BreakawayGrowth — Winter is coming, Spoiler alert #WeTheNorth has Spoken
Why Toronto is crushing Silicon Valley, The way Silicon Valley crushed Boston
Chris Albinson, Co-Founder BreakawayGrowth
Published May 20th, 2019
On a chilly day in November 1993, we were standing ankle deep in a slushy field with Sir Terry Matthews, the founder, and CEO of Newbridge Networks. Terry looked out on the partially frozen marsh and declared that we were going to build two new ten-story towers full of engineers in this marsh in the next twelve months. Peter Charbonneau, the CFO, and a fellow Canadian looked at Terry and me and asked if we should we wait for spring, build one tower first, or at least look to lease out some of the space to Nortel, the local giant at the time. Terry flatly replied, “We will fill them and then we will need two more towers beside them, let’s get it done!” It was six years after he founded Newbridge and Terry Matthews, an immigrant to Canada from Wales, was still the driving force in the company. Weeks before he even incorporated in 1986, he told high-tech lawyer Jim Paul that “Newbridge would very quickly reach $1 billion in annual revenues.’’ At the time, tech firms with one-tenth in sales were considered success stories.
By 2000, Newbridge employed more than 6,500 employees with recorded revenue of $1.8 billion. Terry is one of the most successful tech entrepreneurs globally, and one of only a handful of people who have grown 3 companies to over $1B in revenue — all of them based in Canada. The ability to confidently see opportunities for massive scale is uniquely the purview of immigrant entrepreneurs. Those of us who were fortunate to be along for the ride know it is not only possible to get to a $1B+ revenue but also learned the playbook to make it happen again.
More recently, Canada welcomed Tobias Lütke — the founder and CEO of Shopify — from Germany in 2004. Shopify grew to over $1B in SAAS revenue faster than any other company globally — before or since. By 2018, more than 300,000 merchants utilized Shopify and over $41 billion worth of gross merchandise passed through the company’s platforms since 2006.
Terry and Tobi’s stories connect matters to the future of Canada and directly inform why Canada will supplant Silicon Valley as the global leader in technology.
Both leaders are immigrants. Both found fertile ground upon which to build their ambitious dreams, with a plentiful, talented and educated workforce from all points of the compass who are completely comfortable building world class products. Canada welcomes talented people with ambition from around the world and makes them feel at home, giving them access to a great education, healthcare, and safety. All you have to do is look at the crowd at a Toronto Raptors game to witness the diversity and joy of the city. They also both had access to people ready to believe, and management who had seen the movie before.
In short, they found the place where “nice” is a global competitive advantage.
Over decades, thoughtful mandarins in the local, provincial, and the federal government have methodically built the conditions for Canada to not have one or two of these success stories, but to go for gold and global domination. In short, Canada has done the hard work to have their shot to Own The Podium.
It also took the US federal government stumbling badly on immigration and a big shift in technology to give Toronto the opportunity to dominate.
Indeed, the enduring lessons of Newbridge and Shopify are examples of how rare the achievement of getting to over $1B in revenue is. Hundreds of high-tech firms have been launched in Canada since Newbridge was acquired and only Shopify has matched its “BreakawayGrowth”. There are many reasons for this — there’s more competition globally for capital, people and customers, and lower market barriers. But mostly it is a matter of shots on goal. California’s Silicon Valley works because there are so many high-tech workers/firms, the odds of a breakaway success are better. Toronto is now at scale and compounding its advantage.
Not possible? Even the Canadians debate it heavily.
One part of the Canadian network is an organization called The C100. The non-profit community started 9 years ago and was modeled by The Indus Entrepreneurs (TiE). Silicon Valley is also the birthplace of The C100 and remains its stronghold. But before the Collision Conference being held in Toronto this week, the Annual Charter Members gathering of The C100 was held and an interesting debate broke out. The organization started in Silicon Valley to support Canadian entrepreneurs globally with a mission to remove all the barriers for the free movement of ideas, people, and capital. This mission is informed by a core belief that Canadians not only could compete but would Own the Podium if allowed to do so on an even playing field. Some members who had not been back to Canada recently thought it was improbable that Canada/Toronto could be “THE” dominant tech cluster in the world, or even if the organization should support such an effort. Eventually, the organization decided to lean in on Canada’s clear relative competitive advantage in technology, immigration, and now parity in access to capital.
Most importantly — they embraced the advantage of “Nice” that had propelled so many of their careers as the means to Own The Podium. Fully a third of the Charter Members are converging in Toronto on Wednesday to support and celebrate Toronto’s global close up.
The fact that such a debate even took place illustrates both the power of Canadians to work collaboratively and to leverage the power of their networks. When unconstrained by convention or conservative establishment rules, Canadians have had unexpected growth and tremendous success globally. It’s a metaphor for Silicon Valley that has become rigid and uncompetitive, just as Boston once did and now this drive to innovate has become Canada’s advantage.
Silicon Valley took advantage of Boston’s stumble in the ’80s to dominate as short as 10 years later. Ever heard of Route 128? Vivek Wadhwa’s post — pain-mistakenly explains how starting in the 1960s and on through the 1980s, Route 128 was, if anything, more closely associated with Technology global leadership than Silicon Valley. Today, few young technology workers even know where Route 128 is located, let alone its importance in the tech world.
Silicon Valley left Boston’s tech center in the dust. UC-Berkeley professor, Dr. AnnaLee Saxenian, wrote a book in 1994 to explain how this happened. In 1994, Boston still thought it was the powerhouse of the tech industry. Saxenian declared Boston the loser in the tech race and explained why it would only fall further behind. This book was titled Regional Advantage: Culture and Competition in Silicon Valley and Route 128. It kicked off a firestorm of criticism from the Boston elite. Saxenian also alienated friends at her alma mater, MIT.
