Vancouver’s place in the startup ecosystem rankings has significantly dropped, while Toronto-Waterloo is making a steady ascent, according to Startup Genome’s Global Startup Ecosystem Report for 2019.
“Over the past year, we’ve seen the Toronto ecosystem increasingly recognized globally. It’s great to see this reflected in Startup Genome’s report.”
Startup Genome’s 2017 report assessed 20 startup ecosystems around the world, but this year, the report published a top 30. Last year’s report provided insight into top innovation ecosystems across Canada, including Toronto-Waterloo and Vancouver, opting for a deep-dive rather than rankings. This year, the ecosystem ranking returned, which saw Vancouver fall nine points over two years, to the 24th spot, a precipitous drop from its previous positions.
When Startup Genome first launched its report in 2012, Vancouver scored ninth out of all global cities studied. In 2015, it dropped to 18th, though still remaining in the top 20. In addition to being ranked as Canada’s top startup hub, Vancouver ranked 15th globally in 2017, placing ahead of the Toronto-Waterloo region. This year marks the first time the B.C. city has dropped out of the top 20. The Toronto-Waterloo region, on the other hand, ascended, moving up three places, from 16th to 13th, becoming Canada’s top startup ecosystem.
“Over the past year, we’ve seen the Toronto ecosystem increasingly recognized globally for its growth and unique value proposition. It’s great to see this reflected in Startup Genome’s report,” Chris Rickett, manager of special projects for the City of Toronto, told BetaKit. “They are really telling us something we already know – Toronto is on a roll, and our companies, founders and employees are creating world-class tech companies.”
The study comprises data from more than one million companies, 150 ecosystems, and survey data from more than 10,000 startup executives across the globe. Startup Genome calculated an ecosystem index value based on performance, funding, market reach, connectedness, talent, experience, knowledge, infrastructure, and policy.
While Startup Genome’s report shows success for Toronto-Waterloo, a similar 2019 report from StartupBlink found that all Canada’s typically dominant tech hubs fell in the rankings compared to 2017. StartupBlink ranked Toronto 15, dropping four spots, while Vancouver dropped six places, to 24. Montreal also dropped 15 places to the 49th spot.
Vancouver falters
Vancouver, which was ranked as Canada’s top startup hub in the 2017 Startup Genome report, was noted for major assets in cleantech, blockchain, life sciences, and gaming. During that year, the report said there were approximately 250 cleantech companies in Metro Vancouver, employing 7,700 employees. Canada’s gaming studios contributed $3.7 billion to the country’s GDP, one-third of which is based in Vancouver.
“It is a challenge in Vancouver and we suffer a little bit because we’re not the financial capital of our country.”
“It’s disappointing but not surprising. It’s a globally competitive race that we’re in here,” James Raymond, manager of research and analysis at the Vancouver Economic Commission (VEC), told BetaKit.
This year’s report attributed Vancouver’s decline to three things: the debut of four other ecosystems, Vancouver’s lack of a life sciences ecosystem, and its “static” state of funding.
The four ecosystems on the rise include Denver-Boulder, Lausanne-Bern-Geneva, San Diego, and Washington, D.C., all four of which have strong life sciences ecosystems, the report found. Startup Genome’s report noted that even without the rise of those ecosystems, Vancouver would still have dropped in the ranks, due to its two other challenges.
Startup Genome CEO Jean Francois Gauthier told BetaKit the second reason Vancouver may have dropped in the rankings was due to the addition of life sciences to the ranking criteria. Gauthier said Vancouver’s life sciences ecosystem was “not extraordinarily strong,” likely contributing to the city’s decline.
But Raymond countered the claim that Vancouver has no life sciences ecosystem.
“I would actually challenge that, and say we do have an outstanding life science cluster here,” Raymond said. “We’ve got more than 300 fund companies in B.C., most of them in Vancouver. We’ve got about approximately 9,000 people working in the industry. We’ve got approximately 50 research centers. Even if it’s not always shown necessarily in the metrics, we do have an outstanding life science cluster.”
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According to Startup Genome, Vancouver also faced a static funding environment. The city was one of the three most hindered ecosystems in the rankings dealing with a gap in early-stage funding.
“That still remains an issue,” Raymond acknowledged. “It is a challenge in Vancouver, and we suffer a little bit because we’re not the financial capital of our country. There is a gap, and we’d like to work with others to help address that. We’re working every single week to attract investors from those areas to Vancouver.”
