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Toronto is a Cockroach Nest

Sunday, May 1st, 2016

The University of Toronto and RBC recently announced ONRamp, an initiative that will include a startup incubator meant to help entrepreneurs network with investors and each other. ONRamp’s RBC Innovation Hub is the newest among many multilaterally funded programs meant to help startups in a city endowed with world-class academic and financial resources.  

Toronto distinguishes itself as Canada’s financial center, the fourth-largest metropolis in North America, and its namesake university ranks in the world’s top-20. Toronto is also one of the most ethnically diverse cities in the world, a metric that McKinsey & Co. says supports corporate success.

So where are the Toronto-bred unicorns?

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Ranked 17 in the 2015 Global Startup Ecosystem Report by Compass, Toronto has yet to produce a pre-IPO company valued at $1 billion or more. There’s no unicorn pasture in Toronto; it’s more of a “cockroach” nest. But given the shift away from frenzied VC funding of any startup that grew its user base, this might be a good thing.

Toronto’s Flixel exemplifies the cockroach, a moniker for startups that prioritize revenues over users when it comes to growth. Others include UberFlip and Wattpad. The city has also produced a number of reputable exits, including Kobo, which was bought by Japan’s Ratuken for $315 million, XE.com, and VerticalScope.

“It’s about shots on net, and muscling the good shots through i.e. you need a healthy number of seed/A stage companies, and when it comes to scaling you need growth capital,” says Kobo’s founder Michael Serbinis. “Toronto-Waterloo has the former now, but there are few funds here that can write big, later stage cheques.”

Serbinis currently serves as board director for the Toronto-based MaRS Discovery District, an innovation hub that connects startups with investors and corporations and is a founder of LEAGUE, a personal health management platform.

Endangered Species

If VC funding in the first quarter of 2016 is any indication of what’s in store for startups this year, unicorns are becoming an endangered species. KPMG’s latest Venture Pulse report noted that the first quarter of 2016 saw $25.5 billion invested across 1,829 deals, marking the second-straight quarter in which investors dialed back VC funding and activity.

Only 5 new unicorns were minted world-wide in the first quarter of 2016. By comparison, the fourth quarter of 2015 produced 13, while the second and third quarter each produced 25.

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Mark Skapinker, co-founder and managing partner at  Brightspark Ventures, says: “If you look at locations outside of Silicon Valley that have had huge successful companies, it is quite devastating to the surrounding market if they fail at a later stage [like] Nortel in Ottawa, Nokia in Sweden, Blackberry in Waterloo. So, having a unicorn is not always amazing for a city.”

The tougher funding environment will play to Canada’s strengths. The country’s banking system withstood the global financial crisis that began in 2008 while U.S. financial institutions went bust or survived on government support. However, the robust regulatory regime that kept Canada strong throughout the turmoil is a reflection of the conservatism that makes it difficult for all but the most self-sufficient startups – cockroaches, in other words – to get funded.

“Toronto does have a number of cockroach-type companies,” Skapinker said. “It is much harder to get funded in Toronto than somewhere like Silicon Valley and we have a [startup financing] infrastructure that is not very ‘robust’ so companies need to work much harder and be ready for hard times at every stage. That makes them ‘cockroach’ like.”

 

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The Downside of Jobs in the Startup Era

Wednesday, April 27th, 2016

Enthusiasm over the economic benefit of tech startups needs some grounding, particularly when it comes to jobs.

While we argue in TechPORTFOLIO that startups have ended the industrial era, we should also acknowledge that many of the jobs startups create are fleeting and short on benefits. Moreover, the sheer number of traditional jobs in industries that grew throughout the 20th century make them a vital component of most economies even if their numbers are in decline.

The following stats help put the importance of startups as employment drivers into perspective:

Startups can create a large number of jobs, but can also lose a large number too.

In a 2015 study, Stanford Graduate School of Business professor George Foster examined more than 158,000 startups across the world, looking at each for five years. He found that jobs shed by companies in their fifth year equal 65 percent of that year’s new hires. This number, which shows the difficulty many companies have transitioning out of their startup phase, doesn’t account for jobs shed by startups that go bust. Nor does it count jobs lost as a result of startups disrupting a traditional industry.

