20 Jan Why and how Canada has become a startup and tech talent paradise
Canada’s innovative ecosystem is competing with Silicon Valley in attracting talent, startups, and investments. The study we present has identified at least 7 factors that make Canada the new “mecca” of global innovative finance. The analysis that follows proposes, in addition to the data, a synthetic but representative time-line of the facts that marked the rise of Canada among the global leaders of innovation, not to mention the geography of a hi-tech revolution that has its own peculiarities in every province.
- The fourth revolution is now
- Canada Hub of Innovation in 7 key factors
- Short time-line of the Canadian digital revolution
- THE HUAWEI CASE
- THE GREAT ARE GOING TO LIVE IN CANADA
- THE ARCTIC UNICORNS ARE REVEALED TO THE WORLD
- The tech geography of Canada
- VICTORIA – “TECTORIA”
The Fourth Revolution is now!
It is the fourth revolution in the history of humanity, as explained by Luciano Floridi, professor of philosophy and ethics of information at the University of Oxford: we live “onlife” in a new ecosystem, the “infosphere“, in which man and artificial intelligence they are immersed and where the barrier between reality and virtual, online and offline, has fallen.
Economically, according to the report on the digital economy of Unctad, the United Nations Conference on Trade and Development, the digital revolution is already worth 15% of the global economy, with uneven geographic development. Inequalities polarize, but the growth of the startup world does not stop. Between 2016 and 2018, startups created a value of 2.8 trillion dollars equal to a G7 economy and higher than the UK’s annual GDP. (Global Startup Ecosystem Report 2019 data by startup genome).
Source: Global Startup Ecosystem Report 2019 by startup genome
The United States and China are leading the digital revolution with the US-dominated global IT services industry and the value of ICT production concentrated mainly in East Asia (in China). But the commercial tensions between Beijing and Washington and the Trump era of the “Americans first” can be an obstacle, putting restrictions on the mobility of talents and technologies.
In this game, there is also another player that is accelerating, more silently, its hi tech revolution: it is Canada.
Canada Hub of Innovation in 7 key factors
The Candian innovation market is already a solid market for venture capitalists. As of the third quarter of 2019, $ 4.7 billion had been invested in 387 transactions. The average deal size rose to $ 19 million in the third half, almost 3 times the third quarter of 2018, up 215% from the average business size in the period 2014-2018 ($ 6.1 million). ICT companies accounted for 66% of total investments in 2019 ($ 3.1 billion out of 223 contracts) with the life sciences sector in the lead with a share of 19% ($ 886 million out of 77 deals). The early stages raised 41% ($ 1.9 billion out of 172 operations) of total investments, a sign of a new wave of dynamism towards startups in Canada. 32 exits supported by VC for $ 3 billion, including two IPOs supported by VC for 2 companies based in Montreal. (Source: Venture Capital Canadina Market Overview).
Canada’s advantage has made its way year after year, fueled by several factors that have created an innovative, competitive ecosystem and moreover supported by an excellent quality of life.
1. The structurally competitive and innovative university system that provides extraordinary talents and that works in partnership with the business world;
2. The immigration policies aimed at attracting skilled worker, a “start-up visa program” and a special program, the Global Skill Strategy which has enabled 30,000 workers to access the Canadian market more quickly;
The most important Canadian technology companies come from the Ontario Toronto-Kitchener-Waterloo technology corridor, nicknamed the “Silicon Valley of the North”, where between 2,500 and 4,000 technology startups are located.
3. the cost of living decidedly lower than in Silicon Valley which allows foreign companies to pay lower wages. The competition on talent in technology markets also triggers a significant impact on the residential real estate sector. 32 of the top 50 tech talent markets have a cost of living higher than the U.S. national average.
Although the talent rivalry also exists in Canada – Toronto, with Boston, is the city where tech wages grew the most in 2018 (+ 9%) -, the relationship between the level of tech workers’ wages and spending on rents is significantly lower than most tech hubs in the United States. This report in the Bay Area stands at 26.4%, in Los Angeles at 25.8%, in San Diego at 22.1%, in New York, it rises to 43.6%. Vancouver and Toronto have a rent-to-tech wage ratio of around 20% but Montreal offers itself as a paradise for tech workers with an extremely advantageous wage-to-rent ratio (12.6%). (Source: State of Salaries report; 2019 Tech Scoring Tech Talent).
