It’s the city that Sam Altman, president of Y Combinator, said is the “best up-and-coming startup city in the world.” And Compass, a company that creates automated management reports and benchmarks for businesses, is inclined to agree.
In a recent blog post, the company outlined the findings of its Waterloo Startup Ecosystem report, which looks at how a city with a population of half a million people can compete with cities as big as Rio de Janeiro and Rome. Currently, Waterloo’s startup density is second only to Silicon Valley.
“The lessons from Waterloo are of global relevance for every stakeholder working on growing startup ecosystems and creating economic growth,” said the report. “Waterloo’s top talent, deep sense of community, and the unmatched cooperation and coordination between stakeholders are the pillars of its success.”
The report credits the presence of universities like the University of Waterloo, which has a co-op program where students graduate with up to two years of work experience, and hubs like Communitech, as contributing factors for Waterloo’s success. Top tech talent in the area has attracted companies like Google, which has a research and development centre in the city.
“Only half of Waterloo startups’ customers are foreign versus 74 percent for Tel Aviv, a non-U.S. ecosystem with higher Startup Performance. Tel Aviv startups tend to go global from day one.”
However, the report also noted that Waterloo falls short of the world’s top 20 for both ecosystem value and number of output (number of startups), and on a 10-point scale on the Growth Index, is only at 2.4 — slightly above the global average of 2.35.
The report also argues that startup valuations in Canada grow more slowly because revenue growth is slower; the underlying issue behind this is a global market reach gap, where Waterloo startups do not focus enough on going global. While the key to doing this is usually focusing on the U.S. market, startups in Waterloo don’t seem to do that.
“Because the U.S. market is less than 100 miles away, one would expect Waterloo startups to make extensive use of the opportunity to focus on the U.S. market,” said the report. “However, on average only half of Waterloo startups’ customers are foreign versus 74 percent for Tel Aviv, a non-U.S. ecosystem with higher Startup Performance. Tel Aviv startups tend to go global from day one.”
The report also pointed to a common complaint in Canada: the lack of funding. “The Waterloo, Toronto, and Vancouver ecosystems fare a lot worse [than Silicon Valley]. Throughout all rounds the proportions of their startups getting funded represent a maximum of one-third of that for Silicon Valley,” the report said.
To combat these issues, ecosystems in Waterloo should focus on customer development activities with foreign customers, coordinated efforts between ecosystem leaders and policymakers to support their startups by funding growth-focused hubs, and integrating Toronto and Waterloo as a larger ecosystem.
“Combined with Waterloo’s top technical talent and its outstanding productivity in creating innovative technologies and startups, addressing these issues can lead to the production of large exists and unicorns,” the report says.