Building a Great Startup Ecosystem - Where to Start?
This post is one of the requirements of my final Founder Institute assignment, and while it is meant to be about growing the startup system in Montreal, I’m going to use it to talk about some of the lessons I’ve learned from those who have built Montreal’s now thriving startup ecosystem, and how they might be applicable to my home province of Nova Scotia, and the Maritimes in general.
There has always been debate about how to grow a great startup ecosystem. One great piece was written by Paul Graham in 2006. He suggests several things required to build a great startup city: great university(ies), a city with great personality so investors and nerds/hackers alike want to live there (particularly young nerds and aggressive investors), and time.
LP Maurice, one of the directors of The Founder Institute here in Montreal, and one of the major players in turning Montreal into the thriving startup ecosystem it is today, has written both about peer-to-peer support from entrepreneurs being key to growing a startup ecosystem, and how cities attract top talent. He concludes that investment – time and mentorship, as well as financing – from other entrepreneurs is key to developing new entrepreneurial talent, and that creating a city which supports talent means attracting immigrants and supporting top graduates, both in keeping them in the city to develop, and if they make the decision to return home.
I agree with most of the points each suggest. However, there are some elements to build a startup ecosystem that can be changed relatively rapidly, and some which can’t.
Cities for a Startup Ecosystem
Creating a city like the ones that Paul Graham suggests – liberal cities with vibrant downtowns, culture, and history - isn’t easy, unless most of those things already exist. Here in Montreal, the blend of English and French language, the influence of European culture, and the extensive history of the city creates a great atmosphere.
Montreal has historically been a very liberal city, and the abundance of quirky shops and restaurants, among many other things, make it attractive for rich investors and talented young graduates alike.
So why has Montreal’s startup ecosystem boomed in the last five years?
I believe the key elements are all related to the entrepreneurial support LP mentioned when talking about peer-to-peer entrepreneurship, and can be broken down roughly into three categories: entrepreneurs, companies, and investors.
Building Around Entrepreneurs
Great entrepreneurs are essential. They are the ones who have the courage to build companies from scratch, and ultimately create the jobs and economic value that every city desires. So how do you attract great entrepreneurs? Well, as I mentioned, start with a great city. If you don’t have one, things are going to be much harder. However, if we’re looking at Nova Scotia, I think Halifax satisfies most criteria; the city is beautiful and has a rich history, and the North End is booming with trendy restaurants and shops while downtown is busy and new living space continues to be built. Even Lunenburg, my home town, has lots of quirky shops, awesome restaurants, and a great downtown – the school, tennis courts, swimming pool, rink, golf course and main restaurants are all within walking distance.
Universities are another way to kickstart innovation. Talented and ambitious researchers will often create new technology that can be commercialized. Nova Scotia has roughly the same proportion of students to overall population as Ontario, and only about half a percent less than Quebec. Halifax itself is home to six universities, and Dalhousie was ranked 7th in Canada last year by Macleans in the Medical-Doctoral category, while Saint Mary’s was 5th in the Primarily Undergraduate category. Other Maritime universities, like Acadia, UNB and Mount Allison rated highly as well.
Personally, I came to McGill for a few reasons, but was originally attracted because it’s the top university in Canada (we can debate specific departments, but overall I do believe McGill is the top university in Canada). Many other students come here for the same reason. I also love Montreal, for all the reasons I mentioned before.
How else can you kickstart entrepreneurship? Immigrants. Various sources show that immigrants are more likely to be entrepreneurs than those born in North America (the Kauffman Foundation, for example, claims immigrants are 2x more likely to become entrepreneurs than US-born Americans).
Unfortunately, the solution to increasing immigration relies partially on the government. However, universities can help improve immigration by encouraging international students – Dalhousie currently has 14% international students; by contrast, McGill had 24.1% as of Fall 2014. Immigrants also bring with them diversity in food, culture and language, which enhances the overall culture of a city, and therefore the startup ecosystem.
So what happens once you attract great entrepreneurs? They build great companies.
Startup Ecosystems Require Great Companies
Great companies are critical. The term ‘Silicon Valley’ originates from some of the early companies in the valley being involved in making of semiconductors. But the real contribution of these companies was the successful, entrepreneurial talent they created who bred spinoff companies and created an entrepreneurial atmosphere that has grown to what we know as Silicon Valley today.
Last spring, I attended a talk given by John Ruffalo, the head of OMERS Ventures, who I would currently consider the biggest player in the Canadian VC industry. He spoke about growing the entrepreneurial communities and startup ecosystems across Canada, and attributed the growth in areas like Ottawa, Montreal and Vancouver to the ascension of huge startup successes like Shopify, Hootsuite and Lightspeed. Companies like these, who become huge successes, bring wealth and experience to a huge number of employees who subsequently become entrepreneurs. He called these hotspots ‘nodes’, and said the key to growing the entrepreneurial ecosystem in Canada is connecting these nodes so that great entrepreneurs get together and talk about ideas, and eventually form companies. On a smaller scale, connecting the communities in Nova Scotia, or the Maritimes in general, is key. And as for companies, well if we again look at Lunenburg, HB Studios, which was founded in 2000, now boasts a staff of around 80, and produces some of the top video game titles in the world. With support, companies like these could spawn a wave of new startups.
Investors Are Necessary Too
The creation of great companies also attracts capital. When great companies get funded, other VC firms pay attention. In a recent chat with a prominent Montreal-based VC, he said there have been many cases where inexperienced VCs will offer to investment to companies their firm is looking at, simply because they believe if they’re looking at them, they must be a good opportunity. So once a great entrepreneur creates a great company, in a great city, investors will show up.
The critical step, and the one which I think is lacking most in Atlantic Canada, is the conscious, public effort from successful entrepreneurs and investors to give back their time and expertise to their startup ecosystem by mentoring new startups and entrepreneurs. I don’t mean to knock anyone that is doing this – there are lots of great mentors and entrepreneurs giving their time and energy back in the Maritimes - there just needs to be a broader, more organized, and more advertised, effort.
There have been some awesome exits in Atlantic Canada – just look at Q1 Labs and Radian6, which both sold for hundreds of millions to IBM and Salesforce.com, respectively.
But I believe what is lacking is the widespread organization and initiative from successful entrepreneurs and investors in the area to educate and mentor those new, talented graduates to become entrepreneurs and stay in Atlantic Canada.
As LP Maurice mentions, to see why Montreal has been so successful in recent years, we need look no further than:
“…the 100+ mentor-entrepreneurs who give their time on a pro-bono basis to support the young entrepreneurs of the start-up accelerator FounderFuel led by Real Ventures, or 50+ mentors who now support the accelerator Founder Institute Montreal co-led by Sergio Escobar. We can also observe this in the willingness of experienced entrepreneurs to give their time as part of mentoring activities or programs through organizations such as the Réseau M, the École d’Entrepreneurship de Beauce, Next 36, Startup Next, the JCCM and Défi Montréal, amongst others.”
Formal programs like Founder Institute or FounderFuel are essential – many of those who are brought on to mentor end up becoming formal advisors or angel investors, and realize how much they enjoy giving back their knowledge and time. Investors enjoy a closer, longer-term relationship with startups, and become happier and more confident with their investment.
The keys to building a great startup city, or province, are not simple. But the results of combining many of the elements are being borne out here in Montreal; now we just need to convince entrepreneurs and investors in Nova Scotia and Atlantic Canada to follow suit.