4. Not to be underestimated on the subject of workers, it is also the Canadian national health system, funded by the government, which allows tech companies not to have to worry about the health coverage of their employees.
5. Canada also boasts a highly technologized population. According to the Digital Report 2019, created by We Are Social and Hootsuite, the penetration of the internet is 91%, 33.84 million internet users in Canada and 25 million those who use social media, 22 million from mobile. 84% of Canadians use the internet daily, on average spending 5 hours a day on social media or using video streaming services or listening to music. The internet medium in Canada is a mature medium, in which the percentage of users who use ad-block tools (42%), who master voice search and voice command (27%) and who (80%) over 15 years high make payments or shop online.
In 2019, Ontario raised over $ 1.4 billion in VC investments with 119 deals concluded.
6. A political financing strategy, both federal and provincial, built synergistically with universities and private R&D centers, and aimed at increasing investment in Canada in innovation and R&D, thanks to tax incentive programs, acceleration of innovation and access to credit such as the Accelerated Investment Incentive, the Strategic Innovation Fund that has disbursed loans for $ 1.26 in five years, the Pan-Canadian AI Strategy dedicated to the Artificial Intelligence sector, with the various government levels has made important supplementary investments across the country for $ 405 million. The provinces of Alberta, Ontario and Quebec have all made significant investments in their provincial AI ecosystems to increase funding for the Pan-Canadian Federal Strategy. (Source: Annual Report of the CIFARPan-Canadian AI Strategy).
7. Finally, Canada allows incredibly vast access to the international market thanks to the economic and commercial treaties stipulated. It is the only G7 country that offers investors preferential market access to over 1.5 billion consumers in 51 countries. Among the trade agreements, the CUSMA, the Canada-United States-Mexico agreement, signed in November 2018, which replaced NAFTA; CETA, the agreement entered into with the European Union which provided for the abatement of customs duties and which therefore makes Canada a door for all EU countries; the CPTPP, the global and progressive agreement for the trans-pacific partnership (CPTPP) stipulated with 10 countries of the Asia-Pacific region: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Once fully implemented, the 11 countries will form a trade bloc representing 495 million consumers and 13.5% of global GDP, providing preferential access to key markets in Asia and Latin America.
Short time-line of the Canadian digital revolution
Rome was not built in a day and not even Canada has become such a dynamic market, coming to compete with Silicon Valley for the attractiveness of foreign investments, from one day to the next. Fishing here and there from the press review, the most recent events and going backwards, one realizes that the time-line of Canada’s digital revolution and its rise among the global big players of big data and artificial intelligence has started a long time ago.
In 2015 Canada jumps into the spotlight of the world’s innovative and financial community, presenting its first “unicorn” to the world, Shopify, valued at 1.9 billion dollars.
THE HUAWEI CASE
Huawei confirmed in June 2019 that it had cut 600 jobs in its Silicon Valley research center. And in a recent interview with Globe and Mail, the number one of the Chinese company Ren Zhengfei, he announced his intention to move Huawei’s research and development center from the United States to Canada. Due to American sanctions, Huawei’s relations with Silicon Valley are increasingly troubled: the United States fears that Chinese technology will be used on American soil for espionage actions and forbids US companies to acquire technology from Huawei and even to sell it.
China reacts with a nationalization plan for IT components, which will lead to reclaiming everything that is American by replacing it with Chinese counterparts.
Canada could benefit. Of course, the diplomatic incident of December 2018 is not yet resolved, when Meng, Huawei’s financial director and daughter of the company’s founder, was arrested in Vancouver at the request of the United States for violating sanctions against Iran. The extradition case is still in the hands of the Canadian court.
In this scenario, with Canada not yet deciding whether to ban Huawei from supplying equipment for the next 5G wireless network, China’s move to invest in Canada seems like a declaration of goodwill, a do ut des that Canada will soon have to respond politically.
Over 1,300 startups are based in Montreal; 66% of them have plans to use or already use artificial intelligence as a technological lever. The implementation of AI is also considered a priority for most of these startups.
