Dear Canadian entrepreneurs: Silicon Valley wants you to stay home

by Tracey Lindeman
Published in the Globe and Mail on Jan. 05, 2016

Spoil co-founders Cristian Asenjo, Charles-Eric Gascon, Mikhail Levkovsky, James Trafikant moved to the Bay Area after having participated in the prestigious Y Combinator accelerator program there


Silicon Valley entrepreneurs have a message for Canadian entrepreneurs: Stay home.

That doesn’t mean you can’t visit the land of digital milk and honey – you should visit. As often as possible, in fact.

“There’s no substitute for Silicon Valley. It’s just a very unique place on the planet,” says Joanne Fedeyko, the executive director of the C100 Association in San Francisco.

It’s a buzzing startup ecosystem amped up on sunshine, creativity, investment and young ambition. “Tech is everywhere here. It’s in the coffee shops, it’s on street corners, it’s in restaurants, it’s in everyone’s conversations,” Ms. Fedeyko says.

But, Ms. Fedeyko says, you don’t have to live there to get the most out of it.

The Alberta-born Ms. Fedeyko has been in the Valley for 16 years, and with the C100 for the past year and a half. As part of her executive director functions, she helps connect Canadians to potential investors, strategic partners and fellow entrepreneurs. “We want to help support innovation in Canada, and that’s not about helping people come down here,” she says.

“For the love of God, I just want [Canadians] to think big.”

The association was founded five years ago when Canada’s startup ecosystems were nascent at best. Since then, however, Canada’s tech scene has expanded by leaps and bounds, most notably in Vancouver, Toronto, Kitchener-Waterloo and Montreal – places with opportunities for the nation’s top tech and creative talents to grow.

Yet, every day Ms. Fedeyko finds more and more messages in her inbox from new Canadian entrepreneurs looking to make a home and a name for themselves in the Valley.

Cristian Asenjo is one of those Canadians.

The 30-year-old chief technology officer of Spoil, an online gift-giving service, moved to the Bay Area with his co-founders Charles-Eric Gascon, Mikhail Levkovsky and James Trafikant over the summer after having participated in the prestigious Y Combinator accelerator program there.

They set up shop across the Oakland Bay Bridge, in Berkeley, where rents were moderately cheaper. Mr. Asenjo lives even further out.

“I live a bit far because of the cost of rent,” he says. “I’m comfortable here. It’s definitely doable but I know that in Montreal I could live more comfortably.”

San Francisco and surrounding areas can be hellishly expensive, with rents soaring upward of $3,000 for a one-bedroom studio.

“It’s so expensive here. It’s crazy – which is why I think if you can build a great company out of Toronto, out of Vancouver, out of Montreal, it’s a great place to do it,” says Jonathan Ehrlich, a early Facebook employee from Canada who is now a venture partner at Silicon Valley’s Foundation Capital.

But the prospect of more funding and faster, better success keeps Canadians flocking south.

“If I could stay in Montreal while still having the startup vibe and culture, and what makes Silicon Valley appealing to startups, I would,” Mr. Asenjo says.

A piece or the whole pie?

Montreal may have a burgeoning tech ecosystem, but like in most other Canadian hot spots, it’s hard to be The Next Big Thing.

Local success stories include Ottawa-based Shopify. Its stock surged since an initial public offering earlier this year, giving the company a current market capitalization of $2.1-billion. Montreal’s Breather recently raised $20-million (U.S.) and Lightspeed recently doubled its funding to $126-million.

However, recent fundraising rounds by Uber value the company at an eye-popping $51-billion, making our Canadian success stories pale in comparison. Mr. Ehrlich says our comparatively paltry investment track record is owed to a particular Canadian trait.

“Canadians shoot for eighth place. They just want to make the playoffs,” Mr. Ehrlich says.

“I’m a huge fan of Canada. We have so much potential because we are invariably smarter and we have a better world view… but it frustrates the hell out of me that with all this potential, we shoot for eighth place,” he continues. “For the love of God, I just want them to think big.”

The problem, as Mr. Ehrlich sees it, has a lot to do with Canadians’ natural tendency of being risk-averse and being content with what may be a generous piece of the pie – but not the whole pie. Startups with global potential get acquired early for a fraction of what they could have been worth had the founding team been more aggressive at the negotiating table, or had simply refused early offers, he argues.

He does, however, see a glimmer of hope – as long as companies don’t get acquired too early. “I’m optimistic about the future, but we still have a ways to go. We need 50 Shopifys, we need 20 Research in Motions, we need 10 Hootsuites,” Mr. Ehrlich says.

Ian Jeffrey, a former Valley entrepreneur and now the vice-president of product marketing at PasswordBox – a Montreal company acquired by Intel in 2014 – is more cautious.

Yes, Canadian companies could aim higher, but they must always be aware of what cost that comes at. Taking on investment, after all, means a duty of generating returns – a mammoth challenge considering the high failure rate of most startups.

“I’m worried entrepreneurs are in the mindset of, ‘I need to raise money.’ It’s become cool to be an entrepreneur, but being an entrepreneur is not only about raising capital,” Mr. Jeffrey says.

American companies look north

We may not be as hard-driven as our American counterparts, what we lack in aggression, we make up for in … being Canadian.

“The mentality in Canada and the natural humility that a lot of people seem to have is a tremendous asset in business,” says Pat Grady, a partner at California-based Sequoia Capital who recently led a $34-million investment in Toronto’s VarageSale.

“That humility is refreshing. We want to do business with people in Canada because they’re generally easy to do business with.”

Toronto and Waterloo, Mr. Grady says, have the strongest and best-developed tech ecosystems in Canada to date. And starting in a local market where people are rooting for your success is probably smarter than buying a one-way ticket to San Francisco at the outset – Mr. Grady says using your city as a testing ground is an excellent way to work out all the kinks before knocking on foreign investors’ doors.

Mr. Jeffrey says there’s also a great deal of value to maintaining a local presence. More established entrepreneurs can help boost younger companies’ success rates through early investments and mentorship.

He points to colleague and PasswordBox founder Dan Robichaud, who insisted his local team stay in Montreal after the company was acquired by Intel last year. Although the teams at some businesses acquired by American companies head south when the cheque clears, it was important for Mr. Robichaud to promote the community he grew out of and help make it better by staying and investing locally, Mr. Jeffrey says.

“It is very much a community of give before you get. It’s not about destroying your enemy – it’s about the greater good of the space.”

Canada is increasingly on the radar of U.S. tech players. More and more American venture capitalists and startups are looking north to find talent, invest in worthy ideas and set up Canadian offices. “Canada’s on sale. It’s super cheap to go there from the U.S.,” says Ms. Fedeyko of the C100.

Nurturing a relationship between the Valley and Canada is becoming an imperative. At the end of October, Ontario Premier Kathleen Wynne headed to the Valley and meet with the C100. And later in November, the C100 will visit Lightspeed in Montreal.

“There’s so much greatness in your tech ecosystems there. It’s just about keeping the build on it,” Ms. Fedeyko says. “It’s about looking around and saying, ‘How do we make it great?’ ”



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