in Big Ideas

On becoming Silicon Valley North…

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I am a bit of a shrinking violet. And I hate expressing my opinion about things. Like most Canadians I’d rather apologies for things and be polite. But I hate when I get asked by journalists, policy makers and others about how do we make Toronto (or Waterloo, or Ottawa, or where ever), the next Silicon Valley. This is just such an asinine view of how macroeconomics works and the historical development of the ecosystem in Silicon Valley.

We should not try to be the next Silicon Valley or New York City or Shenzen or anything. We are Toronto. We are Montreal. We are Vancouver. We are Waterloo. We are something different. We should reject the label because it makes us look like fools. But we should learn from Silicon Valley as entrepreneurs and policy makers to create an environment that helps stimulate a similar environment.

This is an old conversation. Joey and I have talked about it in the past:

Debunking the Myth of “The Next Silicon Valley”

Let’s start by removing the first myth that Toronto, and you can substitute in anywhere, can be the next Silicon Valley. Toronto does not exist in a valley. Sure there are valleys, like the Don River Valley in Toronto but the concentration of technology startups in this location is fairly low due in part to the conservation and provincial protections.

Silicon Valley was quoted in 1971 to describe the number of emerging semiconductor companies and the surrounding computing companies that were concentrated in the Santa Clara Valley between San Francisco and San Jose, California. As far as I’m aware there are a few companies in the GTA working in silicon like AMD. Ottawa might have been able to make a claim in the 1990s for the Silicon Valley North with companies like Nortel Networks, JDS Uniphase, Tundra Semiconductor, Newbridge Networks and others. But for Toronto, just not going to happen. Waterloo might also have a claim with Pixstream, Rapid Mind, MKS, Arise Technologies, Research in Motion, and others working in semiconductors, wireless, hardware and software.

Silicon Valley might at best be a concept for the concentration of new economic wealth creation. It is hard to argue about the amount of wealth created in the Silicon Valley region. It has been called “The Greatest Creation of Wealth in the History of the Planet”. The number of companies and the rise of modern venture capital has created a circuitous loop, a self-fulfilling prophecy, of companies and entrepreneurs that can generate more wealth. It has created the Traitorous Eight, the PayPal Mafia, Xooglers, the Facebook Mafia, the Netscape mafia that created Opsware & Andressen/Horowitz, etc. There are lots of reasons that regions should want to emulate the economic development that is present in Silicon Valley.

But the desire to emulate a region, does not mean that we should expropriate a label like “Silicon Valley” when in fact it has very little to do with the people, the environment, the economy that we are trying to build. I’m sure if we personified “Silicon Valley” it would be flattered, but we should be trying to be something different. We are something else.

Zombie Economies

No City has a Lock on Innovation by Fred Wilson (@fredwilson) refers to a great article by Chris Dixon (@cdixon):

“The entire world is now a rival to Silicon Valley. No country, state, region, nor city has a lock on innovation in technology anymore.

The Internet has made this so, and there’s no going back. We will see Apples and Facebooks get built in China, India, Brazil, Eastern Europe, Western Europe, the Middle East, Africa, and plenty of other places.”

We are competing globally. Don’t believe me, look at the firefight that our most recent billion dollar Canadian technology company is in for customers, brand, and it’s own survival. We need to build global companies. There are a great number of advantages to living in Canada, but we seem to be lead to by organizations that are interested in fighting for government dollars to build innovation clusters rather than creating new entrepreneurs and new wealth. Instead we’re happy to build a zombie-economy of companies around programs like SR&ED that are often used and abused by consultants and companies to sustain companies when there are no markets, no profits, no brains, no future. All things considered, free money is free money and as an entrepreneur in Canada I would/do apply for SR&ED credits and encourage others not to leave this on the table. But from a policy perspective, it drives me crazy! I hear about academics that run mediocre companies with <$2MM in revenue but sustain because of SR&ED. They’d rather raise 50 cents of government tax credits than “pivot” and get to “product-market fit” because that would require getting customers and actually understanding that we’re in this to build successful, sustainable companies.

