Startups

Toronto, The Next Silicon Valley?

Toronto Silicon Valley
Toronto certainly displays compelling potential with its mix of talent, technology and universities.

In the past five years, Toronto has shown it has more to it than its commercial and cultural attractions, and the best view of Niagara Falls. It has quietly become the world’s fastest-growing destination for technology jobs, leveraging early investments in artificial intelligence (AI) and especially machine-learning technologies at its universities, government funding and other resources for innovation, and an immigration policy that is friendly to technology talent.

Toronto has of course been a beneficiary of the Canadian prime minister Justin Trudeau’s outreach to big companies, but subsidies haven’t been a significant tool, according to Avi Goldfarb, marketing professor and the chair in artificial intelligence and healthcare at the University of Toronto’s Rotman School of Management.

Ten Reasons to Invest in Toronto

“More than anything else, [the drivers are] an open immigration policy, friendliness to innovation, and the funding of the basic research decades ago that led to the breakthrough for using machine learning that everybody is talking about today,” he said.

Welcome Tech Workers to Toronto

Canada’s immigration policy has been especially “generous to high-skilled workers,” said Goldfarb. “If a company wants to hire somebody who is skilled in tech, the immigration process is smooth and easy, or at least as easy as these processes get. If you make an offer, you can get somebody on the ground in your office potentially within a month, which is unbelievably fast.”

Toronto startups

Toronto houses a dynamic ecosystem with over 4,000 startups. Photo: StartupToronto

Media reports in the past year or so have feasted on how Toronto and other parts of Canada are attracting an impressive flow of technology jobs and investments: Accenture and Amazon plan to create 800 and 600 jobs, respectively, and Salesforce plans to invest $2 billion in the country over the next five years, to name a few.

Uber, Amazon, Accenture, Netflix, Google and Salesforce are among the tech companies setting up hubs or expanding operations in Toronto, earning for it the moniker of “Silicon Valley North.” Between 2012 and 2017, the city attracted 82,100 tech jobs, or a growth of nearly 52%, to reach a total of 241,400 jobs in that sector, according to a CBRE Group study of July 2018.

Toronto was the fastest-growing market for technology jobs in 2017, when it added 28,900 jobs, outpacing San Francisco’s Bay Area, Seattle and Washington, D.C., the study noted. It also ranked fourth as a tech talent market after those three cities, scoring over New York City in 2017.

Canada is able to draw more tech workers also because of the Trump administration’s relatively tighter policies in that area. However, Canada’s tech talent-friendly immigration policies pre-date the Trump regime, Goldfarb clarified. Other factors that help Toronto’s growth as a tech hub include the availability of university talent, including at the engineering school at the University of Waterloo, which is also in the province of Ontario.

The Canadian government provides funding for both basic research and the education system, especially to offer to graduate degrees in machine learning, Goldfarb noted. U.S. based multinationals tap into that talent base by setting up local offices in Canada or, to a smaller extent, acquiring Canadian startups, he added.

Toronto startups
Toronto ranks fourth in the American Cities of the Future ranking.

Canada Wants to Attract International Talent: This is All You Need to Know

Toronto: Public Policy and Partnerships

Goldfarb said Toronto has also had “a fair bit of luck, or foresight” in that it happens to have been a hotbed for technologies that are currently in high demand. “A lot of the current tech excitement is around AI, focused on machine learning, and many of those technologies were developed in Canada generally and Toronto in particular,” he added. “That turned out to be a big deal.”

The Canadian government supports such technology development with numerous programs for R&D, innovation and commercialization of projects. One prominent program is its $1.26-billion Strategic Innovation Fund, which aims to support business investments in technology development, transfer and commercialization.

Partnerships between academia and business have blossomed as part of that ecosystem. One such notable venture is the so-called Creative Destruction Lab(CDL) at the University of Toronto, which helps science-based startups scale up. CDL has five academic partners, but welcomes startups from any university, including in the U.S. and in Europe. In the first five years after its launch in 2012, CDL supported 225 science-based startups, according to a press note. “It’s been something of a focal point for a lot of the science-based tech community to get angel investment, to get advice and scale,” Goldfarb said.

Room for Growth

Toronto certainly displays compelling potential with its mix of talent, technology and universities, but it could do with more help on financing, according to Wharton management professor David Hsu, who joined Goldfarb on the radio segment. “If you compare venture capital investments in Toronto vs. any other major [technology hub] around the world, it has lagged,” he said.

Toronto Startups
The Canadian government provides funding for both basic research and the education system.

Canadian venture capital investment grew 11% in 2017 with $3.5 billion invested over 592 deals compared to the $3.2 billion invested over 534 deals in 2016, according to a report by the Canadian Venture Capital and Private Equity Association (CVCA). At last count, in the first three quarters of 2018, VC firms had invested $2.4 billion in 483 deals.

Although VC investments in the third quarter of 2018 fell 12% over the same quarter in 2017, the CVCA said it expects the full-year 2018 tally of VC investments in Canada to be similar to that of 2017. By contrast, U.S. venture capital deals totaled nearly $131 billion in 8,948 deals in 2018, according to data compiled by Pitchbook, a Seattle-based research firm covering the private equity and venture capital markets.

Canada’s evolution over the years as fount of technology and its successful commercialization is mirrored by the growth of its most high profile e-commerce retail company, Shopify. The Ottawa-based company’s shares were priced at $17 each in its initial public offering in 2015; its stock price has since grown to about $273 at last week’s close. However, Canada hasn’t produced a large number of so-called unicorns, and the few notables among them are based in Toronto, Vancouver, Ottawa and Montreal, Goldfarb said.

Three factors are driving Toronto’s growth as a tech hub, according to Shawn Malhotra, vice president of Thomson Reuters Toronto Technology Centre. They are its intellectual concentration, with the talent produced at its universities; its famed diversity, which he said in a blog post “enables multiple inputs, and helps to eliminate biases while fostering creativity and problem-solving:” and the “snowball effect” that established technology companies like [Google’s parent] Alphabet and Shopify create, he added.

Article published by Warthon. University of Pennsylvania


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