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In years three, four, and five, only 8 percent added new jobs. Foster shows startup job graphs less like a slapshot — with rapid year-on-year growth starting from zero – and more like “a high-speed game of snakes and ladders.”

A minority of startups account for the majority of startup revenue and job creation.

The Stanford study also shows that among five-year-old companies, the most successful 10 percent account for 80 percent of revenue and job creation. That successful 10 percent also accounts for a lot of job loss, because companies can only lose money and jobs if they make it in the first place.

Though startups are creating jobs, companies like Google and Amazon aren’t even among the top 50 largest U.S. employers.

As Tech Republic notes, tech giants like Google and Amazon touch many facets of our lives, however they don’t come even close to companies like Wal-Mart (2.2 million employees in 2015), McDonald’s (420,000 employees in 2015) and Home Depot (371,000 employees in 2015) in job creation.

Less than 1% of the U.S. labour force is employed in companies established after 2000.

In a study by Oxford economists Thor Berger and Carl Benedikt Frey cited by Re/code, startups aren’t necessarily the job-creation engines they’re supposed to be. While IBM employs more than 400,000 people, Facebook has barely  7,000 employees. Part of the reason startups don’t hire as many people is because they often have software taking care of many human tasks.

According to a prediction by Carl Benedikt Frey and Michael A. Osborne from Oxford Martin School & Faculty of Philosophy in the UK, “47 percent of total US employment is in the high risk category, meaning that associated occupations are potentially automatable over some unspecified number of years, perhaps a decade or two.”

Startup jobs are often riskier to take than a job at a mid-size or large firm.

According to a 2014 Robert Half Technology survey of 2,300 IT professionals, a combined 84 percent said they would prefer to work at a mid-size or large firm. As Sarah McMullin of Camino Information Services explains in an article for Monster, one can expect lower pay, fewer benefits, and working longer hours. Startup employees are often on their own in saving for retirement.

But, you won’t find job prospects improving in the industrial sector.

For the past decade, growth in the U.S. industrial sector has lagged its average growth rate tracked since 1920. Growth topped the historic average of 3.79 percent in only 15 out of 120 months ending March 2016, and has been in negative territory since August 2015, according to U.S. Federal Reserve data. Industrial output in China, Europe and other regions has either seen declining growth rates, or outright decline.

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The factors behind these numbers, including slower population growth, make it unlikely that industrial production will return to robust increases seen in earlier decades. Bring automation into the equation, and prospects for well-paying, full-time jobs with full benefits in the industrial sector weaken further.

While tech startup jobs still only account for a small portion of the labor pool, and might not offer the ideal in terms of job security and benefits, they will only grow relative to employment in the industrial sector.

Moreover, as technology developed by startups continues to occupy larger areas of our lives – from social networking to environmental remediation – jobs associated with these companies will become as important as assembly line work from a century ago, if not more.  

 

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VOX: Non-compete Enforcement Hobbles Tech Ecosystems

Tuesday, April 19th, 2016

Silicon Valley has soared on the strength of tech innovation while the “Massachusetts miracle” fizzled, Vox writes, in a piece that analyses how non-compete agreements in employment contracts have affected tech startup ecosystems.

California has gone further than other states to nullify such clauses. They’re not just void in the sunshine state; employers can be held liable for refusing to hire someone for not agreeing to sign one. The unfettered job-hopping freedom that results has helped to support companies like Intel, Tesla and YouTube.

In contrast, Boston-area ventures Digital Equipment Corporation and Wang Laboratories, behemoths in their day, are gone. (You might want to keep the volume down when you hit the Wang Labs link.)

However, the Bay area’s edge may get blunted.  

“Most states have laws like Massachusetts, and recently policymakers from Massachusetts to Hawaii have been considering reforms to noncompete agreements,” Vox says.

That might give Boston, as well as other areas boasting institutional strength in academia and venture capital, a chance to catch up.

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Smart Cities Take Root in Canada as Apps Learn to Improve Services

Friday, April 15th, 2016

In 2014 the City of Surrey, B.C. launched Surrey Request, an app developed to field requests for service, including waste collection and road repair. The result? The city saves as much as $91,875 each year, a figure that’s expected to increase as residents acclimate to the automated service.