SR&ED and credits from other programs (OMDC, New Media Funds, etc.) are economic realities of our ecosystem. It is capital that is available to entrepreneurs. It is potentially non-dilutive capital that can be leveraged for growth and operational efficiencies. It should be embraced and explored, but it should be understood in the context that every dollar of customer revenue is infinitely more valuable than any tax credit or government grant. We are in business. The role of a startup is to find a scaleable business model, you might not find it the first time and the freedom/flexibility that programs like SR&ED offer you is the ability to get it wrong, to pivot and to try again. These programs are not a life support system for a bunch of non-businesses (or the people that can’t find a scaleable business model).

The Next Silicon Valley

Who knows where it will be? Fred Wilson assumes that “we will see Apples and Facebooks get built in China, India, Brazil, Eastern Europe, Western Europe, the Middle East, Africa, and plenty of other places”. This is great news for Canada and Toronto. Toronto is a diverse immigration hub:

  • Between 2001 and 2006, Canada received 1,109,980 international immigrants. The City of Toronto welcomed about one quarter of all immigrants (267,855) to Canada during this period of about 55,000 annually.
  • Half of Toronto’s population (1,237,720) was born outside of Canada, up from 48 per cent in 1996.

Much of what we think of as innovation, is really just the creative tension between differing viewpoints. Toronto is diverse. We are home to many different cultures, peoples, ideas and ideologies. We have the basis to be a gateway to the rest of the world as we transition out of the American Century into something new. We are an excellent breeding ground for the mashup of culture’s, people, and ideas. The next Silicon Valley might not be in Canada, but we could become the bridge between cultures.

What can you do?

“Fortune favors the connected entrepreneur.” @jcal7 #trueuniversity via @hnshah

There have been some changes to the Canadian startup scene in the past few years that are critical to continuing to help Canadian entrepreneurs:
  1. Stop referring to any part of Canada as Silicon Valley North.
  2. Set your expectations high! Don’t aim to be the Facebook for Canada. Why? Because the Facebook for Canada is Facebook! You need to be trying to build global companies, and you might validate it locally first. You want to play in the sandbox with the big kids, you need to act like you can play with the big kids.
  3. Stop thinking it will be easier if you move to the Valley. If you really feel that your only solution or course of action is to move to the Valley, then go, and show me that you can make it there. Otherwise it is just hot air, and a regurgitation of some rhetoric you read on TechCrunch or VentureBeat. If you can make it Silicon Valley or Hollywood, you should go try and stop telling me that it is easier to make it there than here.
  4. Start talking about all of the other great companies in Canada. We can all be coopetition. Help your friends. Make frenemies. The more people talking about activities, startups and people in Canada the better. There are a tonne of great startups and we all need to be ambassadors for the community as a whole. End your pitch deck with: 5 most recent fundings of Canadian companies and 5 other startups in Canada any potential investor might be interested in.
  5. Support legislation that makes it easier for entrepreneurs to immigrate to Canada. Support Startup Visa Canada. This can’t and won’t hurt any of your chances of making it. To be protectionary or isolationist is silly. Embrace one of the things that makes Canada great.
  • http://startupcfo.ca/ Mark MacLeod

    +1. Great post David. Love the recommendations. We don’t need to be in the Valley to build World-leading companies. I posted on this exact topic recently and wholeheartedly believe in it.

  • http://twitter.com/dwalper Dustin Walper

    Spot on, David. It’s almost like you took the words right out of my mouth ;-)

  • Jim Murphy

    Couldn’t agree more, as you know. :-)

    My favourite is your #2 above. Strike “Canadian” from the list of adjectives in your company’s profile.  Be the best company in your space, period.

  • http://engag.io/ William Mougayar

    Well said David.

    Now, let’s get Waterloo & Toronto working together in synergy, and that will be the biggest boost ever to Canada’s startup ecosystem.

