Startup “ecosystems” in Canada are doing well but…

Editor’s note: This is a guest post by Jesse Rodgers. Follow Jesse on Twitter . This post was originally published on November 21, 2012 on WhoYouCallingAJesse.com.

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The Startup Genome released another report mapping top startup cities but this time a bit more specific than it’s heat map from April of this year. Canada did well depending on how you interpret it with Toronto at #8, Vancouver at #9, and Waterloo at #16. In its previous report, Startup Genome ranked Toronto at #4, Vancouver at #16, and Montreal made the list at #25. Oddly Waterloo wasn’t listed in the previous ranking but made it into the top 20 in the new report while Montreal remained outside of it.

Focusing on my Ontario centric nitpick – the separation of the Toronto and Waterloo “ecosystems” when they are anything but separate is not going to give an accurate picture of Canada’s awesome startup communities. They are unique communities but their strength comes from how they work together in the same ecosystem. The emotional energy (and money) burned in defining how they are different is holding Canada back from an even better and sustainable growth curve. That energy is in the report.

In the report:

“Toronto competes for startups with regional competitors such as NYC, Boston and nearby Waterloo.”

Then in the Waterloo profile:

“In the near future, it will be interesting to see whether Waterloo is able to hold on to its talent base or whether it will be sucked into Toronto.”

Would you say that about Palto Alto sucking talent to San Francisco and vice versa? No. It’s the valley. A huge area that is far more developed but very similar to the Toronto – Hamilton – Waterloo. The problem, I think, is that at some point in the past when local economic development groups were competing on a similar scale for tax dollars (and manufacturing plants) they narrowly defined regions (Golden Triangle, Golden Horseshoe, etc) where everything above the escarpment is barbarians and the urban modern folk live below next to the cold blue lake.

There can be (and there are) distinct communities inside the larger Toronto – Hamilton – Waterloo ecosystem. Each community has its strength. Each success in the larger ecosystem helps the entire ecosystem.

The big problem the ecosystem faces (in Toronto):

Startups in Toronto receive 71% less funding than SV startups. The capital deficiency exists both before and after product market fit. Toronto startups receive 70% less capital in Stage 2 (Validation) and 65% in Stage 4 (Scale).

The ecosystem most likely lacks a sufficient quantity of all kinds of startup capital sources: angels, super angels, accelerators, micro VCs, VCs etc. As a result Toronto startups rely more on self-funding, or rounds from family/friends.

The other big problem (in Waterloo):

Waterloo has a funding gap (96% less in the second stage) for early stage startups before product market fit, probably due to a lack of super angels and micro VCs. There are high numbers of accelerators and much lower numbers of super angels and VCs than SV.

Solving the funding problem in Toronto also solves the problem in Waterloo, more companies that able to find the money and the talent to scale in either or both communities helps both or am I missing something?

Building a strong economy, community, and ecosystem isn’t a zero sum game.

Toronto, Vancouver, Waterloo, where is Montreal?

Startup Genome Ecosystem Ranking

The state of the Canadian cities in the StartupCompass Startup Ecosystem Report 2012 (Get the Report) is interesting. The Startup Ecosystem Report 2012 lists 3 Canadian cities:

  • Toronto # 8
  • Vancouver # 9
  • Waterloo # 16

It leaves Montreal out of the top 20, it might very well be # 21. But it is very hard to determine without the full report that is due out later in the year. I also find it very strange, given the strong Montreal supporters in the  “Local startup ecosystem supporters” listed in the document:

The data reminds me of other analyst driven research companies (think GartnerAltimeter, etc.). The methodology leaves it open to bias. But it is a great stick in the sand based on our own community survey responses.

“The index is based on data from more than 50,000 startups around the world who are using the Startup Genome’s Startup Compass, an automated analyst in the cloud that helps businesses make better decisions via benchmarks and actionable recommendations.”

It will be interesting to continue to read the report and lessons for Canadian entrepreneurs.