At the risk of alienation by fellow San Franciscans, Toronto has left Silicon Valley and all the rest in the dust and is accelerating quickly. The regional advantage now favours Canada very strongly. Toronto has an amazing dynamism about it. There are extensive professional networks, job hopping is the norm, information is exchanged openly, and most importantly an immigrant-friendly culture encourages risk taking. Accessibility to and within the City is underpinned by incredible public transportation and proximity via Pearson and Billy Bishop Airports making it easy to “get to and from” anywhere in the world.
Silicon Valley is now expensive and rigid and dominated by large, vertically integrated, and secretive companies like Apple, Amazon, Google, and Facebook. Technology, skill, and know-how were trapped within the boundaries of these large corporations as well as prohibitive immigration laws and cost structures, just as it was in Boston with DEC, Wang, Prime, EMC, and Data General.
The differences are evident at many levels: educational institutions and research labs in Canada are partnered with local startups as well as more established firms, driving the next big wave of innovation largely based on Artificial Intelligence. The well-known openness of Canada is a stark contrast to the perception of the United States, combined with leading technologies and companies now making it a magnet for non-traditional talent and immigrants. Saroop Bharwani, Founder of Senso, a Toronto based Fintech start-up backed by BreakawayGrowth, recently posted on how they “realized that one of the key elements to startup success is timing” and how they “carefully focused on analyzing converging trends across three dimensions: Technology, Industry, and Location, in order to hone in on a vision which would inevitably come true in the years to come.” We will look back and see that 2017, the year Saroop founded Senso, was the year Silicon Valley started to stagnate, become rigid and missed the shift from Social & Mobile to Artificial Intelligence (AI). Canada stands on the shoulders of giants who persisted through many AI winters and have put Canada in the center of the map, creating an open field for entrepreneurs from all walks of life to create the next generation of billion dollar revenue companies. In fact, Toronto is often referred to as the ‘AI capital of the world‘, and for good reason. The Canadian ecosystem sped ahead with innovation across a diversified range of apps, cloud computing, eCommerce, and mobile and big data to create the next wave of innovation based on AI & no/low code.
Silicon Valley is no slouch. The community remains the largest in the U.S. in terms of venture funds committed and still has powerful research institutions and several very strong companies. Leslie Berlin, Project Historian of the Silicon Valley Archives at Stanford and author of Troublemakers, a history of Silicon Valley, believes that people need to get beyond the region’s myths. As she said, “Companies like Apple, HP, and Google are not just about the garage where they were founded. Institutions mattered tremendously in their development. HP and Google came out of Stanford. “And immigration is essential — 50% of Unicorn founders were born outside of the U.S.”
And immigration is the main reason that Toronto has not only won but is racing further ahead. The immigration policy of the US and the perception that immigrants are not welcome nor safe, has been the tipping point of advantage for Canada. This combined with a strong advantage in the next wave of technology, relative cost advantage, and parity in access to markets & capital is allowing Canada to dominate.
The founders of the next Newbridge, Shopify, Facebook, and Google are not splitting 80% to Silicon Valley and 20% to Canada as they have in the past. The bit has flipped.
Toronto has added 28,900 last year alone to its tech scene — creating more jobs than the San Francisco Bay area, Seattle and Washington, D.C., combined — while leapfrogging New York in a ranking of “total talent markets.”
Toronto is the fastest-growing tech-jobs market in 2018, according to CBRE Group Inc.’s latest annual survey, adding 241,000 jobs in the last five years.
CBRE ranked 50 markets across North America, using measures such as talent supply, concentration, education and cost as well as outlooks for job and rent growth for both offices and apartments. The real estate services firm cited some 5 million technology workers in the U.S. and more than 830,000 in Canada, across all sectors. Even the San Francisco Chronicle is looking North, “The forces that are driving innovation and technology are really in the early stages there,” Morassutti said by phone. “When it comes to overall costs, even if you assume upward pressure on office rents, housing, and salaries, our major markets still constitute a significant bargain to the U.S.”
Yet another record of $1.7B USD was invested for over 166 founders in Canada in the first half of this year, which is 7% higher than the first half of last year. This makes 6 quarters in a row since the beginning of 2017 where VC investment in Canada has surpassed $1B, just below the $1.3B for San Francisco. The five-year upward trend shows no signs of slowing. This does not even account for the 2:1 cost advantage in Canada which is massively increasing what can be done with the same $s. Canada next month will claim its fourth Gold Medal (IPO and racing towards $1B in revenue) with Shopify, Lightspeed, PagerDuty, and Slack with many more on the way!
We still recognize many of Silicon Valley’s advantages — one of which is its relatively large number of pillar companies: locally-headquartered, publicly-traded technology companies that supply local startups with talent, capital, and a willingness to use startup products.
Most entrepreneurs and engineers come to Toronto to experience this network and to embrace the culture it has created. But then again, most of these immigrants and entrepreneurs know this intrinsically and did not need to see the CBRE data; they already voted with their hearts and feet. I look forward to the continued influx of talent and innovation that supports this new international tech hub. Think big and think globally!
‘Build the towers, #WeTheNorth is going to need them”
Toronto is ready to #OwnThePodium with 30,000+ of the best and brightest in tech globally at the Collision Conference. Welcome to Canada’s coming out party!
Editor’s note: Guest writer Chris Albinson is an entrepreneur turned VC based in San Francisco and co-founder of C100 and BreakawayGrowth. His 5 startups (2 in Canada, 1 in Russia, and 2 in Silicon Valley) included Newbridge Networks, Digital Island, and he led investments in Pinterest, DocuSign, and Juniper Networks all of which went public. Follow him on Twitter at @chrisalbinson