in Startups

Canada is THE Best Place to do a Startup

Last night was Five Mobile’s big Zynga acquisition celebration party at Cheval’s rooftop patio. Great event, lots of Toronto’s startup community were hanging out. Lots of cool conversations and introductions.

It had a few of us talking about the current state of the startup eco-system right now.

Before your eyes scan down, I think its best to make sure you are sitting, with a glass of ice cold water.

Here’s the exit count by annum (source: techvibes list of acquisitions):
2007 – 6 exits
2008 – 8 exits
2009 – 14 exits
2010 – 27 exits
2011 – on track for 35 exits (about 17 to date)


Yes, that’s right, the startup eco-system is actually on a hockey stick growth curve – phenomenal!!!

The vibe from many folks in the room – “Canada is back, this is awesome, lets go start more companies, why are dumb new grads going to Facebook when they can make it BIG with their own thing”!

In fact, I’m so jazzed up after last night that it makes me want to say something bold. Something crazy.

Canada is THE place to start a company right now – better than Boston, better than New York, better than the f’n Valley.

Look, I know it sounds crazy. I know that you could show many sets of stats about the Valley and deal flow and billion dollar companies and exits and all sorts of numbers. Yes, the Valley is bigger – MUCH bigger.

Bigger <> Better

I’m NOT going to compare quantitatively. Let me instead give you an interesting parallel – the Montreal music scene of a few years back. By any set of numbers, Montreal was and is NOT the heart of the global music scene. Clearly LA, Tokyo, Nashville, New York, etc are all MUCH MUCH bigger and more influential.

Check out this list of amazing bands that came out of Montreal from that period – Arcade Fire, The Dears, God Speed! You Black Emperor, Tegan and Sara, Broken Social Scene… the list is awesome. So, would you rather listen to some churned out robo pop song from LA or would you rather listen to say, The Stars. Montreal had massive influence globally and re-shaped the entire indie rock world.

Seriously, if you were starting a band in say 2003, would you rather be anywhere than in Montreal? Could you imagine doing gigs with Arcade Fire & Broken Social Scene? Can you imagine the community and camaraderie? Would you trade that to go live in LA so you could get a monster recording deal and be hanging with record execs all day? And that’s what I think the Canadian startup scene feels like right now – great companies, great people, great community building cool stuff – everybody is jazzed because something special is happening right here, right now. We’re not the biggest, but it is good here.

The Control Factor

The automatic first whine I’ll hear from so many of you – “but there’s no money here”. Bull poopy. Yes, there aren’t VCs up north. That doesn’t mean we don’t have money up here. Did you read the angel investing report by Bryan Watson. 88 deals, $35mm, 90% net new in 2010. Last night I talked to three different companies who had raised major rounds from angels around the $1mm mark. The angel scene up here is the VERY REAL DEAL.

Entrepreneurs need to understand that the early stage funding scene in Canada does not look and feel like what they read about in tech crunch and from Mark Suster, Brad Feld, Fred Wilson. There’s no Sand Hill Road equivalent. Its just different. You need to find the angels. That means networking. That means contacting guys like Bryan Watson (@bwat) who posts here regularly, or emailing us folks at startupnorth for contacts or hitting up angel investing groups, or applying to local accelerators who will have great angel networks like Year 1 Labs, Mantella, Extreme U, Grow Labs and so on.

This is more important than you think. Angel deals “tend” not to have control issues & board seats or deal vetos and all those fun big clauses you spend thousands of dollars in legal fees haggling over. It means you’ll be less likely to have “Asshole VC” stories, extravagant liquidity preferences, management cram downs, and so on. It probably makes “operating” your startup a lot easier. A very good reason to start a business here.

We Are Building Cool Stuff

I met Ken Seto, one of the founders of Massive Damage. Location based games and check out that art work! Did you guys see what Anish and Jeson were doing with Social Deck before Google bought them? Or Anand Agarawal with BumpTop before Google bought them… the BumpTop GUI was one of the best I’ve ever used. Have you used Kik, its one of the best user experiences on my Android phone. Freshbooks, another great product. Or check out the list of projects that Xtreme Labs is working on. I love having folks building awesome stuff in the community.

Canadian Engineering Talent is Second to None AND Available

Waterloo, U of T, Montreal & Ottawa, there are great, great engineers coming out of these schools. We all know the stories of Facebook, Microsoft, Google fighting over the top grads from the big engineering schools. I could iterate through tons of my ex-Waterloo classmates who are senior product managers or senior devs at these companies. Not only are the engineers great, they are available and affordable. The engineering crunch felt in New York and California just isn’t as bad as it is in parts of Canada. And to be honest, developers are more affordable up north. Probably by a factor of 20-30% versus NYC or the Valley.

