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.
Vancouver’s high-tech hurdle
Vancouver is awash in startups with several poised to go public, transforming British Columbia’s economy as they grow. But for Canada’s lifestyle capital to emerge as a world-class tech hub it needs to figure out how to persuade top executives to actually move there (because hey, Silicon Valley has mountains and ocean too)
Andrew Reid is sore. After work the day before, the founder of Vancouver customer intelligence software company Vision Critical Communications Inc. and three buddies had driven up into the coastal mountains that tower over the city for a gruelling bike ride up and down Mount Fromme’s trails. “You go up there, it feels like you are so far away,” the 38-year-old Mr. Reid says in his downtown office on a sunny June day.
Being an entrepreneur in Canada’s lifestyle capital has its perks. One of the rewards for working hard is the ability to play in one of the most spectacular natural environments close to any major city in the world. Vancouverites aren’t modest about their hometown’s attributes: It has been ranked one most liveable, greenest and healthiest cities, with an abundance of outdoor activities and a brisk economy.
Lately, Vancouver has added another bragging right: It is home to one of Canada’s hottest startup scenes. Many of the biggest recent “exits” in Canadian tech have happened here, including the sale of dating website Plentyoffish.com for $575-million (U.S.) in July, and last year’s sale of online eye wear retailer Coastal Contacts Inc. for $430-million (Canadian).
Waiting in the wings are several burgeoning local firms with nine-figure annual revenues readying to go public, including social media management firm Hootsuite Media Inc., online retailer Cymax Stores, and Vision Critical, part-owned by Mr. Reid’s father, pollster Angus Reid.
There’s more, including one of the hottest startups in the world: Communication software maker Slack is based in San Francisco but B.C.-born founder Stewart Butterfield works in Vancouver along with a development team. In 18 months, Slack has amassed 300,000 paid users and raised $340-million (U.S.) from Silicon Valley’s top venture capitalists, valuing the company at $2.8-billion. Much of the team behind Coastal Contacts, including chief executive officer Roger Hardy, is now building footwear e-tailer Shoes.com, which is on track to top $300-million (Canadian) in revenue this year.
There’s also BuildDirect.com Technologies Inc., whose software platform and logistics system allows customers to order construction materials to their door quickly and inexpensively. CEO Jeff Booth predicts an impending tweak to BuildDirect’s platform could increase revenue tenfold, to $1-billion.
Along with the local expansion of Microsoft, Amazon and Sony Digital Works, the tech industry (loosely defined by the B.C. government to include video games, animation and digital entertainment) is transforming British Columbia’s economic capital: The sector is estimated to occupy almost 40 per cent of downtown Vancouver commercial real estate and employed 86,800 people provincewide in 2013 – more than forestry, mining and oil and gas combined. It is B.C.’s third largest sector, behind financial services/real estate and construction. Vancouver was ranked the world’s ninth most active startup ecosystem in a 2012 survey (just behind Toronto, whose population is greater than the entire province of B.C.) and B.C. attracted close to 30 per cent of venture capital (VC) invested in Canada last year.
These are heady days for the nascent Vancouver tech scene, and its leaders dream about building a powerhouse tech ecosystem here. “Why do these disruptors have to be in San Francisco?” says Hootsuite CEO Ryan Holmes. “They can be anywhere.”
But talk to any hot tech entrepreneur in the Lower Mainland and you will hear the same story: While the city is awash in startups, “there is an absolute shortage of experienced and talented senior executive-level people” to steer such firms into giants, says Alex Fernandes, CEO of Avigilon Corp., a high-definition surveillance technology maker. Constraints on growth could compel companies to prematurely sell or move, a chronic situation in Canada.
Coaxing top executives to a world-class tech hub in the making is proving to be a challenge – and not just because of Vancouver’s high housing prices. “Our ability to attract those sorts of individuals [to Vancouver] … those are the pinch points right now,” says Bill Tam, president of the B.C. Technology Industry Association (BCTIA).
