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Why the Canadian Tech Scene Doesn’t Work

Alex Danco blog | Jan 2021

Alex Danco on Canadas startup ecosystem - Why the Canadian Tech Scene Doesn’t Work

Toronto is not the next great startup scene. Neither is Waterloo, or Vancouver, or anywhere in Canada.

I’m sorry that I have to write this. I really am. I want it to work. But the growing chorus of aspirational claims that “Toronto’s tech ecosystem is growing faster than anywhere else in North America” or “The Toronto-Waterloo corridor is ‘the nice person’s Silicon Valley’” honestly do not portray an accurate picture of what we’ve built here.

To be clear: I am not saying there are no individual success stories of Canadian startups, or that there are no good angel investors or VCs here, or that there are no individual instances of things going right. Shopify obviously worked out great, there are other big success stories like Lightspeed making their way up, we have some really good initiatives around bringing new builders into Canada, and there are a good many individually inspiring startups that I admire.

There is certainly a lot of something here. It’s true that big companies are adding tech jobs here; it’s true that there is a lot of activity in the startup scene here. But we do not have a real startup scene that actually works; not yet. You cannot put the Toronto tech scene side by side with the Bay Area’s and say, “These are similar; ours is just smaller.” Come on; it’s not. The Bay Area’s startup scene continuously pulls incredible companies into existence. Ours… does not do that.

See:  4 Ways the Startup Landscape Will Shift in 2021

The Canadian tech scene, as it currently operates, does not support startups. It stifles them. I’m sure for some of you it’s in your professional interest to insist otherwise, and look I respect that, but I care about us getting this right, and someone needs to say this so it might as well be me.

Programs like SR&ED, Institutions like MaRS, and other well-meaning but disastrous government initiatives to support the startup ecosystem relentlessly pump money into the startup scene. This money is advertised as “free” or “non-dilutive”, but in reality it’s the most expensive kind of money you can imagine: it’s distracting, it begs justification, it kills creativity, and it turns your startup into a government work program.

Once your startup becomes a government work program, even if you pretend otherwise, you are forever onwards compelled to play fixed, finite games with your time and with your resources. You have to define what problem you are solving, and what you’re doing to solve it. You have to demonstrate value created.

The minute you spend any time doing that, with any part of your startup, that becomes the work product of more and more of the startup over time. Once you slip into playing fixed, definite games, that becomes everything you do. You become a milestone-oriented company, rather than a growth-oriented company. And there’s plenty of non dilutive money and government support for supporting and rewarding those milestones, so you can play this game for some time. So will your other founder peers, and this will just be normal.

But by becoming a milestone-oriented company, you’ve unwittingly destroyed your ability to actually put VC money to work, the way startups can do in California. And even before you take VC money, by becoming a milestone-oriented company, and learning how to talk and act in order to highlight those milestones and raise money off of them, you’re going to preferentially select for Bad Angels and disappoint Good Angels. The Good Angels simply won’t be having any fun: they won’t find the infinite game they’re looking to play, so they simply won’t play at all. So the early-stage funding environment gets saturated by the wrong type of money: well meaning, perhaps, but toxic to startups. And so startups start out hobbled, and likely never recover.

See:  7 Types of Investors to Avoid Like The Plague When Trying To Raise Capital For Your Startup

And this keeps the cycle going: the failure of these startups to sufficiently mature into unicorns (how can you blame them) compounds investors’ insecurity and obsession with “getting some exits for the ecosystem”, reaffirming their experience that these investments never generate any real returns, and reaffirming all of their decisions to say No rather than Yes. The ecosystem becomes defined and bounded by its small thinking.

And then, imagine you want to start a startup. Would you do it here? Or would you just get on a plane, and go to California?

Unfortunately, this decision compounds generation after generation of startups. For every batch of 10 new founders, the 2 most creative ones immediately leave (because it’s the right decision), leaving behind the other 8. They then start and grow their startups in this fixed-mindset, milestone-oriented environment, and become the environment that the next 10 founders step into as they graduate from Waterloo, or wherever. When the two particularly creative founders in that batch look around, yeah they’re probably gonna go to California too; again, leaving behind the other 8.

It was a bit of a bummer writing this essay. It’s not fun to write about this systemic trap we’ve gotten ourselves into; especially because there are so many individually good people and startups and firms in Canada who are trying their best to do good work. This is a system problem.

See:  The Intersection of Small Business, Tech and Our Financial Ecosystem is More Important Than Ever

My hope is that people in Canada reading this will realize that the problem facing us isn’t a lack of anything. The problem with our startup scene isn’t a lack of money, startups, investors, hustle, great Universities, technical talent, or creativity. Our problem is actually the presence of actively bad things: all of our non-dilutive (but extremely expensive!) innovation credits, the presence of incubators and entrepreneurship programs, and the accidental costs of milestone thinking. If we want to build a real startup community in Canada, we need to let go of those crutches, and choose the Infinite Game.

Anyway, I’ll wrap this up for now, but I hope we get this right eventually. In so many other ways beyond the tech scene, Canada is a special place. We’ve pulled off something absolutely incredible in our experiment of speedrunning multiculturalism; we’re (in my opinion) one of the overall nicest and freest places to live in the world; Canada is great and there’s a lot to be proud of here. But Canadian tech, specifically, can do better. I hope we do!

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