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.