The Next Step for Toronto’s Burgeoning Tech Startup Scene
Canada’s most populated city is far from a barren wasteland for innovative tech startups. To date, estimates show that the city is home to anywhere between 2,500 and 4,100 active technology startups, and hosts satellite offices for household names such as Shopify, Kik, and Hootsuite.

However, Toronto is yet to produce an active startup that has reached the billion-dollar valuation threshold, which is essential to become a major player in the international tech scene. In other words, Toronto still can’t lay claim to that prized “homegrown unicorn.”

The Foundation is in Place

While the city of Toronto is firmly on the world map in other industries, such as financial services, some question the city’s ability to have similar impacts in the technology sector. Trends show an increasing number of new ventures in the city, however, and recent high-profile spending announcement seem to suggest the city is ready to make a bigger splash on the global scene.

According to startup veteran Mark Macleod, Founder of SurePath Capital Partners and former CFO of Shopify Inc. and Toronto’s FreshBooks, “We definitely have all the building blocks. We have really great talent, low cost to build, [and] we find and serve our customers from all over the world.”

With some of the leading tech universities located in the city, as well as a number of accelerator programs designed to help innovative students launch successful companies, Toronto has certainly created an environment conducive to cultivating tech startups. The next challenge, however, is giving these young startups the ability to scale their businesses up and compete internationally without having to relocate.

An Influx of Funding

One of the major barriers that Toronto tech startups have run into pertains to funding. Many young companies have elected to relocate to cities with greater access to capital funding in order to take their ventures to the next level.

In fact, a report from the Innovation Policy Lab at the University of Toronto’s Munk School of Global Affairs recently suggested, “There is not enough high-quality space which is both cheap and co-located near the financial industry, and hence, conducive to collaboration in the same way that such space is available in New York, London, and San Francisco.”

Fortunately, recent tax changes designed to incentivize foreign investment is beginning to increase the availability of capital funding in the city. In combination with efforts to cluster startups in the downtown core in order to facilitate greater collaboration, this increase in funding is already having positive impacts for many Toronto companies.

Toronto’s Wattpad offers an app where users can write, upload and share stories. Their network has now grown to include 40 million users, but they slogged through many self-funded years before the tax changes on foreign investments were implemented in 2010. In 2011, the company was able to secure $3.5 million in funding from New York’s Union Square Ventures and has since raised $66.8 million in five rounds of funding from both Canadian and U.S. partners.

According to Allen Lau, CEO of Wattpad, “In the first half of the decade, if you were a tech entrepreneur [who wanted] to start a company, you could finish your fundraising process locally within two hours, because there were five people you could talk to and maybe two venture firms might be interested in investing in you.”

Looking Towards a Bright Future

“Nowadays,” continues Mr. Lau, “four, five years later, if you look at the fundraising announcements in Toronto ... many of the investments are coming from tier-one, very prominent VCs in the States.”

While the increase in funding options for Toronto tech startups bodes well for the future of tech innovation in the city, many industry leaders still believe the industry is far from reaching its full potential. The city boasts a deep talent pool and several well-funded, university-backed accelerator programs, but too many promising startups still reach plateau even before reaching the hundred-million-dollar valuation threshold.

According to John Ruffolo, CEO of OMERS Ventures, “Toronto has by far the largest number of startups [in the country], but you wouldn’t know that because the geographic fragmentation is so big and wide.”

“Until we get to equilibrium and virtuous cycle when we’ve got a bunch of success stories,” says Mike McDerment, Founded of FreshBooks, “I think if you look at a timeline, we’re still not at the halfway point yet. I think that’s still probably 10 years away.”

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Posted by: DSR
Monday, May 2, 2016
Tag: Business Start Ups
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