Microsoft announced it would double its investment to AI research and development in the city. Over a five-year period, the tech giant will gift $6 million to the Université de Montréal, and $1 million to McGill University.

A week before this announcement, Microsoft acquired natural language processing and AI startup Maluuba, which was founded by Waterloo graduates Kaheer Suleman and Sam Pasupalak in 2011. In February 2016, it also bought Groove, a Montreal music app that uses machine learning to come up with personalized playlists.

In terms of resources for entrepreneurs in Montreal, FounderFuel is an accelerator funded by Real Ventures, a Canadian VC firm. Entrepreneurs Anonymous is a peer-to-peer support group, which takes place at a different Montreal bar each month.

Notable leaders in Montreal’s ecosystem include John Stokes, general partner at Real Ventures; Sergio Escobar, managing director at the Founder Institute Montreal; LP Maurice, co-founder and CEO at Busbud; Chris Arsenault, partner at iNovia Capital; Mike Cegelski and Francois Gilbert of Anges Québec; Alan MacIntosh, partner at Real Ventures; Daniel Robichaud, CEO at PasswordBox; Helge Seetzen of TandemLaunch; Béatrice Couture, general manager at InnoCité; and Emma Williams, director at Maison Notman House.

Ottawa and others

The three most popular cities in Canada do not exclusively dominate the startup ecosystem. There are flickers — and sometimes flares — of startup activity that certainly have the potential to grow larger in the coming years.

Canada’s capital, Ottawa, sits on the border with Quebec, and is just about two hours from the city of Montreal. Parliament Hill is the city’s main attraction — and depending on the season, visitors and residents alike skate on the Rideau Canal, which winds for five miles throughout the city.

Ottawa is home to Canadian unicorn Shopify, and has been on a kick to make itself the best city in Canada to start a business. Ottawa-based SaaS accelerator L-SPARK, which is directed by Leo Lax, supports talent in the city and also hosts SAAS North, a conference that helps Canadian companies network and promotes Ottawa as the country’s capital of SAAS.

“In Ottawa there is a wealth of experienced C-level executives from the telecommunications industry, and as that industry has slowed down it has created an enormous talent pool for startups,” said Leo Lax over the phone. “We can shortcut the challenges of building a SAAS company through the experience of the people here.” Further support in Ottawa includes Invest Ottawa, a group that delivers economic development programs to give entrepreneurs a head start in Canada’s capital.

Other notable leaders in Ottawa’s ecosystem include Tobi Lutke, CEO of Shopify; Allan Wille, CEO at Klipfolio, Terry Matthews, chairman of Wesley Clover International; Jamie Petten, co-founder of SAAS North; Craig Fitzpatrick, CEO of PageCloud; Adrian Salamunovic and Nazim Ahmed of Canvas Pop; investor Aydin Mirzaee; Victoria Lennox, co-founder and CEO of Startup Canada; and Haidee Thanda, founder of Hacking Health Ottawa.

Another city to consider is Edmonton, which is also beginning to carve out a place on the map in the country’s startup scene. The city’s hubs include incubator TEC Edmonton — a joint University of Alberta and City of Edmonton initiative ranked the world’s 16th best business incubatorBusiness Link, as well as Startup Edmonton. For the past two years Startup Edmonton has hosted Edmonton Startup Week, which features more than 20 community events for entrepreneurs across the city.

Lastly, Labrador and Newfoundland, which are the most eastern point of North America, are beginning to develop grassroots startup communities. This includes StartupNL, a community of entrepreneurs led by Will Gough, Jason Janes and Roger Power that hosts events and programs. In 2014, the government of Newfoundland and Labrador unveiled a $15 million fund to invest in local entrepreneurs and startups, and in 2016, three St. John’s, Newfoundland startups announced funding of more than $2 million, including game developer Clockwork Fox Studios, marketing collaboration platform HeyOrca and software provider Sentinel Alert.

Conclusion

Canada’s ecosystem is still in its early stages. Companies tend to exit too early rather than focusing on growing something sustainable. It often feels like Canadians bow out where Americans — for whatever reason — might not. Similarly, sub-zero temperatures scare people to warmer areas, leading to a brain drain and serious demand for startup-orientated marketers. Many current marketing staff are not au fait with startup performance, due to their backgrounds in more traditional industries.

Canadian investors have historically looked at minerals and mining companies, which attract much of the capital. People tend to invest in other industries rather than startups because of their prior experience.

On the other hand, Canada provides affordable development talent, and thousands of people graduate each year from some of the best universities in the world. Founders are now beginning to enter the startup market again after their first exits, and there is a growing sense of community. In recent years there has been impressive growth in the number of people interested in startups. Government tax incentives reward companies for investing in research and development.

Then there is the Trump question. The new U.S. administration’s hard stance against immigrants can only play into Canada’s favor — with worldwide talent flocking to the Great White North, the opportunity is Canada’s to lose. Over the last five years, Canada has brought in more than 800,000 immigrants to fill holes in the jobs market. With an unfriendly U.S. approach to immigration, international talent could easily look to Canada instead of America as a land of hope and opportunity.

With 20 percent of Canada’s population already born elsewhere, the country now offers a startup visa to encourage international entrepreneurs to immigrate, with permanent residence status. This is crucial to Canada’s future success. By 2019, there will be 182,000 tech jobs up for grabs and nowhere near enough people to fill them. So while Canada’s tech scene is growing, there is yet more to come.

There are a lot of bright things to come for Canada’s startup scene.