Tuesday, January 20, 2009

Yesterday I wrote about Silicon Valley investment levels compared to Canadian, as well as the perception outside Canada that our tech sector is no longer innovative.  One could easily be left with the perception from those pieces that the Canadian technology sector is in deep trouble, and doing a lot wrong.  In actual fact, the conditions for a successful technology industry in Canada are mostly right.

The ecosystem of Silicon Valley is anchored in three key sectors – education, finance and industry. The educational institutions fund research and turn out high quality graduates that then become the leaders of industry. Stanford University, founded in 1876, is the Silicon Valley powerhouse that turns out industrial and academic leaders alike. 

When founded, one of the Stanford’s credos was that it would produce “cultured and useful citizens” when most universities of the day were only concerned with the former.  Stanford had a practical bent from the get go. Fifty years later, Stanford graduates David Packard and William Hewlett would found their company in a Palo Alto garage, beginning the industrial connection which is the other driver of Silicon Valley.  Today Stanford is a wealthy lynchpin in the Silicon Valley ecosystem, funded by endowments, royalties, and more and producing the leaders that the ecosystem needs to prosper.

The story is similar on the other side of the US in Boston, where Harvard and MIT were the educational underpinnings of the famous Route 128 tech corridor. 

Here in Canada there are two or three possible areas where a similar ecosystem could be built. 

  • In the Golden Triangle area, the University of Waterloo, Guelph University and McMaster University all turn out high quality graduates.  Waterloo, in particular, has borrowed (whether by accident or design) from Stanford’s model heavily with its focus on partnering with industry and the practical bent it has displayed from the start.  Moreover, Waterloo is the home to Research In Motion, the current darling of the Canadian tech sector. 
  • A similar ecosystem could also be built in Toronto, centered around the University of Toronto.  Waterloo has a lead on University of Toronto, in my opinion, but Toronto is the heart of the Canadian financial sector.
  • Montreal is another possibility.  Montreal has McGill University, and investment dollars have been flowing to Quebec companies the last few years after the McGuinty Government’s ill-considered decision to cancel the tax benefits associated with Labor Sponsered Funds in Ontario. 

And what of Ottawa?  A decade ago Ottawa was the heart of the Canadian technology sector. The collapse of telecom in 2001 dealt the city a harsh blow, which it has never recovered from.  Former tech sector employees opted for safer government work, or left the city altogether shrinking the labour pool. Hard hit companies were gobbled up by foreign competitors. Today Ottawa still employs more people in tech than anywhere else, but the number of Canadian success stories left in Ottawa is dwindling, and Waterloo is quickly moving to surpass Ottawa in terms of employment.

We have the educational institutions.  We have a few of the anchor companies.  The biggest missing ingredient to drive Canada’s technology industry is funding.   Venture, as an investment class, has returned poorly in recent years, while natural resources have provided stellar returns for investors. It’s not a surprise that the Canadian venture sector is shrinking, not growing.

It’s also worth remembering that every dollar diverted from venture toward digging resources out of the ground is a mortgage on the future of all Canadians. 

Addressing the venture funding gap should be a top priority for the Conservative government’s budget on January 26th. In fact, it should a top priority for every level of government from Federal to Provincial and even Municipal. We don’t necessarily need government funding for venture capital.  We do, however, need conditions that encourage a private sector venture industry to prosper.


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