I could go on and on about why I think right now is the BEST moment to start a company in Canada. Sure, the VCs, Angels and Incubators in the US are far better marketers and easier to find so in theory its easier to get funded. And I’m sure living in Man Jose or in the large suburban neighbourhoods of Palo Alto is really cool – suburbs are great. And of course, if you’re ugly, you SHOULD go live in San Francisco with the other non-beautiful people anyways.

Or, you could be like one of the awesome bands in Montreal in the early 2000s who got to be part of a great community that did something special and had the time of their life doing it.

  • Startup Guy

    Could not disagree more.  Canada is A place to do a startup but not THE place to do a startup.  Lots of advantages to doing a startup in Canada that you have clearly articulated.  But two core ingredients of a successful startup, the best people (meaning bright successful people who have done a series of highly successful startups) and funding are most plentiful in Silicon Valley (with albeit a different set of costs and issues).  And the list of other attributes offered by Silicon Valley are extensive (diversity of people, skills, experience, activity clusters, networks, smart money, institutional expertise…the list goes on…).  The Valley is not just bigger, it is better on so many levels.  Choosing between say Canada and the Silicon Valley to do a startup?…The Valley wins hands down.

  • http://benv.ca Ben Vinegar

    This should have been titled, “There’s never been a better time to do a startup in Canada”.

  • Gelt David

    Canada can be a good place to run a business. As for getting funds in here, it is a waste of time. Not only that many of these investment companies don’t answer to emails, not even automatic replies, but they expect you to give 20-30% of the company or they want to buy you outright.

    I stopped trying to contact the VC and Canadian angels long time ago. We are getting a lot more interest from US companies, one even sent us a term sheet recently, we get a lot of polite replies from them and also from European VC’s.

    These people need a reality check.

  • http://blog.homestars.com bsharwood

    There’s some great folks building some great things in Toronto. Totally agree with that. And yes, there are some great exits, but they are exits to companies in the Valley. We need some companies in Canada that companies in Canada can exit to. I’d also love to see some valley companies exiting to Canadian purchasers. Then we’ll know we’re in the right place. But great ground has been made and it’s a solid start.

  • http://twitter.com/dpmorel Dan Morel

    Bullcrap.  Hollywood has all the biggest actors, so called “best” people, great funding, blah blah blah.. but somehow produces mass produced shit constantly.  If you want to produce a “good” movie, you don’t make it in Hollywood anymore, you go indie. 

    Well, that’s my comparison to Silicon Valley.  Y-Combinator is crunching out 60 “airbnb’s of” right now in its current session.  Smells like the same mass production stank of Hollywood.

    BTW – I’m totally doing the airbnb of bathrooms in New York.  Nobody steal my idea damn it, I’m going to raise a stinkload off of it.

  • http://twitter.com/dpmorel Dan Morel

    usually when I hear this from people I ask them “did you talk to x,y,z” and they say “no”, and it drives me nuts because x,y,z are well known investors in Canada.

    Regardless, I celebrate the fact that its not easy to get money.  ITS NOT SUPPOSED TO BE EASY.  The good news is that when the current tech bubble pops, we won’t be in rough shape in Canada, we won’t have overextended ourselves and sprayed & prayed.

  • Startup Guy

    Hmmm, Silicon Valley producing in your words “mass production shit”.  Really?  Really? You really wrote that and believe it?  Perhaps you could provide more detail from your time working in the Valley?

    From my perspective of working in the Valley and doing startups in Canada, there is no comparison.  The best people and money go to the Valley (not to say good people and smart money are not elsewhere – they are) but the level of talent, expertise, smarts, gumption, initiative, and desire is unparalleled.  And obviously the wealth, both institutional and personal is equally high.

    Do I need to outline the organizations and wealth that has been created from the Valley?…and the new ideas and approaches.  Over the years, innovative concepts and trends originated in California and migrated East (and north) from health care to technology to social conscience issues among others.  And many of these started in the Valley.

    I’m glad you are promoting Canada and its benefits but let’s not be naive…

  • http://www.facebook.com/PetersNewJobs Len Fardella

    I’ll celebrate ANY good news that includes Canada, start-ups, funding and exits. Very nice to see that there is some momentum and that you can launch a start-up, get funding and even manage a profitable exit while at the same time freezing your butt off (needed one weather reference).

