October 26, 2014

A Report Card on Toronto’s Startup Ecosystem

toronto startups

Toronto’s startup ecosystem is thriving – according to the Startup Genome Project, the city ranks within the top-10 globally.

Within the last five years, Toronto has evolved from a place where many people talked about creating or working for startups to a city where people are launching startups.

In other words, we’re walking the walk.

And there’s no lack of excitement. The Digital Media Zone’s Vicky Liu recently proclaimed Toronto as the best place in the world to launch a startup. This is probably an exaggeration but it reflects the growing amount of enthusiasm.

But let’s take a step back from the bubbly optimism to have a critical look at Toronto’s startup ecosystem. What are the city’s strengths and weaknesses, and how can it become a place where startups and entrepreneurs can thrive?

Entrepreneurs: The number of talented and well-educated entrepreneurs creating startups is Toronto’s biggest strength. The city is oozing with startups, which is a great sign that good things are happening. As someone who has been around the startup scene since the original dot-com boom, the amount of activity is really encouraging because it boosts the chances of successful, world-class companies emerging. Grade: A

Community: While there are lots of active entrepreneurs, Toronto still has work to do to create a cohesive startup community. One of the challenges is the city’s geographic spread, which has startups located in Markham, Liberty Village, King/Spadina and Yonge/Eglinton. And the spread will likely become exacerbated as real estate and office rental prices continue to climb.

Toronto needs events (how about a version of Startup Empire?) to bring the startup community together – something the city of Toronto (see below) should embrace to be an engaged catalyst. Grade: B-

Money: It’s getting better but there is still room for improvement when it comes to providing startups with capital to develop ideas and accelerate growth. With VCs such as Mantella Venture Partners, BDC, Klass Capital and OMERS, for example, there is money for startups that demonstrates strong growth potential. And there is more good news on the horizon with iNovia opening an office in Waterloo, and Real Ventures expanding its operations in Ontario. Grade: B

Serial Entrepreneurs: A key part of an ecosystem’s growth are serial entrepreneurs who leverage their experience and wealth. There are serial entrepreneurs such as Dan Debow, Mark Organ and David Ossip but I would argue there isn’t critical mass….not yet. This will change, however, as startup entrepreneurs create new businesses after enjoying success. In this regard, keep an eye on people such as Ariel Garten (Interaxon), Ben Baldwin (Clearfit), Kanal Gupta (Polar) and Mike Silagadze (Top Hat Monocle). Grade: C

Incubators/Accelerators: If there is a “growth business” within the startup ecosystem, it’s the number of accelerators and incubators. This includes the Digital Media Zone (DMZ), Jolt, HIGHLINE (formerly Extreme Startups), 111 Richmond and InCubes. Some of the business models have evolved but there are plenty of options for entrepreneurs looking for places to nurture their ideas. Grade: B+

Media: Not that media coverage makes or breaks a startup but it lets startups bask in the spotlight as opposed to operating anonymously.

While outlets such as BetaKit and Techvibes provide solid coverage, overall media coverage is, at best, modest. The national newspapers don’t seem to have an appetite for startups, aside from Small Business Week, and traditional media only pays attention when a major deal happens. At the very least, we need more blogs focused on startups. Grade: C-.

Government: There are people such as Douglas Bergeron who believe government should not be provide financial support to startups, but government needs to play a role until there is more private capital, which includes institutional investors. The federal and Ontario governments are providing capital for startups (although it seems to flow slowly into the system), that will, hopefully, drive the ecosystem’s growth. Grade: B-

Toronto startups

The weak link within government is Toronto, which has surprisingly paid little attention to startups.

While Vancouver’s Gregor Robertson and Calgary’s Naheed Nenshi actively promote their city’s startup ecosystem, Rob Ford showed no indication there was a startup ecosystem in Toronto. At the same time, there are no city councillors acting as startup evangelists. And the only mayoralty candidate to talk about startups was David Soknacki. From what I can tell, the “biggest” startup program to emerge from city hall is a low-key directory of business incubators. Tip: Maybe the city should hire someone like David Crow as a startup ambassador. Grade: C-

Suppliers/Vendors: If anything, there is no lack of people and businesses happy to provide startups with services and advice. As someone who’s part of this thriving club, there are plenty of options for startups that needs sales, marketing, legal and operational help. If there were more capital within the ecosystem, even more suppliers would appear on the scene. Grade: A

Schools: At the core of a vibrant startup community are schools that create top-notch startup talent. In that sense, Toronto is well positioned with the University of Toronto and Ryerson University acting as strong talent sources. As well, colleges such as Seneca, Sheridan and Centennial have well-respected programs within speciality areas such as design and video games.  Grade: B+

Other thoughts: JF Marcoux looks at Canada’s startup ecosystem has evolved, while MIT’s Fiona Murray discusses successful “innovation ecosystems around the world. You should also check out this article how Zappos founder Tony Hsieh is creating a startup ecosystem in downtown Las Vegas.

More: Check out this blog post by YCombinator’s Sam Altman on why Silicon Valley work. Here is his thesis:

Silicon Valley works because there is such a high density of people working on start-ups and they are inclined to help each other. Other tech hubs have this as well but this is a case of Metcalfe’s law – the utility of a network is proportional to the square of the number of nodes on the network. Silicon Valley has far more nodes in the network than anywhere else.

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