According to Sean Simpson, Surrey’s Director, Information Technology, in-person requests cost the city $9 per transaction while a phone calls cost $4.50. In contrast, a request sent through Surrey Request costs as little as $0.25. The self-serve channel now handles 15 percent of the 70,000 requests it receives annually.

Surrey took its smart city initiatives a step further when they partnered with tech startup Purple Forge last year to pilot the company’s Powered by IBM Watson solution. Available through the ‘My Surrey’ mobile and web apps that residents use to gather city information, including government services and job opportunities, the solution will further reduce Surrey’s reliance on telephone-based services.

The app uses IBM Watson’s advanced cognitive and natural language capabilities to answer residents’ questions about city services. Now, Surrey residents can hit the app and ask it, for example, how to contact animal control in the event that a cougar wanders into someone’s back yard. My Surrey will then reply with an email address and a phone number.

Building Entrepreneurs

The drive to make cities smart provides more than just faster answers to questions about municipal services. It gives entrepreneurs responding to the demand the opportunity to create solutions that can be commercialized. This ultimately builds the depth and breadth of startup ecosystems because the solutions that get deployed in smart city initiatives can often be adapted for other applications.

The concept of ‘smart cities’ has gained traction since the 90s with the rise of Information Computer Technology (ICT). In an interview with Wired, Gerhard Schmitt, professor of information architecture, and leader of the ETH Future Cities Laboratory in Singapore, said cities are “limited to technical data — sensor inputs, control systems, apps”. To be ‘smart’, “cities need to be responsive — this is a human-focused approach, where citizens can give feedback on the functioning of the city to those who run it.”

Working closely with multinational corporations, academic institutions, and tech startups in its top-20 ranked tech ecosystem, Singapore is taking a holistic approach to solving complex problems like urban density, energy sustainability, healthcare, mobility, and more, by leveraging technology.

“Technology builds its knowledge”

Given that 50 to 80 percent of requests submitted to service centers are for common questions, and apps like My Surrey can provide a potential savings of $4 to $6 per call, cities switching to smart solutions can improve their bottom lines. In a press release from Purple Forge, Councillor Bruce Hayne, Chair of Innovation & Investment Committee stated that “IBM Watson’s learning abilities are such that the technology builds its knowledge and improves as citizens use it.”

My Surrey is one of several IBM Watson-powered smart city initiatives in Canada. As cities transition to smart initiatives, measuring a city’s IQ, developing ‘telepathic cities’, and building ‘smart nations’, may become the norm.

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Tech startups like Purple Forge have recognized that multiple opportunities leveraging their own IP exist within the public and private sectors. The company’s clients include five municipalities in the U.S. and Canada, as well as hospitals such as Norfolk General Hospital and industry associations including the Institute of Scrap Recycling Industries.  

Many Canadian cities are struggling with strained budgets as prices and demand for energy products fall, making more people dependent on provincial or municipal programs. As savings allow cities to divert funds to other priorities, and as the learning abilities of smart city apps improve the experience for users, smart technologies are likely to become more of a necessity than a nice-to-have.

Other Canadian startups pursuing smart city initiatives include Toronto-based Drven, and Kitchener-Waterloo based Miovision, which launched Spectrum, an app that sends messages to technicians if a traffic cabinet problem occurs.

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What Matters for Startups in Social Media and IRL: Funding

Thursday, March 31st, 2016

For startups in Canada, raising capital is a major talking point both in social media and in the real world.

A funding roadshow and an article by BDC’s Matt Roberts on the current state of VC investments show up prominently as key topics of the current startup ecosystem social media conversation in Canada.

Over the past three months, the conversation has been active and diverse with 1,067 tweets from 636 accounts, and a combined reach of 5.1 million potential impressions.

Here’s what it looks like: 

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The Fundica Roadshow appears near the center of the word cloud as people attending the event have shared actively in social media. The roadshow is a Canadian initiative by Montreal-based financial services company, Fundica. With stops in 10 Canadian cities between February and May, the event aims to “to educate entrepreneurs on funding opportunities and facilitate connections between funders and startups.”   

