The symbolism is so charged, it feels deliberate. Just outside the New York office of Toronto Metropolitan University’s DMZ startup incubator, Wall Street’s infamous charging bull is there to greet Canadian founders. Inside, from the corner-office window, you can see the Statue of Liberty, the great emblem of American opportunity, soar in the harbour.
Sitting between wall-mounted neon tributes to the Notorious B.I.G. and Drake – bridging New York and Toronto – the DMZ’s executive director Abdullah Snobar recently described his vision for the space.
“You want access to corporate community in terms of customer acquisition? And you want access to venture capital? New York has an abundance of both,” he said in an interview.
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Even as a downturn throws Canada’s once-ascendant tech sector into financial uncertainty, players from across the industry are plotting expansions to other markets. Though spending to expand at such a moment can seem counterintuitive, executives have for years bemoaned the small size of the domestic market, both for customers and investment. At a moment when profit and fiscal prudence carry more gravity among tech companies than they have since the Great Recession, many of those companies are heeding the call of America.
For the DMZ, that meant reopening a New York office this fall near Wall Street as a beachhead for its companies. The office is based in a co-working space that also hosts venture-capital firms such as Sequoia Capital; startups from across Canada can apply to use the DMZ’s dozens of desks as they plot American expansions.
Mr. Snobar said his team is considering similar offices in California, Texas and Florida – places where big money and big ideas tend to congregate. And he’s hardly alone in looking southward.
“We absolutely need the U.S. customer base in order to scale and expand the company,” said Philip Poulidis, chief executive and co-founder of Toronto’s ODAIA Intelligence Inc. The 50-person company uses artificial intelligence techniques to process laboratory, prescription, demographic and other data to help pharmaceutical sales teams more effectively target physicians.
Though ODAIA had already worked with the Canadian divisions of global pharma giants, Mr. Poulidis and co-founder Helen Kontozopoulos began earnestly expanding into the U.S. after raising US$13.8-million earlier this year, just before the downturn’s grip made investors skittish. They’ve now got two senior sales executives in the country and are hiring rapidly with little regard for country of origin – including two staff in Paris.
To deal with such a spread-out staff, Ms. Kontozopoulos said, ODAIA has had to focus on culture-building, including giving its employees memberships to co-working spaces; the Paris team meets at one each week.
“How do you create a unified team across borders?” she asks. For ODAIA, the answer is easy: “culture-building.”
The Mississauga lithium-ion battery maker, Electrovaya Inc. EFL-T, announced in early October that it would launch a new production facility south of Buffalo. Though the company already has two facilities in its hometown, its executives found a facility a short drive away in Jamestown that would require little retrofitting to add to its production capacity and give them access to cheap electricity.
The vast majority of Electrovaya’s income comes from making batteries for electric forklifts for clients at a range of blue-chip companies, such as Home Depot HD-N. Chief financial officer John Gibson said that making batteries in the U.S. will let the company save both money and the logistical wrangling required for cross-border shipping and put it in a strong position to take advantage of what he hopes will be a growing market for electric bus and truck batteries.
Crucially, Mr. Gibson said, making batteries in the U.S. should also allow Electrovaya to take advantage of made-in-America provisions in President Joe Biden’s Inflation Reduction Act. As rising interest rates make raising equity capital more difficult, the company hopes to take advantage of financing programs with favourable terms through the new American legislation to set up the facility.
“It would be very difficult for us to do what we’re doing in Jamestown in Canada without having to invest significant equity in the project itself,” Mr. Gibson said. “The cash that’s available on the government side of things is 10 times larger, 20 times larger.”
Another consequence of the downturn has been major pressure on startup valuations, putting an end to a nearly 13-year-long party. But stable businesses that have maintained strong cash reserves through the economic instability are taking advantage of this with acquisition offers – including as a way to enter or deepen their presence in other markets.
Kurtis McBride has long looked beyond Canada’s borders to grow his AI-powered traffic-management company, Miovision Technologies Inc., which is based in Kitchener, Ont. Only about a 10th of its revenue even comes from the country, and a growing number of its executives and vice-presidents live outside the Kitchener-Waterloo region, including in Atlanta, Phoenix, Charlotte and Montreal.
In mid-October, Miovision announced its second U.S. acquisition of the past year-and-a-half, scooping up the Pittsburgh startup Rapid Flow Technologies Inc.
“Capital is more expensive, but companies are cheaper as a result because they can’t raise capital,” Mr. McBride said.
The two companies had worked together on a couple of projects, and he saw their PhD-heavy eight-person team as a valuable asset for Miovision.
Miovision’s technology helps cities understand intersections, using a mix of video streams and AI to help them adapt traffic lights to traffic patterns. Rapid Flow works in a similar space, helping cities adapt traffic signals more dynamically and quickly – at intersections around an arena after a hockey game finishes up, for example.
“We’re generally pretty responsible during the crazy times, which puts us in a good spot when things get rough,” Mr. McBride said of Canada.
“There’s a real opportunity for the country to leverage its balance sheets to go out and pick up a whole bunch of great assets that are going to struggle in this moment.”