For Canada’s tech to thrive, startups must grow up

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The Globe & Mail  | By Sean Silcoff | July 1, 2017

When Microsoft Corp. offered to buy his software startup for more than $10-million (U.S.), Carl Rodrigues agonized about the decision for three days.

It was 2006 and his firm, SOTI Inc., had nine employees and $800,000 in revenue. Friends and family urged him to sell, convinced the giant from Redmond, Wash., would crush him if he said no. Saying yes would have made the Pakistan-born Canadian immigrant a multimillionaire – but he wanted to keep building.

Today, SOTI has 700 employees and helps 17,000 government and business customers manage their mobile communications. It is on track to hit $100-million (Canadian) in revenue this fiscal year; the Mississauga business has never raised venture capital nor had a losing year. The offers haven’t stopped – only now, the ones Mr. Rodrigues rejects value SOTI at more than $1-billion (U.S.).

“I really care about creating a Canadian company,” says the 55-year-old Mr. Rodrigues, who plans to break ground this fall on a new SOTI campus that could eventually house 3,000 people. When asked what his “exit strat-egy” is – a common question for startup entrepreneurs – he retorts: “Does Google have an exit strategy? Does Microsoft? Do you become a world-class multinational company with an exit strategy? We have to educate our people [to think], ‘Hey, you can do something bigger.’”

See: 4 reasons you should move your startup to Toronto today

Years after Canada’s last global technology champion, BlackBerry Ltd., began its long decline, Canada’s pipeline of tech innovation has rarely looked more promising. Canada boasts several $100-million revenue “scale-ups” like SOTI, and domestic early-stage technology firms are attracting a lot of buzz and money. Canadian tech companies raised $3.7-billion (Canadian) in venture capital last year, the highest since the dot-com bubble, and more traditional Canadian corporations and asset managers including banks, insurers, mutual funds and pension funds are increasingly getting into the startup-financing game.

“There’s a lot of excitement about the pace of innovation … and investors really want to start getting exposed to [startups] at an earlier and earlier point in the life cycle of the capital markets,” said Laura Adams, managing director of institutional equities with Morgan Stanley Canada, which hosted an investing symposium in Toronto last week on Canadian growth companies. The event attracted 160 institutional and high-net-worth investors, three times the expected crowd.

In June, eight-month-old Montreal artificial intelligence firm Element AI raised $102-million (U.S.) from a swath of global investors, making it the hottest startup in the globe’s hottest technology sector, thanks to the work of Canadian-based academics, including the University of Toronto’s Geoff Hinton and Yoshua Bengio of the University of Montreal. Canadian scientists and startups are leading in emerging sectors such as quantum computing, smart robotics and cleantech and developing technologies that would disrupt fields ranging from banking and auditing to DNA testing and textbook publishing.

See also: Canada is North America’s up-and-coming startup center

Provinces are starting to add coding to their education systems, and post-secondary institutions are increasingly focused on STEM (science, technology, engineering and math) and entrepreneurship programs.

But while Canada has never lacked for world-class research scientists, many of our top innovations have been commercialized elsewhere and this country has rarely produced global technology giants. Canada has had just one breakout success in the past decade – Ottawa retail commerce platform provider Shopify Inc., used by 400,000 merchants to run their online and bricks-and-mortar stores. The company, which is on track to top $615-million (U.S.) in revenue this year, went public in 2015 and now has a market value of $8-billion. Given that Shopify’s quarterly revenues are on track to surpass fading BlackBerry within a year, it is only fitting that the Prince of Wales and Duchess of Cornwall are set to visit the company on Canada’s 150th birthday.

But uneasy lies the head of a Canadian tech giant that wears the crown, particularly given the fates of BlackBerry and Nortel Networks Corp. They often seemed to hold up a tech industry that was otherwise pretty thin; information technology (IT) stocks account for less than 3 per cent of the S&P/TSX composite Canadian index, which remains heavily weighted to financial and energy stocks; in the U.S., IT firms account for 23 per cent of the benchmark S&P 500 index. Consider that the market value of all 186 Canada-listed technology companies add up to $96.4-billion (Canadian). That’s equal to one-sixth the size of Amazon’s quoted market value or one-third of the cash and marketable securities sitting on Apple Inc.’s balance sheet.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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