Startup “ecosystems” in Canada are doing well but…

Editor’s note: This is a guest post by Jesse Rodgers. Follow Jesse on Twitter . This post was originally published on November 21, 2012 on WhoYouCallingAJesse.com.

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The Startup Genome released another report mapping top startup cities but this time a bit more specific than it’s heat map from April of this year. Canada did well depending on how you interpret it with Toronto at #8, Vancouver at #9, and Waterloo at #16. In its previous report, Startup Genome ranked Toronto at #4, Vancouver at #16, and Montreal made the list at #25. Oddly Waterloo wasn’t listed in the previous ranking but made it into the top 20 in the new report while Montreal remained outside of it.

Focusing on my Ontario centric nitpick – the separation of the Toronto and Waterloo “ecosystems” when they are anything but separate is not going to give an accurate picture of Canada’s awesome startup communities. They are unique communities but their strength comes from how they work together in the same ecosystem. The emotional energy (and money) burned in defining how they are different is holding Canada back from an even better and sustainable growth curve. That energy is in the report.

In the report:

“Toronto competes for startups with regional competitors such as NYC, Boston and nearby Waterloo.”

Then in the Waterloo profile:

“In the near future, it will be interesting to see whether Waterloo is able to hold on to its talent base or whether it will be sucked into Toronto.”

Would you say that about Palto Alto sucking talent to San Francisco and vice versa? No. It’s the valley. A huge area that is far more developed but very similar to the Toronto – Hamilton – Waterloo. The problem, I think, is that at some point in the past when local economic development groups were competing on a similar scale for tax dollars (and manufacturing plants) they narrowly defined regions (Golden Triangle, Golden Horseshoe, etc) where everything above the escarpment is barbarians and the urban modern folk live below next to the cold blue lake.

There can be (and there are) distinct communities inside the larger Toronto – Hamilton – Waterloo ecosystem. Each community has its strength. Each success in the larger ecosystem helps the entire ecosystem.

The big problem the ecosystem faces (in Toronto):

Startups in Toronto receive 71% less funding than SV startups. The capital deficiency exists both before and after product market fit. Toronto startups receive 70% less capital in Stage 2 (Validation) and 65% in Stage 4 (Scale).

The ecosystem most likely lacks a sufficient quantity of all kinds of startup capital sources: angels, super angels, accelerators, micro VCs, VCs etc. As a result Toronto startups rely more on self-funding, or rounds from family/friends.

The other big problem (in Waterloo):

Waterloo has a funding gap (96% less in the second stage) for early stage startups before product market fit, probably due to a lack of super angels and micro VCs. There are high numbers of accelerators and much lower numbers of super angels and VCs than SV.

Solving the funding problem in Toronto also solves the problem in Waterloo, more companies that able to find the money and the talent to scale in either or both communities helps both or am I missing something?

Building a strong economy, community, and ecosystem isn’t a zero sum game.

  • Kyle

    So forget the Waterloo / Toronto / Montreal question, is there much point in launching a startup in Canada at all?

    Sure you can stay and fight and maybe make it easier for those who follow but is that what an entrepreneur is supposed to be tasked with?  Community is wonderful but at some point your responsibility is to whatever best serves the launching of your business.  In this environment it looks like moving to the west coast corridor is more likely to produce successful results.  It’d certainly be less of an uphill battle.

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    That is a good question. I think it matters a lot less where you launch and do not look at anything as a fight. You are going for customers, growth, and changing the world doing what you are passionate about.  Wherever you decide to start it is going to be hard.

    I also don’t think funders aren’t as regional anymore but there still remains the challenge of getting more from out of town funders something other than money. Building tight master/apprentice relationships are hard when you miss out on the random things that just happen every day.

  • http://startupcfo.ca/ Mark MacLeod

    Good food for thought Jesse. Two reactions:

    1.) Completely agree that this separation between Waterloo and Toronto is not helpful. Should work together.

    2.) to Kyle’s question below, plenty of big companies have been built / are being built here. Yes, historically Canadian startups have had to make do with less capital. But funds like ours (Real Ventures) is bridging the gap making it easier for US investors in come up here. Our co-investors include Atlas, Menlo, Khosla, FF, Google, Metamorphic, Lightbank and many others. 

    US investors are coming up here more and more. 

  • Mark Skapinker

    So Jesse, maybe it’s up to us to work to name the larger community and position it as a single market. Just like Silicon Valley, maybe we should say we focus on “Silicontario” or some other name?