Raymond said the VEC has helped bring events like Canada’s Venture Capital and Private Equity Association’s conference to the city, and is working to bring investors from Toronto, Boston, New York, and Silicon Valley to Vancouver to invest. He said this has caused the city to see some positive moves, including with Kensington Capital managing the BC Tech Fund, and Silicon Valley Bank paying more attention to the city.
“Slack was fully counted when it was a Vancouver startup [but] when Slack became older, it came out of the score for Vancouver.”
Gauthier told BetaKit another reason that Vancouver’s score dropped was the “exit” of Slack and its impact on the city’s ecosystem. The company, although founded in Vancouver, moved its headquarter base to San Francisco in 2017. The company, which still maintains an office in Vancouver, recently filed to go public after announcing a series of software features that will be available later this year.
“We were really looking at the engine of scale-up and startup creation in the report,” Gauthier told Betakit. “So Slack was fully counted when it was a Vancouver startup. But it had a big, big exit. Therefore, when Slack became older, it came out of the score for Vancouver.”
Raymond countered, arguing it’s important to note that Slack moved its headquarters to San Francisco, but that Slack is still a Vancouver-born startup. He said the city currently houses other companies that are accelerating to potentially become future unicorns.
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“Slack is a huge company, the fastest growing business software app of all time,” Raymond said. “We’re working with companies right now who are potentially unicorns that are growing really fast. We didn’t do so well in terms of the exits this year, but we’ve done really well in previous years. I could see this turning around by the time we have the next report.”
Despite the decline, the report said Vancouver remains a major hub thanks to the city’s historically high performance. Vancouver stood out in the report for having current startup founders with a lot of past scaleup experience, as well as the adoption of best practices for startup success (like having advisors with equity). The report said, in this area, Vancouver’s performance is on par with Silicon Valley.
“It’s going to be really, really competitive,” Raymond said. “We are in a race here. We want to be ambitious and optimistic to remain in the top 25. I think we can do it, but it’s going to get harder and harder every year.”
Toronto-Waterloo takes top spot
In last year’s report, Toronto and the Kitchener-Waterloo Region were studied together, noting the region among the 20 strongest startup ecosystems in the world. The region’s strongest subsectors were FinTech, AI, manufacturing and robotics, and life sciences and health.
At the time, Toronto was North America’s second-largest financial services hub, with 12,000 firms and 360,000 workers, with Waterloo Region upholding southern Ontario’s manufacturing legacy with infrastructure like the University of Waterloo’s Mechatronics program.
“Our startups are not only punching above their weight on the world stage…but our digital economy has surpassed many of our traditional exports.”
The two cities also accounted for half of the top ten companies on the 2019 Narwhal List, which highlights Canada’s fastest scaling private tech companies. According to PwC’s 2019 MoneyTree report, Toronto dominated the Canadian tech ecosystem last year, with $1.7 billion ($1.3 billion USD) raised across 160 deals, effectively matching the combined totals of Vancouver and Montreal.
“We’re pleased to see that the Toronto-Waterloo startup ecosystem has moved up three positions in the global rankings. It’s a reflection of the hard work our entrepreneurs and organizations are doing to raise funding, commercialize products and sell outside our local markets,” Corey Black, communications manager of MaRS Discovery District, told BetaKit. “Our startups are not only punching above their weight on the world stage, as reflected in the Startup Genome publication, but our digital economy has surpassed many of our traditional exports including mining, quarrying, and oil and gas extraction, according to a recent Statistics Canada report.”
In Startup Genome’s 2019 report, Toronto-Waterloo ranked fifth for its blockchain ecosystem and was noted as one to watch for FinTech and life sciences.
“Being recognized in the top 15 places to grow a startup globally is a good indication of the investments our government partners have been making in supporting the growth of our ecosystem and putting Toronto-Waterloo on the map,” Iain Klugman, CEO of Waterloo-based innovation hub Communitech, told BetaKit. “It also recognizes the hard work and determination of entrepreneurs, investors, government and private partners to build a world-class ecosystem, the best is yet to come.”
While it appears Toronto-Waterloo’s ecosystem is on the rise, things could change quickly for the region. Gauthier said Toronto-Waterloo’s success is contingent upon the level of investment the region sees in the coming years. He said recent provincial cuts to innovation hubs across Ontario could halt Toronto-Waterloo’s growth.
One innovation hub is already beginning to see those effects – just last week, Communitech laid off 15 employees following a 30 percent reduction in its provincial government funding, a cut that was larger than the innovation hub had originally anticipated.
“Something that worries me is when I see the new government of Ontario cutting investments,” Gauthier said. “This will spell a drop in ranking for [Toronto-Waterloo].”
Several other regions were also featured in Startup Genome’s 2019 report, some for the first time.
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