‘A culture of survival’
Markus Frind, founder of Plentyoffish.com, recently sold the online dating website to Match Group for $575-million (U.S.). He has invested $18-million in Vancouver online retailer Cymax.
Ryan Holmes, founder and CEO of social media management platform Hootsuite, has invested in dozens of other local startups. He’s spent months looking for an experienced chief financial officer from south of the to help take Hootsuite public.
Andrew Reid, founder and president of corporate innovation at Vision Critical, has had trouble recruiting executives in Vancouver. Many of the customer intelligence software company’s top brass live in Toronto.
Jack Newton, CEO of Burnaby-based Themis Solutions Inc., whose Clio software helps small law firms manage their practices, says Vancouver lacks companies with scaling expertise.
Roger Hardy sold his online eyewear company Coastal Contacts Inc. for $430-million in 2014, and has since founded Shoes.com, which is on track to top $300-million in revenue this year.
Boris Wertz, founder and CEO of Version One Ventures in Vancouver, says Vancouver lacks ‘institutions that are spitting out ... entrepreneurs on a scalable basis.”
Jeff Booth, president and CEO of BuildDirect.com Technologies Inc., says “it’s hard to convince people to come into this market, where they are typically paid less and the cost of real estate is higher.”
OMERS Ventures director Sid Paquette is speaking to about 35 entrepreneurs at the Innovation Hub, a recently opened “acceleration space” for Vancouver startups. His VC firm, backed by a major Ontario pension fund, has taken a liking to the local tech scene, making three of its biggest investments here (Hootsuite, Vision Critical and BuildDirect.com), and Mr. Paquette and a colleague have booked back-to-back meetings in town in search of the next great opportunity. Vancouver, Mr. Paquette tells the crowd on this June day, may be the best tech hub in Canada. “You guys should be very proud of what you’ve built here. This will be a juggernaut.”
Such talk would have sounded delusional a decade ago. Back then, Silicon Valley was rebounding from the dot-com crash and Canada’s tech sector was in retreat, with the exception of BlackBerry maker Research In Motion. As for Vancouver, the situation was bleak, but not completely dead.
In fact, if you look at the princes – they are overwhelmingly male – of the local tech scene today, most were building tech companies a decade ago when Vancouver was barely on the startup map. Back then, they were smaller, marginal and struggling to grow. They found very little support from local, inexperienced and underqualified VC funds that mostly vanished in the 2000s (there are now nine VC firms in B.C. according to the BCTIA, down from 43 in 2002). One local entrepreneur who persevered says an early backer “told me: ‘We actually talked about how we get you hit by a bus, because you won’t give up and sell the company.’ It was shocking. They had no business being VCs.”
Andrew Lugsdin, a Vancouver-based partner with the Business Development Bank of Canada’s IT Venture Fund, says that, back then, “very few people were starting companies and there was little entrepreneurial energy.” U.S. venture capitalists sniffing around kept telling Vancouver entrepreneurs to relocate south. In what passed for a huge deal, Vancouver-based picture-sharing service Flickr, co-founded by Slack’s Mr. Butterfield, sold to Yahoo in 2005 for about $25-million (U.S.).
Hootsuite’s Ryan Holmes is the face of today’s emerging Vancouver tech scene. The trim, bearded 40-year-old, dressed in a v-neck t-shirt, jeans, sneakers and wristbands, comes across as an intense and passionate entrepreneur while emanating the warm, easy-going West Coast vibe of someone who knows how to find bliss.
Mr. Holmes grew up off the grid in the Okanagan (literally; when he wanted to operate his Apple IIc computer, he had to connect it to the battery in the family car because their home had no electricity) and ran his own paintball and pizza businesses before moving to Vancouver just before the Internet bubble popped. When the dot-com business he joined collapsed, the founder told Mr. Holmes to take what he could carry out. He left with his chair and computer and started his own digital marketing agency.
Through the 2000s, “it felt like there really wasn’t a vibrant community happening” as Mr. Holmes struggled to establish his firm, Invoke Media. “The culture of Vancouver was a culture of survival,” he says. Invoke worked on a string of software products for corporate clients with limited success, but Mr. Holmes was determined to find a “monster opportunity” and recreate the collaborative “culture of abundance” he saw in Silicon Valley.
