Why Aren’t Ontario Startups Making a Global Impact?

Overview

In late 2016, an Expert Review Panel was assembled on behalf of the Ministry of Research, Innovation & Science to conduct an analysis of the Ontario Network of Entrepreneurs (ONE) and the province’s Regional Innovation Centres (RICs).

The Panel conducted interviews with leadership at various levels of government, key members of the network and poured through client survey data provided by the RICs. The Panel also reviewed tech ecosystems outside of Ontario to look for opportunities.

This was all analysed and its insights put into a report, which was released at the end of 2017. It covers many of the successes and challenges that the network and its startups face, as well as provides recommendations for the province, ONE and its RICs to take into account.

Ecosystem

‘Innovation’ might seem like a recent buzzword but it has been around for a very long time. The provincial government had already made efforts to connect industry with academia in the 1980s with the creation of the Ontario Centres of Excellence (OCE). But as technology has grown exponentially in the last decade, so has competition from other regions of Canada and the world.

In 2005, the province created the Ontario Commercialization Network, later named ONE. The network now comprises of over 130 non-for-profit organizations across the province, all with the singular purpose of growing Ontario businesses. It includes government agencies, university labs, incubators and industry partners.

Of those 130, there are 17 Regional Innovation Centres spread across the regions of Ontario, focusing specifically on technology. For example, the Research Innovation Commercialization Centre (Altitude Accelerator) serves the Peel Region and helps grow startups in Mississauga, Brampton and Caledon.

Some Centres like the Altitude Accelerator help clients across a variety of industries but also specialize in certain areas. With industry partners like the Xerox Research Centre of Canada and GreenCentre Canada, Altitude Accelerator is strongly positioned to help companies in Advanced Manufacturing, Advanced Materials and Clean Technologies.

Successes

Client-first

The panel identified that one of the main successes of the network was its commitment to its clients. People working in the system genuinely seemed to believe in the purpose of their roles and showed dedication to helping their startups grow.

“Helping our clients succeed is our primary focus,” said Pam Banks, Executive Director of the Altitude Accelerator. “Our jobs are to connect the dots, helping technology startups realise their ideas and take their products to market.”

The Altitude Accelerator Incubator program does exactly that. In six month terms, startups work closely with advisors and partners to help develop their technologies, build sales channels and scale.

Startup Culture

Ontario has seen a strong number of startups per capita compared to other cities.

According to the report, “The ONE catalyzed the creation of 2,214 startups through On-Campus Entrepreneurship Activities (OCEAs) along with Campus-Linked Accelerators (CLAs) between 2014 and 2016 alone. The startups that germinated from OCEAs and CLAs have a 91% two-year survival rate; 20% higher than the global average.”

With hundreds of CLAs, public and private accelerators and incubators in Ontario, these companies are very well supported, and has contributed to the longer than normal lifespan of startups.

Variety of sectors

The sectors served by ONE partners are far ranging and far reaching. The most popular sector is software, but this can also span across various other industries.

Ontario also has depth in many areas of technology. For example, in Toronto, proximity to Bay Street has allowed FinTech companies to thrive. Elsewhere in the city, access to the University of Toronto has made it a hotbed of artificial intelligence research, drawing billion-dollar companies to Canada.

Mississauga, as well, has been a center of innovation in advanced manufacturing, hosting aerospace, automotive and Cleantech companies among many others. The area has been growing so much that the National Research Council has invested $25 million to build a new Centre of Excellence for Advanced Manufacturing & Materials.

Challenges

Global Reach

Despite seeing exceptional growth in the amount of new companies spawning in Ontario, we still struggle to see an impact on the world stage. The Toronto-Waterloo corridor ranks 34th in startups having an international reach. In the 2017 Startup Genome Global Ecosystem Rankings, Toronto-Waterloo was ranked in 16th – one place behind Vancouver. And yet, according to the same report, the region has nearly as much potential global connectedness in market, talent and knowledge as Silicon Valley.

The issue, as the ONE review suggests, is that startups in Ontario stall before they can compete globally. A lot of this may come down to Canadian startups choosing to focus locally at first, or at most looking to expand into the United States. This often serves as a big enough market initially that entrepreneurs don’t need to think global from the offset.

Compare this to Europe, where, with smaller markets and freer trade among the European Union, startups are forced to and are more capable of thinking globally from the start. Startups that do, tend to grow two times faster in revenue.

Given the maturity of the Ontario ecosystem and advanced status of fields such as artificial intelligence, advanced manufacturing and health sciences, this lack of growth is surprising. The Panel suggests additional funding to help RICs expand their Entrepreneurs-in-Residence (EIR) programs would help get companies in front of the right mentors as a first step.

EIRs bring a wealth of real-world experience to the table. For example, Altitude Accelerator’s Entrepreneurs-in-Residence, Geoff Simonett, Paul Barter and James Sbrolla have decades of experience between them. They have been able to use their expertise in the areas of funding, business and marketing to help our incubator clients grow quickly in a very short span of time. In some cases, clients have not only gone to market, but have done so on an international level.

Funding

A lack of funding in the early stages of a venture greatly impacts the level of growth it can achieve. In Ontario, the average early-stage funding has reached $440,000. That’s nearly half of Silicon Valley’s average and it significantly lags behind New York City. The good news is that the average is increasing ($1.2 billion in 2015 to $1.8 billion in 2016) but at a slower pace than other innovation hubs.

The lack of early-stage funding can also be a reason that Ontario startups are struggling to go global. Both in allowing them to scale-up and keeping talent in the province. Through the Startup Genome report, you can see that Software Engineer salaries in Ontario average at $56,000 annually, while in the US, those salaries are often in excess of $100,000 a year.

In 2017, Altitude Accelerator, along with some of its founding and industry partners hosted the First Look Angel Investor Meeting and Innovation4D. Both events brought investors and startups together to make connections and help companies raise capital.

AOMS Technologies, a Altitude Accelerator Incubator graduate, raised close to $1,000,000 in funding from GreenSky Capital at the First Look event.

Going global

The ONE review states that “too few Ontario startups are plugged into global networks of ideas, capital and customers. Nor is the province producing enough companies that scale and compete internationally.”

Even though this has been one of the major challenges outlined by the report, Altitude Accelerator clients have gone on to sell to an international customer base.

AOMS Technologies, one of the most recent graduates from the RIC Incubator, makes fiber optic sensor technology. Their sensors can handle some of the toughest environments on the planet and help organizations sense for variables such as temperature, humidity, pH levels and more. The company was already operating in Canada and the US, and in late 2017, announced its first steps into Europe.

Suncayr is another company working globally. Their product, SPOT, is a UV sticker that changes colour to let you know when to reapply your sunscreen. They were awarded with AUD $100,000 in funding through the Queensland government. The company now has offices in Brisbane and Sydney and first trialled SPOT in Australia.

Conclusion

The ONE – Building Global Winners report goes into detailed analysis of the successes of the network and the challenges it faces.

Some of the recommendations focused around making global reach a goal going forward. Given Ontario’s mature innovation ecosystem, the fact that it has been overtaken by a number of cities might be disheartening but it leaves opportunities to grow. Canada has proven that it is a world leader in artificial intelligence and shows potential in advanced manufacturing, clean technologies and health sciences.

A big way to capitalize on this would be to connect Ontario to a global network of knowledge, talent and technology earlier in a startup’s life. This would allow companies in the province and in Canada reach new markets and make an impact on the world stage.

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