THE GIANTS ARE GOING TO LIVE IN CANADA
Uber has also announced that it will invest over $ 200 million in Toronto in five years to expand the Uber ATG research laboratory on self-driving cars – led by Raquel Urtasun professor at the University of Toronto and AI global self-driving expert. car – and create an engineering structure in Canada. Dara Khosrowshahi, Uber CEO, said the investment will increase Uber Toronto’s workforce to 500 employees in the coming years, compared to around 200 today.
Since 2017, Facebook has established one of the four research hubs dedicated to Artificial Intelligence in Montreal, with the commitment of the big social media to invest 7 million dollars.
The FAIR Montréal laboratory is an international recognition, by an excellence of the economy, of the extraordinary development of the Canadian ICT sector, especially in Québec.
Google has located a research and development office in Canada, in the Waterloo region, in Kitchener, and also plans to transform Toronto into a smart city with a new neighborhood, built according to the most innovative technologies. Sidewalk Labs, the innovation division in the field of urban planning of Alphabet, a company that belongs to the giant of Silicon Valley, has in fact responded to the announcement launched by Waterfront Toronto, the Canadian administration established in 2001 by the governments of Canada and the Ontario and the city of Toronto to redevelop the area of the city overlooking Lake Ontario. Investments worth 980 million and approximately $ 4.3 billion in annual tax revenue (by 2040).
Netflix founded Netflix Canada in 2017, the first permanent production presence outside the United States of the well-known streaming on demand platform, pledging to invest at least half a billion CAD dollars in films and television programs produced in Canada, both in English and in French, in five years.
Technology is Victoria’s largest industry today with annual sales of $ 4.06 billion, an economic impact of $ 5.22 billion and over 16,775 employees in 995 high-tech companies.
In 2018 Amazon announces the opening of a 113,000 square foot Toronto Tech Hub, and adds to the 800 corporate employees in Toronto the creation of new 600 jobs in areas such as software development, machine learning, cloud computing , digital advertising and artificial intelligence. Amazon already has over 10,000 employees in Canada, its technology hubs in Toronto and Vancouver, in the Montreal area and in Alberta, British Columbia and Ontario. Since 2011, the tech giant has invested over 3 billion Canadian dollars in Canada, including customer satisfaction facilities, cloud infrastructure, research and employee compensation.
THE ARCTIC UNICORNS ARE REVEALED TO THE WORLD
The e-commerce platform Shopify, a Canadian multinational that allows merchants to manage every aspect of their sales, founded in Ottawa in 2006 by Tobias Lütke, Daniel Weinand and Scott Lake, launched its IPO (initial public offering) in 2015 on the New York and the Toronto Stock Exchange, reaching a market value of 1.9 billion dollars. Canada jumps into the spotlight of the world’s innovative and financial community, presenting its first “unicorn” to the world, those startups that investors value at least $ 1 billion.
In Canada, to define these startups, we prefer to speak of “arctic marine unicorns”, the “narwhals”, really existing cetaceans that have a peculiarity: a tooth, similar to a vine, just like the unicorn.
Brent Holliday, CEO of Garibaldi Capital Advisors, coined the term in 2014 to describe Canadian tech companies worth $ 1 billion (Canadian) or more. Another “world famous” Canadian company has also joined this “pack”: Hootsuite, the most important social media management platform, launched in Vancouver, British Columbia, in 2008.
Among the latest Canadian unicorns, we must mention, Nuvei, a provider of commercial services and payment processing solutions with a value of $ 2 billion and Coveo in the AI sector (1.1 billion).
The tech geography of Canada
The most important Canadian technology companies come from the Ontario Toronto-Kitchener-Waterloo technology corridor, nicknamed the “Silicon Valley of the North”, where between 2,500 and 4,000 technology startups are located, according to the Tech Toronto report.
According to the same report, the tech sector employs over 400,000 workers in Toronto, 15% of the entire Canadian job market. The 2019 Global Startup Ecosystem Report ranks Toronto-Waterloo in 13th place in the Top 30 of the best global startup ecosystems. While, according to Innovation Cities 2019, the ranking of the commercial data provider 2thinknow that every year measures the performance of 500 cities, comparing the best urban innovative ecosystems in the globe, Toronto is at n.10 among the cities in the world to settle startups.
Source: Global Startup Ecosystem Report 2019 by startup genome
Waterloo, a university city two hours from Toronto, has the second highest startup density in the world, home to some of Canada’s largest technology companies.
