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Why Canada is becoming a start-up mecca rivaling Silicon Valley

Key Points
  • Five Canadian companies made CNBC's 2019 Upstart 100 list unveiled on Tuesday: Attabotics, Calgary; Cmd, Vancouver; Deep Genomics and Nobul, Toronto; and RenoRun, Montreal.
  • Collectively, these promising start-ups raised more than $77 million in venture capital.
  • The entrepreneurial ecosystem is booming in major cities in Canada, thanks to government incentives, a growing tech talent pool and access to venture capital.
A Canadian flag flies amid the Toronto skyline
Roberto Machado Noa | Getty Images

Ten years ago, when Toronto entrepreneur Brendan Frey wanted to start his company, he says, "conditions weren't right."

But by 2015, he found, the local environment had become a lot more hospitable to start-ups. So he launched Deep Genomics, a genetic medicine company. It uses artificial intelligence to discover and advance therapies for rare genetic disorders. Frey, a professor of engineering and medicine at University of Toronto, developed the technology at the university and launched his startup at MaRS, a hub with more than 200 partners in the corporate, government and academic worlds that helps connect startups with funding and advice.

"In the last five or six years, there has been an increasing tendency for the university to be open with its intellectual property, in terms of letting companies spin out of the university and take their IP with them," says Frey. "The University of Toronto and other universities in the Toronto, Waterloo, Montreal corridor have recognized if they are more open with letting their investigators take their IP, there is a very good chance those investigators will create new companies in Canada that will bring a lot of wealth into the innovation system."

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Having raised $20 million in funding and hired 40 employees, Deep Genomics has just declared one drug candidate — a treatment for the rare and potentially life-threatening genetic disorder Wilson Disease — and plans to roll out nine additional candidates next year.

Frey believes the company's location has fueled its success.

Deep Genomics takes advantage of the Scientific Research & Experimental Development Program, through which the Canadian government matches every dollar of salary the company pays workers involved in R&D. "Canada has one of the strongest programs for encouraging companies that are tech-based to flourish," he says.

Brendan Frey, CEO and Founder of Deep Genomics, spun out his start-up from the University of Toronto.
Deep Genomics

Frey isn't alone on being bullish on the entrepreneurial ecosystem in Canada. Innovative business ideas are bubbling up in this emerging start-up mecca that is now rivaling Silicon Valley. It's not surprising that five Canadian companies made the 2019 CNBC Upstart 100 list unveiled on Tuesday. The ranking of the world's most promising start-ups included Deep Genomics; Attabotics, Calgary; Nobul, Toronto: Cmd, Vancouver and; RenoRun, Montreal. Collectively these fledglings raised over $77 million in venture capital.

Canadian venture investors

Their funding success is indicative of a broader phenomenon. Canadian venture capital funds poured about $2.2 billion into 249 financings in the first half of 2019, according to the Canadian Venture Capital Report, published by CPE Media Analytics. The growth has been driven by scale-ups like Sonder Canada, an Airbnb partner, which raised the equivalent of $250 million in funding this past summer, the report found.

CPE Media predicted that disbursements from Canadian venture capitalists were on track to hit $5 billion for the first time since 2000. With entrepreneurship percolating, Tech Toronto, a community for entrepreneurs, now estimates there are 2,500 to 4,100 active tech start-ups in that city alone.

Big tech companies such as Airbnb, Facebook and Google have a presence in cities such as Montreal and Toronto, adding to the energy of the entrepreneurial ecosystem. "They invest in the community," says Eamonn O'Rourke, CEO of Montreal-based RenoRun, a tech company which offers on-demand delivery of construction materials.

And more corporate investment keeps flowing in. Intel has announced plans to build a graphics-chip design lab in Toronto, Canada's largest city. Choosing Toronto was a strategic move for Intel, which was drawn in by the city's thriving technology landscape, as everyone from NVIDIA to Samsung has opened AI or research labs in the city in the past year.At the same time, car-hailing service Uber Technologies will be opening a massive engineering hub there as well.

