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The Prince Edward County Innovation Centre in Picton, Ontario, has already attracted nine startups in the first year and it is aiming to snag 16 more Canadian and U.S. tech entrepreneurs by mid 2013.

An innovative twist in a 25-year-old federal program for rural development is turning an area known for its apples into "rural Ontario's app island."

Prince Edward County, which until now has mostly attracted retirees, is suddenly witnessing the arrival of young entrepreneurs such as Steven Chan, who's moving his startup gaming and animation company from California's high-tech Silicon Valley to tiny Picton, on the shores of Lake Ontario.

The CEO of the five-employee Little Think Tank was attracted by seed money from local incubator investors, matched by funding from the federal Community Futures Program.

He also found the lifestyle attractive. "In Silicon Valley or even Toronto, the cost of living is high. I realized our dollars could go a longer way here," Mr. Chan said. Large homes sell for less than half of what he and his employees would pay in Silicon Valley, and the new research park the company is moving into includes a marina.

Entrepreneurs are increasingly warming up to the idea. Conrad Guziewicz, developer of the Prince Edward County Innovation Centre in Picton, has already attracted nine startups in the first year and he is aiming to snag 16 more Canadian and U.S. tech entrepreneurs by this time next year.

Life in a community of about 25,000, more than two hours by car from Toronto, Ottawa or Montreal, can be a hard sell for someone who's used to big-city life, Mr. Guziewicz admits. "It's a great place to live, but if you're a Manhattan guy, it can be a big adjustment."

But once people look around, he argues, the location is appealing for its small-town atmosphere, its recreational opportunities and restaurants, and its access to talented tech graduates from Ontario's universities.

Raised in Toronto, Mr. Guziewicz was an executive with several Silicon Valley computer companies in the tech boom of the 1990s, and he made enough from an initial public offering (IPO) to retire at the age of 40. He turned to real estate, founding Sandbank Homes Inc., which develops retirement communities in Ontario, and he set up a personal fund to invest in promising tech startups.

In 2010, he bought a former resort and marina in Picton and renovated it into office suites. Since it opened last spring, 10 entrepreneurs with a total of 37 employees have set up shop in the facility. A big incentive is that he and a group of investors provide startup capital to entrepreneurs with good ideas. "Seed money is very difficult to come by these days in the Valley, unless you have a track record," Mr. Guziewicz explained. "Angels will only fund you once you've demonstrated a successful product."

Promising ventures can also qualify for matching startup loans through a community based not-for-profit supported by $8-million in federal funds.

It's an innovative new direction for the Community Futures Program that for two decades provided loans to local retailers, restaurants or small-scale manufacturers, says Craig Desjardins, executive director of the Prince Edward, Lennox and Addington Community Futures Development Corp.

"We're moving into a new area to take advantage of the opportunities for growth in technology," with the goal of bringing youth and new business into what has increasingly become a retirement community, he explained.

And it's a twist that other rural revitalization programs might want to emulate, Mr. Desjardins suggested.

There are more than 300 similar federal rural revitalization programs across the country. Some programs are also creating incubator projects, but typically they don't take an equity stake the way the Prince Edward County program does, says David Wells, manager of public affairs for the Federal Economic Development Agency for Southern Ontario (FedDev Ontario), one of several umbrella organizations that manage the community development programs.

Northumberland County's IdeaHub program, for instance, provides up to $30,000 in non-repayable grants for entrepreneurs in science, technology, engineering or mathematics.

The Prince Edward County fund is currently taking equity stakes of between 10 per cent and 25 per cent in four startups based at the Innovation Centre, including $150,000 for Mr. Chan's company. The equity takes the form of shares or share of dividends, Mr. Desjardins says.

Another company that got support is a virtualized supply system for General Motors dealerships, which is aiming to expand into the U.S. market. The fund would like venture capital investors to buy out its stake once a company is up and running, so the money can go back into the fund for future investment. "We have a fixed amount of money and we would like to see the companies grow with the private investors' money. In tech, there's at least a likelihood someone will be interested in buying us out – that's not as likely with a stake in a restaurant," Mr. Desjardins explains.

"Of course, if we invest in the next Instagram, we could come out with a big pot of money. But our goal is for the entrepreneurs to take control."

One startup in which the fund holds equity is already in negotiations for venture capital financing through a U.S.-based fund.

To help get companies there, mentoring is essential, especially in a rural area with few similar businesses, Mr. Guziewicz said. "Particularly in high tech, there are a lot of people who are great inventors who aren't good business people. We want a Vincent van Gogh in the corner doing his art; but we also want someone making sure he doesn't cut off his ear."

Mr. Guziewicz has assembled a team of six experienced business people to coach the entrepreneurs in business methods and product promotion.

Mr. Chan said he's found the investment package and the mentoring offer irresistible. His plan is to start generating revenue immediately with a starter game product and content that will be expanded as developers analyze user feedback to find out which elements are most popular and effective.

"Startups in the Valley are looking to hit home runs and aren't looking to generate money from the start and so there is a huge failure rate. A lot of them have no revenue, and like it that way, because it allows the investors to evaluate the company from a mystery point rather than a true value. I think that's crazy. It's not a healthy way to go into business."

But home runs are possible: the Innovation Centre's first startup hit a jackpot. Tim Ray, a Queen's University MBA student, became a 27-year-old millionaire last October when he sold his online group-buying site to Torstar Inc.'s WagJag Ltd., after only seven months in operation.

The company – now called WagJag Grocery, with Mr. Ray now general manager – has moved to Toronto from Picton, and Mr. Desjardins considers it a victory for the rural development strategy.

"We've proved that successful tech startups can and do happen in rural communities thanks to today's broadband infrastructure and cloud computing," he says.

This diversification of rural Ontario's economy is key to Canada's future prosperity and productivity. "Our physical remoteness from Toronto, Ottawa or Montreal may actually be a help to our clients' success," Mr. Desjardins explains. "Anyone serious enough to move to Picton is committed to working 15 hours a day to make their business work."

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