BDC’s associate director of venture capital Matt Roberts is another large term in the word cloud. Roberts sparked social media activity and conversation with this post:

In the post, he says 2016 won’t be as good as 2015 when it comes to funding for Canadian tech companies. The key issue? “The collapse of the Canadian Dollar, hitting a low that hasn’t been seen since the 2003,” he writes, which will impact talent and venture capital funding.

One of the most retweeted pieces of content in the conversation was from the Feb 23 launch of the City of Toronto’s #StartUpHereTo project, which aims to create awareness of, and support, Toronto’s startup ecosystem.

Capturing Canadian entrepreneur stories also emerged as a popular part of the conversation. Another top retweeted message was about Startup North’s entrepreneur survey.

The top shared articles in the startup ecosystem conversation online include:

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Incubator Connects Startups to AI

Thursday, March 31st, 2016

Qualified Ontario tech startups hope to benefit from a new public-private sector funding program meant to help them use advanced computing technologies including artificial intelligence to grow their businesses. The program is part of the province’s efforts to create jobs and foster the development of globally competitive technologies.

The new IBM Innovation Incubator Initiative, largely funded by the Ontario government’s Ontario Centres of Excellence (OCE) and technology giant IBM, is expected to support about 500 small and medium-sized companies in the province. Ontario is putting up $22.75 million (Canadian) through the “Strategic Partnerships Stream” from its Jobs and Prosperity Fund, while IBM is contributing $24.75 million. Another $7 million will come from industry contributions, according to OCE, which says the money is expected to generate more than $410 million in private sector investment and create up to 2,600 jobs.

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Life Saving Data

One business hoping to benefit is LifeLearn Inc., a Guelph, Ontario-based software company that provides veterinarians with instant access to medical research and information to better treat their furry patients. The platform, called Sofie, is powered by IBM Watson, an artificial intelligence system that uses natural-language processing and machine learning to derive insights from large amounts of unstructured data.

“A lot of startup entrepreneurs don’t necessarily have the background to develop really articulate business plans, so it’s hard to get funding,” LifeLearn president and CEO JamesCarroll says. “It boils down to access to capital to accelerate the growth process.”

LifeLearn sales have grown 30% annually over the past three years, and the company has added 24 jobs since it entered into a partnership with IBM in 2014, for a total of 64 positions today, according to Carroll.

Future With AI

While that’s already impressive, “If we had access to something like the [IBM Innovation Incubator Initiative] back then, we could have scaled that in 30 or 40 percent of the time,” Carroll says. That includes commercializing the product sooner and hiring even more staff.

“We have some pretty lofty goals with our Watson application,” says Carroll. One is to enable the Sofie program to interpret medical images, and not just text, as it does today.

With programs like the IBM initiative, Ontario hopes ventures like Carroll’s will scale up faster and strengthen its attractiveness to startup entrepreneurs and investors.

The Strategic Partnerships Stream of Ontario’s Jobs and Prosperity Fund promotes “enabling technologies” in sectors that include life sciences, financial services, information/communication, aerospace, and clean tech.

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Startup Conversation in Social Media Follows The Money To India

Thursday, March 31st, 2016

India has driven the growing Twitter conversation about startup ecosystems globally in the last 90 days, reflecting real-world discussions about the explosive growth of the country’s startup industry. (more…)

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EU Struggles to Unlock Value of a Digital Single Market

Thursday, March 31st, 2016

The European Commission recently passed the halfway mark in a plan to help revitalize the region’s economy by allowing freer digital trade, an initiative the executive body claims could unleash €415 billion ($473 billion) in economic growth through streaming, online shopping, and cloud computing by the end of this decade.

Realizing “a true single market for online content and services,” also known as the Digital Single Market, is part of the Europe 2020 plan. Among other measures, the plan includes steps to harmonize some transaction levies, end roaming charges within the economic union, and simplify rules about the amount of personal information consumers must provide to buy online. More than halfway to the deadline, European cities hold only three spots in a top-20 ranking of the world’s startup ecosystems conducted by data benchmarking company Compass.