That opportunity came with the rise of Facebook and Twitter. Keeping tabs on these disparate social media platforms overwhelmed his clients, so Mr. Holmes’ company built a tool called Hootsuite for centrally managing their various accounts. It took off in popularity and was spun out into a separate company, raising more than $250-million from venture capitalists in the U.S. and Canada and amassing 10 million users and 1,700 corporate clients.
Other converging trends have made this a fertile time for startups. The digitization of the workplace, growth of Internet and mobile communications and e-commerce and the increasing ease of starting a tech company due to the abundance of low-cost cloud-based software have prompted many Vancouverites, along with entrepreneurs elsewhere, to start companies. A lack of good jobs since the recession is also a factor. The tech industry in B.C., driven by Vancouver’s startups, is generating about 250 new companies each year, and growing at an annual clip of over 6 per cent, according to the Vancouver Economic Commission.
“There’s almost a dividing line: Before the cloud, and after the cloud,” Mr. Holmes says. “We’re seeing an absolute decentralization of startups around the world.”
‘A bigger undertaking than I imagined’
One of the big questions venture capitalists ask of any business is: Is it scalable? Well-regarded Vancouver startup investor Boris Wertz has the same question about the local tech ecosystem. “When you look at the companies that have been built in Vancouver recently, all of these entrepreneurs have very different backgrounds,” he says. “But I don’t yet see the institutions that are spitting out these entrepreneurs on a scalable basis.”
Flourishing local tech scenes rely on renowned science-focused universities to produce engineers and large anchor companies, such as Seattle’s Microsoft or Amazon, to feed the region with spinoff businesses and executives who start their own ventures. A thriving ecosystem, Mr. Wertz says, can’t “depend on the luck of having an outstanding entrepreneur come to your city and building a company. You need to get that channel going.”
Four Vancouver startups expected to go public
CEO Ryan Holmes recently told The Globe and Mail he’d like to take his social media management company public, but needs to do two things first: Get the company to break-even cash flow and hire a chief financial officer.
CEO Roger Hardy, who sold publicly traded online eye wear firm Coastal Contacts to Essilor International last year for $430-million, said in March that he hoped to take his latest company public this year. Those plans now seem to be in lower gear after insiders and other shareholders pumped $46.5-million in private financing into the online footwear company about two months ago. “The [initial public offering] makes a ton of sense at the right time,” Mr. Hardy says. “The message from our existing shareholders was, keep your head down, keep focused on growing, and the IPO will be there when you need it.” That could still come by next year, he hinted.
The customer intelligence software company is backed by several Canadian venture funds and “I’d be lying if I said we weren’t considering” an IPO, says founder Andrew Reid. The management team includes chief financial officer Donna De Winter, who has experience working for other publicly traded companies. “Our goal is to run this business and set it up like it’s a public business” whether or not it goes public, Mr. Reid says.
CEO Arash Fasihi has one specific reason for wanting to take his online furniture retailer, with forecast revenue of $190-million this year, public: as a recruiting tactic. “Liquidity is an issue for a lot of players in Vancouver,” says the 40-year-old Iranian immigrant, who started out as a computer salesman at Future Shop. “It’s becoming a more competitive market. There are a lot of startups opening up. We feel if we are one of those early companies that [go public], that will give us an edge, basically, with talent.”
Vancouver’s colleges and universities have spawned engineers and entrepreneurs. But, because the vast majority of B.C.’s 9,000 tech companies each employ less than 10 people, the province lacks anchors. Just 12 B.C. tech companies had 500 or more employees in 2013, according to the government. Even the biggest homegrown tech company isn’t that big: Aerospace supplier MacDonald Dettwiler and Associates Ltd. had $2.1-billion in revenue last year – equal to Amazon’s weekly haul – followed by Sierra Wireless Inc., less than one-third MDA’s size. B.C.’s tech sector, dominated by tiny firms, accounted for 6.5 per cent of economic activity in 2013, below the Canadian average of 7 per cent and 10 per cent in the U.S.
