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Why this New York venture capital firm is investing in Canadian startups Add to ...

At our firm, ff Venture Capital, we didn’t aim to go to Canada, but ended up there anyway.

We’re a New York based early-stage venture capital firm. Since 2011, we have invested in four Toronto-based startups as well as one Ottawa-based company, out of 60 active companies in our portfolio. We are aware of only one other U.S. seed-focused investor with as many investments in Canada.

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

Central Canada has many of the assets of other entrepreneurial hubs: a flourishing creative 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 of the border. 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.

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

Another Canadian firm that’s attracted venture capital is InteraXon, founded in 2007. In this case, we also led the initial round and have invested in the company three times since. 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. The company has grown from four to 33 employees in just nine months, and it prides itself on attracting talent based on its strong culture and quality of life over salary.

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.

David Teten is a partner with ff Venture Capital. You can follow him at @dteten.

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