Ontario’s top 5 largest ICT corporations include:
- IBM Canada, Markham ON
- Alphabet (Google), Toronto ON
- HP Canada, Mississauga, ON
- Cisco Systems Canada, Toronto ON
- Microsoft Canada, Mississauga ON
The experience of the region, in rapidly growing sectors such as machine learning, has led almost all multinationals in the sector to open research laboratories in Toronto: those mentioned in the time-line that we have reconstructed are only a minimal part of the investments of hi tech big players that are coming together in Canada and in particular here. All the big ones are in Toronto: from Samsung to the visual computing giant NVIDIA, to the chip maker Intel, which plans to create an engineering laboratory north of the city dedicated to graphics processing units or GPUs (increasingly used in machine applications learning). Microsoft announces that it will open a new office in downtown Toronto and will hire 500 employees by 2022, and as many students and interns. In the meantime, he is touring his famous “Ignite” conference, dedicated to cloud technologies and developer tools, and he chooses Toronto between the North American stops of 2020. In 2019, Ontario raised over $ 1.4 billion in VC investments with 119 deals concluded.
Success Factor Highlights. Source: Global Startup Ecosystem Report 2019 by startup genome
But the scene in Canada is also dynamic at a geographical level and the real strength lies in the fact that practically all Canadian centers are expressing an impactful level of innovation, providing the country with quality scientific talents and spraying the local ecosystem of investments and public funding.
In the 2019 Global Startup Ecosystem Report already mentioned, among the “Challenger Ecosystems”, extremely dynamic scenarios that could soon enter the Top 30, Montreal in Quebec could not be missing. Canada’s most “European” city is, in fact, an important global hub of artificial intelligence, Big Data and analytical information, with revolutionary applications also in the aerospace field. The Montreal Startup Ecosystem Portrait contacted over 1,300 startups based in Montreal and 66% of them said they had plans to use or already use artificial intelligence as a technological lever. The implementation of AI is also considered a priority for most of these startups.
The city is also proposed as a gateway from Europe to all of North America. Its airport, Montréal-Trudeau, is Canada’s most international airport, with 62% of international passengers.
The quality of life and the excellent wages-rents ratio already mentioned make it a rapidly expanding destination for the development of global innovation.
The quality of life and the excellent wages-rents ratio already mentioned make it a rapidly expanding destination for the development of global innovation. In addition to Google’s aforementioned R&D laboratory, Montreal also attracted Microsoft, which doubled the size of its local research team and budgeted, by 2022, $ 6 million for the University of Montreal and $ 1 million for McGill University. In 2018, the city received venture capital investments for $ 861 million.
VICTORIA – “TECTORIA”
Victoria is also getting noticed for the tech scene, so much so that it has been renamed “Tectoria”, the tectorians, workers, entrepreneurs and tech investors are in fact increasingly popular in the city. VIATEC, the Victoria Innovation, Advanced Technology and Entrepreneurship Council, brought together some of them, in its co-working space known as Fort Tectoria, among local innovators and over 35 tech startups. Technology is Victoria’s largest industry today with annual sales of $ 4.06 billion, an economic impact of $ 5.22 billion and over 16,775 employees in 995 high-tech companies. (Data: City of Victoria). Technology is Victoria’s largest industry today with annual sales of $ 4.06 billion, an economic impact of $ 5.22 billion and over 16,775 employees in 995 high-tech companies. (Data: City of Victoria). True, there are still few companies that have exceeded 50-100 employees, but Victoria is a dynamic and thriving city, a community that also offers a high quality of life, so investors continue to arrive.
Vancouver, which has lost some positions in the ranking drawn up by genome startups, remains in the top 25 of the best global ecosystems for startups. Two factors are identified for this loss of positions. The first is the rise of four of the best new ecosystems (Denver-Boulder, Lausanne-Bern-Geneva-Va, San Diego, Washington, D.C.). Of these, three have one of the 20 best life science ecosystems, which Vancouver does not have. The second factor is a level of funding that is not very dynamic compared to new entries. Nonetheless, Vancouver equals Toronto’s score in Exit numbers and growth between $ 50m and $ 1bn. The ecosystem continues to grow and Vancouver is one of the 13 main global startup hubs with easier access to foreign markets for startups than the Silicon Valley “colleagues”.