“If you’re in Seattle, it’s possible to recruit world-class talent” from Amazon or Microsoft, says Jack Newton, CEO of Burnaby-based Themis Solutions Inc., whose Clio software helps small law firms manage their practices. “They have seen phenomenal scaling challenges and addressed them, and can bring that expertise to bear on younger local companies. Vancouver lacks those kinds of companies.”
That has forced expanding Vancouver companies to look outside to recruit talent. But persuading executives to move to a second-tier tech market from Silicon Valley is difficult, says Mr. Holmes, who has spent months looking for an experienced chief financial officer from south of the border to would help take Hootsuite public. “If I get here and a year later I don’t get along with the CEO, now what am I going to do? There are no other unicorns for them to work with here and they have to go back.” (A “unicorn” is a startup judged to be valued at more than a billion dollars.) In the Valley, he says “there are 10 other Hootsuites” an executive could join.
BuildDirect.com’s Mr. Booth says “it’s hard to convince people to come into this market, where they are typically paid less and the cost of real estate is higher. The opportunity has to be big enough for somebody to say, ‘Am I going to go through with this?’ ”
Indeed, Greater Vancouver’s Home Price Index for detached homes hit a record $1.14-million (Canadian) in July, a 16.2-per-cent gain from a year earlier.
Mr. Booth has been more fortunate than most, hiring his vice-president of marketing, Joseph Thompson, from Amazon in Seattle and chief technology officer Tal Ball from GraceNote in Silicon Valley.
Both acknowledge the move north has been challenging. “I was very comfortable in the Valley, and it would have been easier to get a more comfortable role with something that had a little less riding on it,” Mr. Ball says. “I was very surprised that I saw an opportunity [in Vancouver] that was compelling enough for me to make that move.”
But it was a bureaucratic nightmare to transfer his car’s registration to B.C. Finding a family doctor was difficult, so he is paying for private care. Most significantly, his 15-year-old son didn’t want to move, and stayed behind and lived with friends. “I’m not entirely sure what he’s going to do this year,” he says. “I would say the border between Washington and B.C. is a bigger change than most Americans perceive. It’s doable, but it’s a bigger undertaking than I imagined.”
Facing a talent crunch at home, Vancouver-area companies are doing what’s necessary to grow: Hiring outside Vancouver. Internet-of-things startup BitStew Systems, based in Burnaby, plans to add 20 jobs in the next year – to its Seattle-area office.
Many of Vision Critical’s C-level executives – including its CEO and chief financial officer – are also in Toronto. “By the number of individuals we have in Toronto, it shows you that it is hard to recruit here,” says Mr. Reid, who serves as president of corporate innovation.
The ‘Maple Syrup Mafia’
During his 11 years as chief technology officer with Goldman Sachs, Vern Brownell was constantly pitched on new technology. But “I never saw anything that could change the landscape as much as this.”
The American-born CEO of Burnaby’s D-Wave Systems is talking about a ground-breaking technology his company makes called a quantum computer. Mr. Brownell wasn’t so sure it was legit when he was first approached about joining, but gradually warmed to the idea that D-Wave machines could eventually vastly outperform the world’s fastest computers, enabling scientists to tackle massively complex problems that are now unsolvable. He joined in 2009 believing “it would be a once-in-a-lifetime opportunity to really change the world.”
D-Wave has raised $174-million (U.S.) from Amazon founder Jeff Bezos, Goldman Sachs, the U.S. Central Intelligence Agency and venture funds. Its modest headquarters is like a technology institute, employing experts from around the world in such fields as cryogenics and magnetic vacuums. “It’s actually been easier than I would have thought to attract people here,” he says.
Mr. Brownell’s story is a reminder that anywhere there is a potentially ground-breaking technology company, talent will follow. Another plus for Vancouver is that the city’s tight-knit cabal of successful homegrown entrepreneurs are staying here and investing in other startups.