That doesn't mean no one sees room for improvement. More than 100 Canadian CEOs recently wrote a letter to Liberal Prime Minister Justin Trudeau, Conservative Party Leader Andrew Scheer, New Democratic Party leader Jagmeet Singh and Green Party leader Elizabeth May saying these parties need to make it easier for the country's tech companies to get access to capital, customers and talent.

"When it comes to growth capital, most of our capital is coming from the U.S.," notes Regan McGee, CEO of Nobul, an online marketplace that connects home buyers and sellers. The three-year-old startup, based in Toronto, has raised $20 million from firms such as Westdale, Symetryx, McGee Capital and others and has rolled out its service in Canada and the U.S.

An environment fostering innovation

But many entrepreneurs say Canada still has a lot to offer entrepreneurs. One big advantage, say many, its rich talent pool, fueled by a strong university system and immigration policies that allow many highly educated immigrants to come to Canada.

"Universities are releasing fantastic candidates that are ready to work into the environment, driving lots of innovation at early-stage companies like mine, says Jake King, CEO of Cmd, a company founded in Vancouver in 2016 that helps customers protect their Linux servers. Cmd employs about 35 employees, with 25 in Canada.

In his own local area, King finds talent among the graduates of University of British Columbia, University of Vancouver, and Simon Fraser University. Many have been exposed to entrepreneurship while in school, he finds.

"Universities foster really innovative ideas and methods of thinking," says King. "There's an entrepreneurial spirit—a drive to build something well and think about problems in a different way."

King, who hails from Australia originally, finds the vibe is similar to that of his native country, also known for its strong entrepreneurial community.

The talent pool

And there is rivalry for talent in Canada, says, King, it's not overwhelming. "There's not as much competition as New York or San Francisco," he says.

McGee, at Nobul, has had a similarly good experience in staffing his company, which he founded in Toronto in 2017.

Universities are releasing fantastic candidates that are ready to work into the environment, driving lots of innovation at early-stage companies.
Jake King
CEO of Cmd

He's found it easy to find both recent graduates and immigrants with the right STEM qualifications.

"It's a good environment when you are trying to do something that requires engineering and tech," says McGee. "The skill set of the people here is first rate. You get the best of the best from around the world."

And salaries are not astronomical, given that Canada has a lower cost of living than Silicon Valley. "No one in our company makes more than $100,000 per year," says McGee.

Another factor that gives Canadian start-ups a leg-up is the nation's government-funded healthcare system, he finds. "We don't have to pay for health care for our employees, which can be a huge advantage," says McGee. "When someone comes here and works for equity and no cash, which everyone was initially, they're not having to worry about health care."

The country's extensive network of incubators and accelerators makes for exciting places for start-up teams to work, say entrepreneurs. RenoRun, the company that lets contractors order and receive building materials on demand directly to the job site, for instance, started in Notman House, a 200-year-old building that has been converted into a tech epicenter in the heart of Montreal with entrepreneurial events several nights a week. It began in a 10-ft x 10-ft office there, staffed by five people. "Now we're in a 10,000-sq-ft space with 90 people," O'Rourke says.

RenoRun's delivery trucks offer contractors building materials ondemand.

He finds that working in Notman House keeps the inspiration flowing.

"One of the local VCs led the charge in investing in that building," says O'Rourke. "So many companies have been born in that building. Everyone is rubbing shoulders. There is so much advice to be had, so much energy in the building."

And being located in Canada, an easy flight from the U.S., makes it easy for start-ups to keep in touch with U.S.-based investors, even if they don't cross the border. In the past year, McGee estimates that 30 major U.S. investors and investment funds have come to meet with him. "They have the resources to follow the space," says McGee.

But he expects to see more money flowing from Canadian investors into the local ecosystem, as successful local entrepreneurs exit their start-ups and cash out.

"I think it creates a flywheel," says O'Rourke. "Having founders who have made money or had an exit that are willing to invest in the city means more founders who will try to launch in the city."