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HIGHLIGHTS


Is Canada the world's next tech powerhouse?​

The Canadian tech landscape is rich with startups and small companies working to become the next billion-dollar enterprise.

Overview

Fueled by the decline in the natural-resources sector, the Canadian economy continues to battle recession. Yet, in this darkness, there is a shining light: the tech sector. Many analysts believe the tech industry in Canada has never been more promising, with the necessary ingredients coming together to launch Canada into a true tech powerhouse.

Canada’s technology sector is outperforming the rest of country’s economy. According to the Toronto Stock Exchange, the technology and innovation sectors have grown faster than any other on the exchange since the start of 2013, with the companies in these sectors of the exchange now valued at more than $250-billion and growing.i

Innovative universities, with world-class technology programs, robust government support and increased venture capital interest are driving a proliferation of emerging startups on their way to being transformed into high-growth technology firms. As momentum builds, powerhouse technology companies such as Google, Facebook, Apple, Twitter, Airbnb, and others now have offices in Toronto or Vancouver, taking advantage of available talent and allowing them to be closer to this rapidly developing ecosystem of high tech solutions.

Key Findings

The tech sector has not always been a promise of growth for Canada. The sector’s global collapse in 2000 took its toll, driving its redefinition in the region.

Historically the Canada tech sector was comprised of a few large companies, but now they’re no longer the powerhouses they once were. Canadian tech giant Nortel Networks filed for bankruptcy protection in 2009 and other large companies are continuously becoming smaller; downsizing employees and facing a decrease in both revenues and market share.

The demise of large companies comes with a silver lining in the redistribution of talent, as many former leaders and employees join rising tech companies or establish startups capitalizing on the knowledge and experience of the available talent pool. Now, rather than a sector defined by a few massive companies, the tech landscape is comprised of a large number of startups and small emerging tech companies working to become the next billion-dollar enterprise technology company.

Two of Canada’s SaaS business model companies have reached this mark. Vancouver’s social media management service Hootsuite and, after a highly popular IPO, small business software supplier Shopify recently achieved a $1-billion valuation as well.

Canada is home to many other growing brands including cloud-based accounting software firm Freshbooks, video marketing services provider Vidyard, talent acquisition platform Careerify (recently acquired by LinkedIn) and educational platform D2L.

It is a hotbed for wearable technology companies as well, such as Thalmic Labs (Myo), InteraXon (Muse), Neptune (Pine), Bionym (Nymi), and others.

Analysis

Three necessary ingredients -- money, talent and a flow of innovative ideas -- are converging to make Canada a global technology development contender.

In the last 18 months, Canada’s tech companies have attracted larger venture capital investments, indicating a class of maturing businesses with promising market opportunity. The average dollar amount per deal rose from $4.4 million in 2013 to $5 million in 2014.ii Twenty-one companies collected more than $784 million.

Further, the speed at which early funding is followed by second and third round funding is accelerating. While historically seven or eight years separated first and second round funding for Canada’s startups, that gap is decreasing to the two to three year pace experienced by Silicon Valley companies. As venture capital firms get more exposure to the quality of Canada’s startups, their investment is a sign of significant sector growth on the horizon.

In addition to the flow of talent to the new, fast-growing tech businesses, Canadian universities are also feeding the talent market by building programs to develop resources with technology skills, and private enterprises are investing as well. For example, SAP launched a program in Canada to promote technology careers through investment in science, technology, engineering and math education.iii

MaRS, a non-profit public-private partnership in Toronto is dedicated to supporting and accelerating innovative companies by providing venture services, funding and facilities. This initiative has helped create over 5,000 jobs and raise $1.3 billion in capital.iv Both federal and provincial governments have also made it easier for employers to obtain the talent they need by providing several funding programs, be it in the form of tax breaks, direct grant endowments or wage subsidies.

Ambition and innovative ideas have always been prevalent among tech entrepreneurs in Canada. The mentorship network is strong and Canada’s ability to nurture innovation is improving. Increasing availability of funding and talent provide greater opportunity to help build ideas launched in garages into businesses of global scale.

To further encourage innovation, Canada now actively targets immigrant entrepreneurs with the skills to build businesses and create jobs in Canada. Canada’s Start-up Visa Program is the first of its kind in the world, enabling entrepreneurs to immigrate to Canada if they can get support for their business ideas from one of a group of designated organizations.v

Whether it is in Vancouver, Toronto, or the Waterloo area, the components are coming together to signal a positive outlook for the tech sector. The expanding technology ecosystem of Silicon Valley North is likely to continue to outpace Canada’s overall economy and just might be Canada’s ticket to economic recovery.

i El Akhad, Omar, “As economy falters, the tech sector continues to climb”, The Globe and Mail, September 13, 2015, http://www.theglobeandmail.com/report-on-business/as-economy-falters-the-tech-sector-continues-to-climb/article26349564/

ii Dingman, Shane, “Who needs Silicon Valley? Canadian Startups Scoring Bigger Deals”, The Globe and Mail, February 10, 2015, http://www.theglobeandmail.com/report-on-business/small-business/sb-money/business-funding/who-needs-silicon-valley-canadian-startups-scoring-bigger-deals/article22904528/

iii Reid, Andrew, “Keep An Eye On Talent And Tech In Canada”, TechCrunch, October 20, 2015, http://techcrunch.com/2015/10/20/canadian-startups-the-entrepreneur-to-moose-ratio-is-narrowing/

iv MaRs website accessed November 9, 2015, https://www.marsdd.com/about/results/

v Start-Up Visa, Government of Canada, http://www.cic.gc.ca/english/immigrate/business/start-up/