“The European Commission’s Digital Single Market strategy is a progressive move that is needed to stimulate technology entrepreneurship within the European Union,” Dr. Ben Sanders, a lecturer in computer networking and information security at the UK’s Anglia Ruskin University, said in an interview with TechPORTFOLIO. “Fragmentation and barriers that have been removed in the physical single market remain in the digital domain and only serve to impede growth in this sector.”

Net Neutrality

Europe isn’t standing still, though. In June 2015, the European Parliament and Justice Council agreed to end roaming charges for all EU mobile subscribers within the trading bloc by June 2017 and to strengthen net neutrality rules protecting the right of every European to access Internet content without discrimination. These measures will be completed by an overhaul of EU telecoms rules this year.

In spite of the policy supports and investments being made by the European Commission, startups in Europe still find themselves at a disadvantage relative to the U.S. In a Harvard Business Review analysis, author Larry Downes looked into what may be holding back European startups. Downes found that the U.S. provided important advantages around issues such as tax policy, legal risk and regulation. In particular, Downes noted the following:

“Another piece of Clinton-era wisdom is a U.S. law known as Section 230. Passed as part of the Communications Act of 1996, Section 230 insulates Internet companies, website hosts, and ISPs from legal liability stemming from content posted by users. It’s hard to imagine the social media revolution — think Facebook, Twitter, Instagram, and Reddit — taking place without that background rule. Which is why none of those companies came from Europe, which has no such protections.”

The Wall Street Journal looked at another possible reason for why startups in Europe lagged those in the U.S.: the difference in appetite for risk. For example, European companies raised €2.6 billion ($3 billion) from venture capital funds in the first three months of this year. In comparison, U.S.-based companies raised $15.7 billion in the same time period.

“The United States of Europe”

“As of today you have two great centers: China and US. The choice is whether Europe wants to play the role of the third great center or a bunch of smaller ecosystems,” Federico Wengi, Venture Capital Associate at Berlin-based Paua Ventures GmbH, said in an interview. Wengi said he advocates something “even further” than the digital single market, “at best something that resembles the United States of Europe.”

Despite the challenges Europe is experiencing in its digital economy effort, or perhaps because of them, more substantial measures are slated to take effect soon. In January, members of the European Parliament (MEPs) passed a resolution urging the EU to table 16 Digital Single Market initiatives announced by the European Commission EC in May 2015 without delay.

Andrus Ansip, the European Commission’s vice president, who’s steering the Digital Single Market initiative has responded to doubts about its prospects. In a recent interview with re/code, Ansip said: “I would like to say very clearly: This commission does not have any plans to kill innovations or overregulate platforms. To provide more clarity? Yes. But to kill innovation, overregulating platforms? No way.”

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Shopify Takes Vacant BlackBerry Throne—And What’s Next for Ontario

Thursday, March 31st, 2016

Analysts tempered their expectations in early 2015 when Shopify announced an IPO to raise $100 million. At the time, the e-commerce software company had 165,000 clients ranging from press-on tattoo retailer Tattly to Tesla Motors. If share prices held during the IPO and Shopify retained its $713 million valuation, the offering would be deemed a success.

After the implosion of Nortel and the missteps of BlackBerry, Canada wasn’t exactly a symbol of tech success. Ottawa-based Shopify’s IPO offered a chance to restore some faith in the country’s innovation capability. A free-fall in the price of oil, which was about wipe out tens of thousands of jobs in the energy sector, raised the stakes even higher.

Shopify’s valuation didn’t just hold, share price soared. By the time the IPO was over, the company was valued at $1.9 billion — more than double initial expectations.

Success stories like Shopify underscore the importance of Ontario’s startup ecosystems of Kitchener-Waterloo, Ottawa, and Toronto to the economic growth and innovation of the province and nation. They generate wealth and attract foreign investment.

In 2015, Canadian venture capital investments hit a 10-year high thanks to 536 deals totalling $2.3 billion (Canadian). Of that amount, $1.25 billion was invested in Ontario, according to the Ministry of Research and Innovation.