Hootsuites’ Ryan Holmes talks of emulating the “Paypal Mafia” – employees and founders of the payments company who reinvested proceeds from its 2002 sale into YouTube, Tesla Motors and LinkedIn. He calls his version the “Maple Syrup Mafia.” Mr. Holmes has invested in dozens of local startups. Plentyoffish.com founder Markus Frind has invested $18-million (Canadian) in Cymax, and Roger Hardy and other ex-Coastal insiders plan to invest much of a $150-million private fund in local firms.
“The first thing I tell companies that come to see me is: ‘How fast can you do this and why are you ‘showing me a five- or seven-year plan?’” Mr. Hardy says. “‘You need to do this in the next [12 to 18 months] if you really think you’re going to create something of value.’”
Vancouver has its share of challenges, including expensive housing and a shortage of engineers. But, “I don’t see us going over some cliff and looking back and saying: ‘Remember 2015, and how great it was?’” Mr. Reid says. “I hope I’m sitting around in 2035, still part of the tech scene and feeling proud I played a bit of a role.”
The universe’s coldest, most confusing place is in Burnaby
Vern Brownell has learned that trying to explain the science behind D-Wave Systems to investors is almost pointless.
Still, he makes an attempt during a visit to the company’s low-slung headquarters in Burnaby, B.C. At the core of the technology are tiny loops of “superconducting” niobium metal, called qubits, which can be in “superposition,” or two states at one time, he explains. By extension, that means “there are actually two universes,” he says, illustrating his point with a coffee cup – “one where the cup is on the table and another where it’s off.”
To harness the power of the technology, the superconductor is placed within a finely crafted chamber the size of a coffee can, which is positioned inside a giant steel box and supercooled with liquid helium to 0.01 degrees Kelvin. That’s just above absolute zero, or minus-273.15 C, at which point atoms stop moving, and a bit colder than deep space, which means the coldest point in the universe is in Burnaby.
All of this is required to power D-Wave’s groundbreaking technology, which Time Magazine last year labelled “the Infinity Machine.” It’s called a “quantum computer” – a machine that might some day perform computations that would take the world’s most powerful computers years or even centuries to run. Amazon.com Inc. founder Jeff Bezos, the U.S. Central Intelligence Agency and Silicon Valley venture capital firm Draper Fisher Jurvetson are investors. Lockheed Martin Corp. and Google Inc. are customers.
D-Wave’s latest quantum computer contains 1,000 qubits, which translates to “you have two-to-the-one-thousandth power different universes that this machine is at” when the computation cycle begins, Mr. Brownell says. “There are only 10-to-the-80th-power atoms in the universe.”
He has lost me. I’m not alone. Quantum mechanics is so mind-bogglingly complex and bizarre that it flummoxed even Albert Einstein.
“I don’t use those talking points, obviously, because they’re just so ridiculous when you think about them,” admits Mr. Brownell, a former chief technology officer with Goldman Sachs who joined D-Wave as CEO in 2009. “If you’re talking to an investor or a customer, those analogies are not helpful.”
Here’s what is helpful: The pursuit of technology that can harness the organic properties of subatomic particles to create superpowerful computers is a serious, well-funded race, with players such as IBM, Microsoft and BlackBerry founder Mike Lazaridis committed to spending decades and billions of dollars on research and development.
There are multiple approaches to building a quantum computer, so not everyone agrees with D-Wave’s method or scientific principles – or believes its technology is a quantum computer at all.
Mr. Brownell maintains that the company’s dozens of peer-reviewed research papers put that last issue to rest. He says D-Wave will soon publish data showing for the first time that its machine has performed some calculations faster than conventional computers. And as quantum computers get more powerful, he says, they will be able to handle mammoth calculations, such as multifaceted global market risk assessments for financial institutions in minutes instead of hours. Doctors will be able to prescribe unique treatment cocktails to cancer patients based on their specific genetic makeup.
The possibilities sound dazzling, but can D-Wave become commercially viable?
“That is a very good question,” Mr. Brownell says. “It is the question. The real question is how powerful this technology can become over time. … This will change the technology business.”