  • http://davidcrow.ca/ davidcrow

    It is great to see Atlas, Social+Capital, Union Square Ventures, RRE, Charles River Ventures and Matrix Partners @bostonvc:twitter and others with the changes to Section 116 investing in Canada. It speaks to entrepreneurs building big visions and demonstrating big traction. Community is a support mechanism, it is no replacement for changing the world. All talk and no action or just “social douchbaggery” (being in the “scene”, drinking, not adding value, etc.). 

  • http://davidcrow.ca/ davidcrow

    Community is a support mechanism. Not an end goal. I’m guilty of focusing on the community side. It is a great tool for people to discover startups as a career option, it’s a great way to train developers, designers, marketers and others in the “startup culture” (whatever that might be). But it is not an ends, it is a means to end. Community is meaningless if we don’t build successful startups. 

  • http://davidcrow.ca/ davidcrow

    LOL, maybe SIlicon North ;-)

  • http://www.onceabeekeeper.com/ Kevin Swan

    While money is a piece of the puzzle there is a lot more to it. I remember when I was on the operational side of things a VC once told me that he has never seen a great Canadian startup not get funded. We are seeing tons of money come from south of the border and new money available from funds recently raised in Canada.

    Personally, I think that we have a talent challenge. Not in the sense that we don’t have enough smart people up here, we do. Our universities are first class and I would put up any engineering grad from Canada against their counterparts from the top schools in the US. However, the talent is raw and there is a lack of concentrated startup experience in our eco-systems. It is hard for startups in Canada to find someone who had a significant role in building a previous startup. This is especially true in areas of marketing, product development, sales and even engineers who are familiar with the current web technologies (Ruby, Python, Javascript, etc.).

    This talent crunch will always constrain the amount of money being put in the Canadian startup eco-system. However, this is not all bad news. The best way to develop the smart raw talent we have in Canada is to have more startup opportunities for them to join! With the increase in seed funding and the amount of money available both in Canada and coming from the US everything is heading in the right direction.

    We just have to remember that this will take time. It is a bit of a ramping up process, but I am already starting to see some candidates emerge in our companies that have been part of a past successful startup. I didn’t see that even 3 years ago. Even more encouraging, is that I have seen some Canadian startups able to recruit some great talent from places like the Valley, Chicago and New York. This will only further fuel the fire!

  • http://davidcrow.ca/ davidcrow

    Agreed. I think the focus on money is a red herring. We keep hearing this from VCs: @bfeld:twitter @devdutt:twitter @chamath:twitter @startupcfo:twitter @howardgwin:twitter @chrisarsenault:twitter @fredwilson:twitter and others. 

    “There will always be an imbalance between supply of capital and demand for capital. The whole ideas of “enough capital” is nonsensical, and complaining about it doesn’t actually impact it.” @bfeld:disqus 

    The talent crunch is going to be huge. I think it’s interesting to see companies like @waveaccounting:twitter do a manquisition/acquihire of @vuru:twitter and the talent grabs by @500px:twitter this is going to be the new battle ground. I am expecting that the incubators/accelerators will be a great, realtively inexpensive source of startup talent. You’ll get to see the team’s ability to execute and work together. 

  • http://www.onceabeekeeper.com/ Kevin Swan

    Great point on accelerators/incubators, @davidcrow:disqus . I would even add startup community organizations like Launch Academy in Vancouver, Startup Edmonton / Calgary, Notman House, etc. While it is unknown the impact these will have on launching successful startups we can be guaranteed that they are developing talent. If this talent all lands in other high-potential startups that is a win in my mind. Personally, I see them as talent factories and the more we can put through the better.

  • http://engag.io/ William Mougayar

    “In the near future, it will be interesting to see whether Waterloo is able to hold on to its talent base or whether it will be sucked into Toronto.” 

    I find this statement completely false. Actually, the reverse is happening. Waterloo is increasingly retaining talent there who would have otherwise moved to Toronto. 

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    I think the “talent” is moving freely within the ecosystem.

  • http://engag.io/ William Mougayar

    I think talent moves freely anytime, but my point is that Waterloo is offering increasingly attractive options for staying there.

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    Sure. It has always been an attractive option for those with young families. Now there are even more tech jobs in companies and more options to keep moving/growing in the Waterloo community.

  • Smacdonald

    They forgot Ayr. But then, we may be the only startup in Ayr…

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  • http://twitter.com/svanegmond Stephen van Egmond

    I’m late to this game, but in my view Waterloo and Toronto are visibly different ecosystems. Waterloo is certainly talent-dense, but it’s a smaller town and it’s possible to enumerate the companies and key players. A tech night is likely to bring out people with a diversity of expertise.

    Whereas in Toronto, a simple iOS developer night will pack a bar.

    I think it is also plain that Waterloo is heavy on RIM and companies that supply RIM.

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