Direct Economic Returns and Job Creation

Ontario tech ecosystems also provide significant, direct economic returns and spur job creation. According to the Kauffman report, The Importance of Young Firms for Economic Growth, new businesses account for 20% of gross job creation in the U.S., while research findings from Nesta in the U.K. indicate that 6% of young, high-growth firms create half of all jobs in that country.

These patterns align with the economic impact seen in Ontario, as noted by the Ministry. Within the Ontario Network of Entrepreneurs (ONE), 5,899 new jobs were created and an additional 8,970 jobs/year were retained over the last two years. Furthermore, through the risk capital programs currently in place, the ministry expects a return of $10 for every dollar invested.

While startups make substantial contributions to Ontario’s economy, the province also has much to offer tech startups. Software engineers making less than half of what their Silicon Valley counterparts do are abundant, and this will help keep the operating costs of startups down.

Cultural diversity within the province brings different perspectives and skill sets to the table. Federal and provincial R&D tax credits are generous – a company spending $210,000 (Canadian) on R&D could receive a refund of $135,000 in investment tax credits.

Given the increasing desire by the national government to support Canadian tech, and the province’s recent investment in the IBM Innovation Incubator Initiative, the Kitchener-Waterloo, Ottawa, and Toronto tech ecosystems may improve their global clout.

While tech companies are spread out throughout the province, clusters of high-performing startups exist within the Kitchener-Waterloo, Ottawa, and Toronto areas. These regions are producing internationally recognized tech companies with high valuations other than Shopify, including Freshbooks, Open Text, Kik Interactive, and Wattpad.

The characteristics of Ontario’s main tech ecosystems, and their respective economic impacts, are outlined below.

Kitchener-Waterloo:

Shopify was not the only Canadian tech company in the spotlight in 2015. Kitchener-Waterloo’s Kik secured unicorn status, and is one of two Canadian companies currently holding that title. Altogether, the Kitchener-Waterloo ecosystem has produced 1,845 new tech startups, thanks to the era ushered into the region by BlackBerry.

Communitech, an innovation centre, home to 1,000 startups, was co-founded by regional entrepreneurs including Jim Balsillie, former of CEO of RIM, the makers of BlackBerry. Today, BlackBerry’s former employees fill the workspaces of the region’s most successful tech startups including D2L and Freshbooks.

From 2014 to 2015, financing in Kitchener-Waterloo grew 97%, compared to the Canadian average of 5%. Although Kitchener-Waterloo is no longer considered a top 20 tech ecosystem, its drop from the ranking follows the removal of “startup output per capita” as a performance metric, not poor performance. It retains a growth index of 2.45, higher than half of the world’s top 20 ecosystems.

A 2013 PriceWaterhouseCoopers survey attributes more than 20,000 jobs to tech companies located in Kitchener-Waterloo. One of the biggest components of its success is the University of Waterloo, which accounts for $2.614 billion (Canadian) in annual “economic impact,” according to the study. The university’s comprehensive co-op program churns out top entrepreneurs and engineers sought by Silicon Valley’s tech giants, and its incubator, Velocity, has contributed to the success of startups like Kik and Vidyard.

Despite its impressive overall performance, a number of factors prevent Kitchener-Waterloo from fulfilling its potential. Techvibes notes that startups in the region raise a quarter of the funding received by their U.S. counterparts, and are four times less likely to obtain financing. In Silicon Valley, the bulk of angel investors are former startup CEOs who reinvest in the ecosystem.

In the Kitchener-Waterloo region, only 20% of former CEOs are investing in 80% of the companies, suggesting that an underlying fear of failure is hampering the region’s success.

In addition, its small size and relative isolation from Toronto is preventing the region’s startups from connecting with funding and resources. Infrequent, one-way trains hinder easy transit between Kitchener-Waterloo and Toronto, and a high-speed rail initiative connecting the two tech ecosystems will take 10 years to build and cost $2-3 billion (Canadian).

By contrast, Slovakia has entered discussions with Hyperloop Transportation Technologies to build a high-tech train that will carry passengers from Bratislava and Vienna or Budapest in 10 minutes or less for $200-300 million by 2020.

