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Toronto's transformation to Silicon Valley North Add to ...

For a group that's just seen a buyout in its midst - a buyout that might have been worth as much as $30-million - the entrepreneurs at Extreme Venture Partners seem impossibly young. So young, it's hard to tell who's an entrepreneur and who's a university co-op student.

"Hey, everybody!" shouts Farhan Thawar, vice-president of engineering at one of its companies. "Hands up if you're here on co-op!"

About 40 young heads rise from their computers: Almost uniformly, they look around 21, a little scraggly, and slightly nonplussed at being disturbed. About half raise their hands. Then they go back to work.

The triple threat of youth, algorithmic fervour and hedgehog focus echoes the two-guys-in-a-garage origin-stories of tech giants from Apple to Google. But they're are not grinding it out in a makeshift Silicon Valley office. Instead, they're on Yonge Street, part of a coterie of fledgling startups across Toronto. And they're wagering that, if they keep it up, the city that the Internet boom forgot won't miss out again.

"There's a new emergent scene going on in Toronto," says David Crow, a strategist for Microsoft, and a long-time organizer of the city's tech community. "We have great talent and great opportunity."

After years of nurturing a tight-knit tech community, Toronto seems to be reaching a critical mass - not just of homegrown companies, conferences, and networks, but of ties to a global industry. Groups like Extreme Venture Partners "are building a pipeline between Toronto and the Valley," says Mr. Crow.

Being close to strong computer-science universities such as Waterloo, McMaster and University of Toronto helps. The city's size and vibrancy also make it attractive to young workers, and it's a proven early adopter of platforms such as Facebook and Twitter.

Clustered in neighbourhoods like Queen and Spadina and Liberty Village, companies such as Polar Mobile (they make iPhone apps for big media firms), LearnHub (which connects international learners) and Five Mobile (who produce apps for The Score TV network) are part of the local tech resurgence.

At the same time, two Extreme Venture startups have been bought in the past year - most recently, BumpTop, a startup that designs 3-D desktop software, was scooped up by Google. Last August, another company they mentored, J2Play, was purchased by gaming giant EA. It's a strong start for a company that's not even three years old.

"Silicon Valley North" is a title that's long eluded Toronto. Nortel, once a behemoth, helped make Ottawa a telecom powerhouse in the nineties. Canada's only remaining tech giant - BlackBerry-makers Research in Motion - set up shop next to the tech powerhouse University of Waterloo. For young programmers with exciting ideas, Toronto was never the place to be - unless, as one local entrepreneur scoffs, "you wanted to write financial software for a bank."

A lack of local venture capital is a long-standing complaint. But entrepreneurs say that money itself isn't the problem: Toronto, traditionally a buttoned-down financial capital, needs a cultural shift. And that goes for its venture capitalists as well as entrepreneurs.

"The problem is, they're bankers. They're not venture capitalists. And there's a huge difference," says Mike McDerment, the chief executive officer of FreshBooks, a Toronto-based online-billing service with over 1.6 million clients. "They're not people who go out and build companies. They're not risk-takers. They're people who understand a distressed asset and know how to take advantage of the situation."

Investments here tend to be smaller and harder to come by than they are in Silicon Valley. And Canadians, according to some observers, are prone to thinking small.

BumpTop's sale to Google was "a great exit," says Brian Sharwood, president of Homestars.com, a Toronto listings site. "But is it an exit because the investors could take them to the next level, or didn't want to invest bigger?"

Bigger exits, he says, leave more lasting effects as more wealth is distributed, leaving more veterans of previous enterprises to try again.

"If you exit for $250-million, you get a lot more money and experience floating around the city," he says, as compared to a $25-million sale.

But for others, attracting and keeping entrepreneurs worth investing in is a bigger concern - and so is making sure that expertise stays local. The startup sector is full of high-risk propositions: Many more companies fizzle out than get bought by Google or become the next RIM. Failure gives young entrepreneurs the experience they need to make another go of it - if they can be persuaded to stick around.

Jim de Wilde, who lectures on venture capital at the Rotman School of Business, posits a hypothetical scenario.

"Say you've got three brilliant young people graduating - one from Waterloo, one from Ryerson, one from U of T. They're best buddies, and they start a company - and it fails."

When a region has a thriving ecosystem, talented workers land on their feet instead of decamping.

"In Silicon Valley, they just pick up the pieces. Others say, 'You're fabulous people, come work for us now.' We don't have that pick-up mechanism."

That can make the job market tough for employers.

"We're trying to hire 15 people right now," says Mr. McDerment. "We're looking for talented web-application developers. And we can't find them."

This is where EVP's approach - focusing on mentoring and networking young entrepreneurs - comes into play. In a city that's known more for establishment than innovation, it's turning heads

Far from merely funding its investments - or directing them at arm's length - EVP integrates its 14 investments into a kind of sprawling family, most sharing quarters.

In a room so open it lacks even cubicle dividers, workers from one startup sit quite literally shoulder-to-shoulder with entrepreneurs from another. On a tour of their offices, there's no way of telling where one firm ends and another begins.

"Right here we've got Assetize," says Mr. Thawar, pointing to a row of programmers, working on a program that will help people make money from sharing links online. Uken Studios, sitting alongside, specializes in Facebook games. Another firm, Fixmo, is working on utility software for BlackBerrys.

Every Friday, the entrepreneurs gather to update each other on their progress. EVP's founders Amar Varma and Sundeep Madra - who commutes to Toronto from his home in Palo Alto every two weeks - hold regular "office hours" to check in with their charges, who are otherwise self-directed.

A program called "Extreme University" offers selected would-be entrepreneurs 12 weeks of funding, office space, a roster of speakers - and a shot at continuing with the partners if those 12 weeks of work bear fruit.

Mr. Varma acknowledges that Toronto only has a handful of experienced venture capitalists, but cheerfully puts the onus on the entrepreneurs.

"We need entrepreneurs to get really good stuff going, to give investors the hope that they can take this a long, long way, and make everybody a lot of money."

As one who knows what it's like to catch Google's attention, he puts a fine point on it.

"Start doing better stuff. You'll get noticed."

Special to The Globe and Mail

(Editor's note: Amar Varma's name was spelled incorrectly in the print edition of this article. This version has been corrected.)

 

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