  • http://engag.io/ William Mougayar

    Can you list the funds and dollars that are available for seed/angel/Series A, 3 critical phases of a start-up’s evolution?

    There’s a big shortage on that side.  

  • http://growthtimes.com gregboutin

    Can you name X, Y and Z so we can assess the claim?

  • Gelt David

    Somehow my post made you upset, enough to suggest that we are a fad. The truth always tends to do that. Well… you don’t know anything about what we do. If you think that somehow we got something that anyone can do, let me tell you that we have can be replicated only by highly skilled scientists like myself. I do think that most of the innovation on the market is mostly incremental but that is another issue.

    I tried contacting all venture companies that I could find many times, over the years and nothing. I can understand that being too early can be an issue, yet I was expecting some automatic replies at least. I am not complaining that it must be easy. This is the reality.

    If important stuff doesn’t get trough perhaps it is not my fault as it the system’s fault. Isn’t that right?

    “we won’t have overextended ourselves and sprayed & prayed”. True. But you will never have a Microsoft, an Apple or a Google. I don’t see anything in RIM. Corel was something.

    What’s so great about Universities making top talent only to have it drained down the border? Do you think that my small country has something to celebrate by forming me and then shipping me abroad in here?  Their loss is huge.

    You should have tried to learn to listen not to make me an example.

  • Shazzmack

    Dan, love your enthusiasm! Two questions I’d love your comments on: 1) any thoughts around bands & tech companies that stay in their hometowns and still have a global career? and 2) any thoughts about the need for anchor companies who produce spinoffs? … cheers, Shazz

  • Salman

    True, I have noticed allot of companies that are opening up satellite offices in Toronto (based out of NY or SF).

  • http://startuplifeblog.com/ Josh Sookman

    Dan, it was great meeting you at the Five Mobile / Zynga acquisition party. Also, I love this post that is finally highlighting some of the great activity that’s happening North of the border. It’s also refreshing to see your positive spotlight framing Canadian success stories. 

    Too many people shred founders for selling, but they often don’t have a clear understanding of the ecosystem and how difficult it is for Canadian founders to raise later-stage financing from Canadian VCs. Often, Canadian founders must turn to US VCs to raise Series C and D financings, and they get pulled down to the US where they often remain for extended periods of time … pulling our precious human capital away from the Canadian ecosystem. With many of these acquisitions, at least our successful entrepreneurs and technology teams can remain in the country, and give back to the community, to give us more sustainable advantages going forward.

  • Gelt David

    FYI: http://www.foundersfund.com/the-future

    “The most promising companies (at least from our perspective as investors) tend to share a few characteristics:
    1. They are not popular (popular investments tend to be pricey; e.g., Groupon at so many dozens of billions).2. They are difficult to assess (this contributes to their lack of popularity).3. They have technology risk, but not insurmountable technology risk.4.  If they succeed, their technology will be extraordinarily valuable.”

  • http://twitter.com/dpmorel Dan Morel

    @jsookman:disqus , I totally agree and its a brilliant point.  I think we as a community need to re-define success.  The old “exit for > $150mm or create a $1b revenue company” line isn’t the right fit for Canadian built start-ups.
    This smells like its own post.

  • http://twitter.com/dpmorel Dan Morel

    I think there are lots more than you think re: hometown global companies.  Look at a small-cap company like Redknee (TSX: RKN) out of Mississauga.  Kobo Books would be another great example, those guys are killing it in markets where Amazon Kindle’s don’t exist.

    I think spinoffs are important for capitally intense companies, and can be mutually beneficial to both sides.  I think it is less so important for software startups.  But I’m always surprised at how often I hear the startup story of “I convinced my current job to let me start a company and provide them some service…”   (Redknee in Nortel is one of those stories).

  • http://twitter.com/dpmorel Dan Morel

    Its really coming around a lot.  Here are the two most recent posts that David has written on this:

    http://startupnorth.ca/2010/09/16/canadian-super-angels/

    http://startupnorth.ca/2011/05/26/incubators-incubators-every-where/

  • http://fredbrunel.com Fred Brunel

    Why don’t you show us your name?

  • Startup Guy

    Why?

  • Marty Levine

    Why does virtually every post I read extolling the virtues of Canadian business or Canadian culture have to include a nasty comment or three about American business/culture? Can’t Canadian virtues stand on their own? Do Canadians rise only by tearing down Americans through cheap generalizations? It really is long past the time to put aside this sibling rivalry. Smart Americans don’t define themselves through comparison to other countries. Neither should smart Canadians.

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