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Burgeoning tech companies are on the rise in Canada, attracting funding and IPO buzz in hubs across the country. Our occasional series explores how each locale nurtures its entrepreneurs, the challenges they face and the rising stars we're watching.

Montreal provides an ideal setting for the early care and feeding of tech startups. The city boasts a lively cultural milieu, a party-hearty mindset, cheap rents and a bargain-priced talent pool.

What it doesn't have, though, is sufficient critical mass to propel promising tech companies forward in their later stages.

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Case in point: VarageSale Inc., the mobile app and listings marketplace that serial entrepreneur Carl Mercier co-founded with his wife Tami Zuckerman three years ago. Mr. Mercier and Ms. Zuckerman were quite content in the early going with the Montreal zeitgeist and support from the city's tightly knit startup community as they nurtured their baby, a combination virtual garage sale, swap meet and social meeting place.

But as VarageSale took off, the burgeoning company was no longer able to feed its growth relying only on Montreal resources. Mr. Mercier eventually opened an office in Toronto to tap into the wider and deeper software-developer talent pool in the Toronto-Waterloo corridor and he ultimately decided to move the head office to the Queen City.

"We were growing extremely fast. We were hiring like gangbusters in Montreal but we needed to hire even faster, so we decided we needed two talent pools, but Toronto ended up growing faster than Montreal," Mr. Mercier explains. "Occasionally, we will hire people in Montreal.

"There's a vibrant startup scene [in Montreal]. It's not a big startup scene but it's a vibrant one," he adds. "There is lots of activity, a lot of events, a lot of early-stage capital. Startups can get off the ground cheaply and quickly."

It's the later stages that present problems, according to successful local entrepreneur and angel investor Daniel Robichaud, whose password-management firm PasswordBox Inc. was bought last year by U.S. chip giant Intel.

"Montreal is a terrific place to build a product but it's not where the action is. It's not a place to raise funding," Mr. Robichaud said in a recent industry conference presentation.

Montreal startup founders often find themselves having no choice but to move to bigger playgrounds because of a still-embryonic domestic investor scene, says Université de Montréal artificial intelligence researcher Joshua Bengio.

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The startup sphere in Montreal is "quite active, but the investors are too faint-hearted and short-term oriented, and so the developers often go elsewhere, particularly California and New York," he said.

In true Quebec Inc. fashion, the provincial government and labour funds have stepped in to fill the gap of funding homegrown companies.

A key player is Teralys Capital, a fund manager that finances private venture capital funds that is backed by a score of provincial players – including the mighty pension fund manager Caisse de dépôt et placement du Québec, the labour fund Fonds de solidarité FTQ and Investissement Québec – said Chris Arseneault, co-founder of Montreal-based early-stage venture capital firm iNovia Capital.

"They've been the most creative groups to try and put money at work," he says about Teralys and its backers.

Startup directory BuiltinMtl, has about 520 Montreal startups listed (excluding biotechs, film-and-tv-production houses or video-game developers). The actual number is probably closer to a "few thousand" if very early-stage startups still under the radar are included, according to Andrew Popliger, senior manager in PricewaterhouseCooper's Assurance practice.

Data from the Canadian Venture Capital and Private Equity Association indicate venture capital firms invested $295-million in Quebec last year – just 15 per cent of the Canadian total – compared with $932-million in Ontario and $554-million in B.C.

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Most insiders and observers agree that what works in the Montreal tech "ecosystem" is a strong sense of community. There is a spirit of collaboration and collective vision.

Notman House, a repurposed mansion adjacent to Sherbrooke Street's famous Golden Square Mile, which sits at the crossroads of the city's tech startup scene, rents office and workstation space, stages events, and acts as an incubator and networking locale and launch pad for budding companies seeking their big break.

It represents everything that makes Montreal distinct in the North American startup sphere, says Noah Redler, the venue's campus director. "We're not just an incubator. We're a community centre. We bring people together and collaborate. People are supported and surrounded by [successful] entrepreneurs," he said.

"There are more startups in the Waterloo area but there is more of a community feeling in Montreal," says Katherine Barr, the Canadian-born co-chair of C100, a Silicon Valley expat group that helps connect Canadian entrepreneurs with U.S. investors. "They've built a real community here. Like Silicon Valley, its co-opetition, both competing and helping each other," Ms. Barr said during a break at AccelerateMTL, an annual conference that brings together "founders and funders."

There may not be as great a number of head offices as in Toronto but the potential for big breakthroughs in Montreal is impressive, says John Ruffolo, chief executive officer of OMERS Ventures, the venture arm of the Ontario Municipal Employees Retirement System. "For Montreal, it's only a matter of time. They're going to have their Shopify," he says in reference to the Ottawa-based e-commerce platform that has become a stock market star.

For now though, Montreal may have to settle for being a relatively small player and modest incubator of talent and ideas on the North American startup scene, even compared with Vancouver and Toronto.

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