  • http://startupnorth.ca Jevon

    Bingo! One mantra that we used to repeat often re: startupnorth/democamp etc was that all we wanted to do was give smart entrepreneurs a way to get to know smart investors. It was a simplistic way of viewing things but I think it is how the best work really gets done.

  • http://davidcrow.ca/ davidcrow

    Agreed. I don’t like “deal brokers”. Startups should not be paying “finders fees” to anyone to help them raise money. As entrepreneurs, we should be striving to build bigger, badder, better companies. 

    It’s always been about building a strong ecosystem of founders, funders, and others. 

  • http://www.getsnappay.com/ Jim Rudnick

    Gosh, David…I totally agree here! As an advocate for Hamilton and our gaining momentum as a tech centre, I can tell you  that a real part of what we face is the education of our own citizens to NOT to try to be a “new Silicon” anything. We need to be a part of this community first…and that means for us at least, understanding where we live and do biz and what part hi-tech can play to build our community…rather than to copy another! Our new RIC here, the Innovation Factory is leading the charge as is Software Hamilton just to name a few of the new-to-this-community leaders and we’re in the process of getting “buy-in” from our educational contingents too! Private biz is already a part of same and our latest foray into launching startups is our Hamilton Chamber/Innovation Factory TV show – “The Lions’ Lair” where 10 finalists all vie for up to $100k in starup funds! http://www.pitch-it.ca/ is the link to same.

    So, while others may “want” to be a silicon valley clone, we’d rather (if I can speak for my community here at least) be ourselves and nuture our own building networks to provide a “small town” feel and success too!

    :-)

    Jim

  • Estelle

    As an FYI there are more than a few semiconductor companies in the GTA (including fabless) than you mention in your blog posting, the GTA has according to my knowledge at leat 16 of these companies, this is significant in my mind.
    1. ViXS
    2. Peraso Technologies
    3. AMD
    4. Metabacus
    5. Fresco MicroChip
    6. Microbonds
    7. Kapik Integration
    8. Nanowave Technologies
    9. Geo Semiconductor
    10. Gennum
    11.   Morgan Solar
    12.   FOTA Technologies
    13.   Morega
    14.   Vennsa Technologies
    15. XYZ Technologies – (Gesturesense)
    16. V-Semi

  • http://fraserharris.tumblr.com/ Fraser Harris

    The “silicon” part of Silicon Valley was a period of time now past.  Sure, the more recent giants are built on silicon foundations, but it has no role in their businesses.  Steve Blank has a fantastic series on the unique history that lead to Silicon Valley: http://steveblank.com/category/secret-history-of-silicon-valley/

  • http://www.RohanJayasekera.com/ Rohan Jayasekera

    I’m really happy to see you mention Toronto’s diversity as an asset.  I often cringe at the products I see coming out of the USA that are intended for a global market:  “what do you mean, you guys don’t have zip codes?” — and even Microsoft (who should have known better) calling browser bookmarks “favorites” with American-only spelling.  It’s even worse in Silicon Valley, whose prime market is itself:  it often creates products that don’t translate well to New York City, let alone Small Town USA.  Toronto has a bias too, but it’s to English-speaking urban markets — which isn’t a bad place to start, and multilingual expansion is relatively easy here.

    With UNESCO “most multicultural city in the world” status, a highly educated English-speaking workforce, and early mass adoption of global technology trends (Japan and South Korea may be first with many things, but their trends often stay local), we’re ideally positioned to create products for a global market.

  • http://davidcrow.ca/ davidcrow

    Estelle,

    My argument isn’t that there is not silicon companies, whether it’s in the chip or solar or green space. But that the community in Toronto is not defined by this part of the industry.

    It’s companies like Workbrain, Docspace, Janna Systems. Or more recently Dayforce, Rypple, Freshbooks, Bluecat Networks, Kobo, etc. These are secondary industries enabled by computation, connectivity and new emergent behaviours.

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