Ottawa:

Shopify’s success has revived some of the recognition that Canada’s capital city once received as a tech ecosystem, and the area buzzes with hopes of potential IPOs in the coming years. Ottawa hosts 1,700 tech companies, ranging from startups such as Series B, funded Kilpfolio, as well as being the location for the regional offices of multinationals including Apple and Facebook.

Ottawa also has the highest concentration of science and engineering employment in North America, outside of Silicon Valley, perhaps due to the numerous multinationals that also make Ottawa their Canadian headquarters, including IBM, Cisco, and Ericsson.

The Conference Board of Canada estimates Ottawa’s tech industry enjoyed a robust 8% annual growth over the past 5 years, higher than the global annual tech market growth rates. Aside from Shopify, its most notable and successful startup, Ottawa companies brought in upwards of $100 million (Canadian) in VC financing in 2015, including Corsa Technology, GaN Systems and You.i TV.

While the Ottawa tech ecosystem has experienced a recent bout of success, it still has a long way to go. Ottawa enjoyed its ‘Silicon Valley of the North’ status for number of years with notable examples including Nortel.

When the dotcom bubble burst in 2000, Ottawa’s pedigree fell. To date, there are no direct flights from Ottawa to San Francisco, an unnecessary obstacle between startups and Silicon Valley VCs. During the 2000s, Ottawa experienced dozens of venture-backed startup failures and former giant tech companies were either downsized, sold off, or disappeared.

For the most part, recovery has been slow and bootstrapped. If Ottawa wants to regain its global status in the sector, it needs to capitalize on recent success by pursuing venture capital both within and outside the city. At the very least, it needs a direct flight to San Francisco.

Toronto:

According to the 2015 Global Startup Ecosystem Ranking report, Toronto ranks 17th among the top 20 global tech ecosystems, the highest of any Canadian city. Canada’s most- (and North America’s fourth most-) populous city hosts between 2,500 to 4,000 active tech startups, with notable examples including Nymi and Chematria.

Efforts to cluster startups in the downtown core are underway. Increased support for incubators and accelerators such as Ryerson DMZ, home to IBM’s Bluemix Garage, has created 1,833 jobs. Foreign investments, driven by the elimination of taxes on capital gains, are bringing more money into the province. In 2015, Toronto saw a 30% increase in total venture deals from 2014. These are all signals that the city’s tech ecosystem is headed in the right direction.

However, unlike Kitchener-Waterloo and Ottawa, Toronto has yet to produce a unicorn. Despite efforts to cluster startups, tech companies are still dispersed throughout the city and its surrounding suburbs. An underdeveloped transit infrastructure is seen as an obstacle.

Unlike other global tech ecosystems such as Tel Aviv, Toronto lacks founders with hypergrowth-company experience, an important factor in scaling up. Toronto dropped 9 spots in the 2015 Global Startup Ecosystem Ranking report, largely due to a slow growth rate, which lagged behind Berlin, Sao Paulo and Bangalore, among others.

Support for billion-dollar companies:

In the near future, the current decline of the Canadian dollar could make Ontario’s tech ecosystems more lucrative in the eyes of foreign investors who contributed $591 million in venture capital in 2015, as reported by the Research and Innovation Ministry. Disruptive tech startups in emerging industries such as fintech, connected cars, artificial intelligence, IoT, and smart city technologies will have a critical economic impact in the next 5 to 10 years.

In response, Canada’s federal government has identified the need to attract large corporations to participate in incubators and accelerators as one of six key priorities to ensure Canadian tech startups become billion dollar companies. This could translate into more strategic partnerships that would yield benefits experienced in other global tech ecosystems, such as Singapore.

There’s one wildcard for the health of Ontario tech innovation: how the province’s basic income pilot program could impact startups and entrepreneurs.

In the meantime, Ontario’s entrepreneurs face the same headwinds hitting those in the U.S. and elsewhere in terms of funding. The volume of venture capital investment in North America dropped off sharply in the last quarter of 2015. A joint report released by KPMG International and CB Insights pointed out that a number of IPOs fell short of expectations. It also stated,“VC investors could be less willing to invest in innovative companies without a far stronger business case for how their new business models should create profit over the longer term.”

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