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Why this NY VC firm is investing in Canada

Moraine Lake at night by Andrey Popov on

At our VC Fund, we didn’t aim to go to Canada, but ended up there anyway.

We’re a New York based early-stage venture capital firm. I was formerly a Partner at ffVC. While I was there, we invested in four Toronto-based startups as well as one Ottawa-based company, out of 60 active companies in our portfolio. In 2015, we were the second most active foreign VC in Canada.

The question some of our limited partners asked us is, “Why?”

Central Canada has many of the assets of other entrepreneurial hubs: a flourishing creative community, an active local VC community, strong engineering talent and quality universities, such as University of Toronto, University of Waterloo and Ryerson University. In 2013, Startup Genome, a platform for analyzing startup communities, listed Toronto, Vancouver, and Waterloo, Ont., among the top 20 most active startup scenes in the world.

Additionally, the Canadian government has significantly more rational immigration policies for foreign entrepreneurs than America, encouraging talented people globally to come to Canada. Plus, there are strong tax incentives for investing in R&D. For instance, for every dollar spent on an engineering team, companies can get approximately one third of the cost back via government-incentive programs. For Americans in particular, the dropping Canadian dollar makes investing in Canada significantly more attractive.

While Canada doesn’t yet have the deep financial and technical infrastructure that cities such as San Francisco and New York have built over many years of flourishing startup activity, many Silicon Valley alumni are recognizing an opportunity and relocating north. According to Startup Genome’s 2013 report, Waterloo has the highest percentage of ex-Silicon Valley entrepreneurs in the world, with 35 per cent of its chief executive officers having lived in Northern California. Similarly, 31 per cent of Toronto’s CEOs have lived in Silicon Valley.

Historically, mobile technology company Research in Motion Ltd., now BlackBerry Ltd., recruited, trained, and locked up some of Canada’s best engineers. RIM’s downturn had the unfortunate consequence of displacing many of its employees, but the good news is that there are now dozens of organized teams of engineers who are ready for their next ambitious project to tackle.

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One company that really excites us out of Toronto is 500px* (since exited), an online marketplace for photographers founded by two Russian immigrants (the current CEO is American). Reflecting Canada’s multilingual heritage, they acquired three companies in their history, in Toronto, New York and France. Meanwhile, they attracted over six million registered members from over 190 countries, who uploaded over 60-million images to the platform.

Another Canadian firm that’s attracted venture capital is InteraXon*, founded in 2007. In that case, we led the initial round and invested in the company three times subsequently. Their key product is the Muse, a brain-sensing headset that tracks brain activity and facilitates meditation. They have leveraged the strong technical talent in the Toronto area to tackle some very complex computer science and neuroscience challenges.

Canadian startups that have also stood out to us include Shopify, a prominent software-as-a-service company which recently went public. This validated for leading U.S. venture capitalists and investors that Ottawa is a viable home to a sophisticated and successful software company. Another good example of a newcomer out of Ottawa is The Better Software Company*, an enterprise resource platform (ERP) for small businesses.

Also quickly rising in the Canadian startup scene are two Toronto companies, Drop Loyalty* and OpenCare*. Drop is a coalition loyalty program targeted at millennial consumers. OpenCare is a health-care discovery platform which helps patients find the best possible health provider and book an appointment online.

It’s clear that experienced technologists and entrepreneurs are beginning to recognize Canada as an exciting place to be right now. As a venture capitalist, I am confident that the best innovation in Canada is yet to come.

*ffVC company

Previously published in slightly different form at the Globe & Mail.  Photo credit: Andrey Popov, 500px

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