The coming Canadian Tech Renaissance

CdaThis Monday I went to the Labour Day classic Argos vs. TiCats CFL showdown. As I watched the unfurling of the largest Canadian flag ever, listened the screaming CF-18 overhead and sipped my Molson Canadian I couldn’t help think about the state of our tech scene in Canada.

I’ve been in this industry since the late 90s. When I showed up, the tech boom was in full swing. Everyone with a pulse was getting funded. Their was a booming tech IPO market in Canada. All good.

We all know what happened when the bubble burst. No, ‘eyeballs’ did not = revenue. And maybe we didn’t need to buy pet food online (yet). Since that downturn, the tech IPO market has all but disappeared in Canada. Last time I checked, technology companies represented 2% of the companies on the TSX Exchange ¬†and 4% of the value.

My friend Michael is responsible for new tech listings on the TSX. He has an agenda obviously, but he tells me that there is a lot of demand from institutional investors for public tech stocks to buy. They probably remember making gobs of money on RIMM, Nortel, Cognos, etc and miss the good old days.

The fact is our economy is overweight on financial services and resources/ energy. I think any well-balanced modern economy needs to include technology. That needs to be the 3rd leg of the Canadian economic engine.

The proportion of Canadian publicly traded tech companies vastly understates the strength of our tech industry. I think one of the reasons for this is our proximity to the US, and particularly, Silicon Valley. This is the best and worst thing about our tech scene. Best for obvious reasons: access to capital, talent, customers, partners and acquirers. Worst, ironically, for the same reasons. US VCs bring our companies (in whole or in part) down south often. And as a rule, we sell our startups too early. Before, they have a chance to blossom into the kind of stand alone market leaders that could go public.

As a result of this proximity, we now have 400,000 Canadians living in Silicon Valley and working in hi tech. Every Fortune 500 tech company has a Canadian in the management team (stats courtesy of the C100, though I may be misquoting as I heard them years ago…). That’s a huge amount of our Canadian tech brains not living in Canada.

Anyhoo, back to what’s going on here. While overall, we sell our startups too early here, we do have some shining beacons of hope: a few tech stars with big ambitions, lots of capital and no intention of selling early. Hootsuite, Builddirect, Vision Critical, Desiretolearn, Shopify and my dear FreshBooks are all companies on the path to $100M+ revenues. A threshold that enables them to credibly seek public listings on major US stock exchanges (and dual list here in Canada at the same time).

I can’t overstate the importance of having big stand alone tech companies here. They produce talent that knows true scale. They prove to investors that we can build tech giants here. They create angels that fund the next generation. They acquire other startups, employ lots of people and create a virtuous cycle in our ecosystem. This is why the Valley goes from strength to strength.

As I look forward to 2015, I hope that we will start to see some of these companies go public. I hope they will use that new public currency to buy companies and keep growing. I hope to see Canadian companies go to acquiring rather than being acquired. And I hope these new public stocks spur new demand for more tech stocks, spurring VCs to funnel more money into more startups that want to go all the way rather than sell early.

So, in a word: lots of hope. I think the future for the technology industry in Canada looks bright.

  • canadianacademic

    I think this is overblown (like a lot of other things in this country). Many of the “canadians” working in silicon valley are non-canadians (immigrants, students,people on a work visa) who have taken canadian citizenship so that they can work in the States because otherwise they fall into th H-1B trap. There isnt much academy-industry cooperation nor are canadian universities that innovative. I have worked with tech entrepreneurs as well as with others and this article is WAAAY too optimistic.

  • Dave Brown

    I can’t imagine there being a tech entrepreneur in Canada who wouldn’t love the sound of this.
    I think that we’re missing something – a shift in thinking and actions that would give rise to very different results.

    Mark, I hear you saying that the investor community is looking at tech as a frontier for producing larger and more compelling returns on risk capital. That makes sense to me. 1999 produced a lot of wealth (and some exciting innovations!).

    What specific changes are required to make good on this potential?
    Of government?
    And entrepreneurs?

  • SirGeorgeDragonSlayer

    Just testing whether I can post a video here to join Mark’s optimism…..
    If this works I have more than a hundred more such videos to post. One even describes how I almost died at Toronto Island airport in 1970 taking off into early morning mist over the lake.
    Regards from Sweden
    Alias Sir George Dragon Slayer
    Knighted in Canadian Dragons’ Den 2009

  • William Mougayar

    From your mouth to God’s ears.
    Am rooting for the same.

  • Davender Gupta

    Great comment, Mark. Totally agree about the breakout potential of the Canadian tech sector.

  • Will

    All great points, Mark considering you’ve been in the game much longer than most who read your blog. I’ve always referred to the aforementioned tech giants of Toronto (or Canada for that matter) to be “anchor tenants” that speaks to the strength of the Toronto tech ecosystem over the years as they’ve grown to the behemoths they are today.

    I can’t wait to see the next wave of big companies that will inevitably come from the engineers, designers, product managers etc that are currently employed by those anchor tenants a few years down the line. And this taking into account that they stay in Canada rather than head down south to build their companies.