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Canada’s Tech Sector is Thriving, Not Vanishing

canada startupsAccording to a feature story in today’s Globe & Mail, Canada’s tech sector is vanishing. Not only that but “the air is quickly coming out of Canada’s high tech sector – or what’s left of it.”

First reaction: this is a troubling situation.

Second reaction after reading the lengthy story: It’s an over-the-top feature that highlights many of the troubling parts of the Canadian high-tech sector such as RIM, exaggerates some issues (e.g. the venture capital landscape), while ignoring the positives such as the booming startup ecosystem and the entrepreneurial renaissance happening across the country.

To be clear, Canada’s high-tech sector is not without its warts but there are so many good things happening, it seems inaccurate, if not unfair, to thrust the problems into the spotlight while brushing aside or ignoring the growing number of success stories such as HootSuite, Wave Accounting, Freshbooks, Beyond the Rack, etc. In a recent post, I talked about the growing number of “tween” startups emerging - another encouraging sign for the high-tech sector.

Here are just a few items within the Globe & Mail article that I would take issue with:

- “High-tech companies now account for a razor-thin 1.6% of Canada’s benchmark stock index, the TSX composite”

Comment: The low number of high-tech companies on the TSX composite should, in an ideal world, be higher but it is arguably not the benchmark for assess the sector’s health. It is a different capital marketplace in which many high-tech companies never trade publicly, either because they get acquired or remain privately owned.

- “But unlike the U.S., there was almost no risk capital to support the growth of the tech industry here.”

Comment: This may have been true a few years ago but the growing number of incubators, accelerators and VCs providing seed capital are helping to make more risk capital available. It’s not a perfect situation but it is getting better.

- “The few Canadian venture capital firms that do take on tech investments tend to lack the experience, appetite for risk and know-how to help their portfolio companies – unlike U.S. venture capital firms, which typically employ one or more successful entrepreneurs.”

Comment: This is a sweeping generalization that ignores people such as Mark Macleod, Chris Arsenault, Scott Pelton, John Eckert, Robin Axon, Duncan Hill, John Albright, Mark Skapinker, J.S. Cournoyer and John Ruffolo that have the experience, expertise and appetite for risk to help their portfolio companies.

If the Globe & Mail were to ask me to write an in-depth feature story about Canada’s high-tech sector, the angle would be 180 degrees different from the doom-and-gloom perspective offered up today.

I’m excited and optimistic about Canada’s high-tech sector, and the amount of activity happening. Sure, it would be great to have large, multi-billion dollar companies trading on the TSX, and a venture capital sector oozing with capital the fact they don’t exist shouldn’t be the evidence that Canada’s high-tech sector is struggling to survive.

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  • http://twitter.com/pphilp Paul Philp

    Mark,

    Great response. It does seem to be 5 years out of date. The truer story is that some life is returning to the canadian technology ecosystem. Toronto was name the 4th best startup ecosystem in the world for a technology startup.

  • http://twitter.com/kenseto Ken Seto

    I think overall, the startup scene in Canada is better than ever. The big accelerators are putting out some kickass startups and there is good participation from both angels and funds in the seed rounds. However, it’s mostly the seed rounds that are being adequately covered.

    • http://www.markevans.ca/ Mark Evans

      I think the question the Globe may have been asking is whether Canada is able to build and support larger companies given the demise of RIM and Nortel. In writing a story like it did without giving much coverage to the startup scene, they missed a key part of the ecosystem. Thanks for the comment. Mark

      • Sean S

        I think we were clear in the story things are alive and well at the startup phase. Lot of great entrepreneurs and ideas. When you get to the $50m revenue range and need to raise real money to get to the next level, as Belair tried, is where the mst critical issues arise, with few options at the VC level Nd fewer yet on the public markets. So you hit the ceiling and the best option is often to sell out. Too often that seems to be the case.

        • Sean S

          (apologies for the typos in above posting)

  • http://abdallahalhakim.tumblr.com/ Abdallah Al-Hakim

    Great response Mark!! The story of RIM is dragging things done but people sometime forget that Waterloo has become much more than just RIM. First, they still have another world class company – OpenText – and the ecosystem is the area is thriving. The idea that if RIM disappears, then Waterloo is done is completely overblown. They have excellent support networks such as communitech and accelerator centre and a number of late stage startups that are still looking to employ talented individuals.

    Finally, what is encouraging about the Canadian scene is the recent vocal statements by startups such as Hootsuite and Wattpad in their intention to building a billion dollar company in Canada. I think this type of attitude would be necessary to build a long lasting and thriving startup ecosystem with second and third generation entrepreneurs.

  • http://engag.io/ William Mougayar

    That article shows that the Globe & Mail just doesn’t get it. They only see what happens 3-6 years into the startup cycle. Mainstream media not understanding the tech startup ecosystem is part of the problem we have, but they are slowly becoming irrelevant, so maybe it’s not a big issue after all.

    • http://www.markevanstech.com Mark Evans

      I guess my biggest problem with the Globe & Mail story is there was a lot of real estate but, for whatever reason, they decided to focus on a particular part of the market while pretty much ignoring the startup scene. It makes for a good front-page story but doesn’t provide an accurate view of the world.

  • Roger

    The fact you can name most of the Canadian ‘stars’ in a single sentence ought to be your first clue. Ya I know them all too, who doesn’t. Now where’s the B round $$$?

    • http://engag.io/ William Mougayar

      Being small doesn’t mean there isn’t good stuff happening. Canada is still recovering from the bad investments that VC’s made in 2000. It’s a long uphill comeback, but the trend is up.

      • Mark

        At a glacial pace, and not anywhere near fast enough to absorb the hoards of talented people who studied IT/CS/EE/SoftE in the late 1990s only to graduate into the Nortel collapse.

    • http://www.markevanstech.com Mark Evans

      Actually, I think there are a growing number of startup “stars”. Not to suggest the marketplace is teeming with success but there is reason for optimism. Thanks for the comment.

  • http://twitter.com/IdeaLeader Marty Gunderson

    Well done, Mark. Had to be said. The writer completely ignored the exempt market as well, where over $140B was raised, some of which was tech funding.

  • Mark

    New grads can spend many years unemployed, and submit their resumes to hundreds of these so-called ‘startups’. Most of them, at best, are just a person or two, trying to develop something. Not really what you would term as profitable firms with any significant employment. Ottawa may very well have a huge number of start-ups, but much of it is ex-Nortel, ex-Corel, and university grads who can’t find more traditional jobs trying to keep themselves busy. Not exactly firms that have much capital or are looking to hire. Solid tech jobs at the telecoms, utilities, and in government, often receive hundreds of resumes from qualified individuals. A real tragedy for some of the brightest grads that come out of our schools each year.