Toronto is poised to become the next great producer of tech startups

I’ve spent more and more time in Toronto over the past few years and learned there’s more to this city than Drake calling it home and the recent successes of their professional sports teams. We made one investment there in 2015 and the experience — with the company specifically and the city generally — has been overwhelmingly positive.

It’s been so positive, in fact, that we’re actively looking for more high-caliber Toronto founders to fund. The city has all the markings of a world-class hub for technology startups and reminds me a lot of how New York City felt in the early 2000s when I moved back from the Bay Area — simmering with entrepreneurial talent, opportunity and a strong foundation to support it. I think Toronto is poised to contend as one of the biggest North American hubs for technology startup activity over the next five-10 years.

On a recent visit, a native Toronto entrepreneur explained why she thought I may be picking up on these undertones: “Toronto always had the talent, but it was historically recruited away. Today, the city is recapturing more of those people who left to work in the Valley or elsewhere, and they’re coming back to build businesses back home.”

Here are few reasons why Toronto is well positioned to make this transition.

Creative engineering-focused talent pool in a Top 5 North American city

Most people don’t realize Toronto is the fourth-largest city in North America (only New York, Los Angeles and Chicago are larger) and produces the most engineering-focused university graduates each year. There are 150,000 full-time students enrolled in universities throughout the Greater Toronto Area, all within 90 minutes of the city center.

Two schools — the University of Toronto (which has a world-class technology and engineering program) and Ryerson (a dedicated technical university) — are located in the heart of downtown and boast 80,000 students between them. There’s also nearby York University with another 65,000 students, Queens College with more than 16,000 students and, of course, the widely acclaimed University of Waterloo (which in many ways, launched the local movement), with a few thousand highly sought-after students 90 minutes west.

Supportive local government

Both the Canadian federal government and Ontario’s provincial government offer strong support, encouraging technology innovation in many ways. The two government bodies have set up several grants, matching contributions and financial assistance programs specifically designed to encourage and support technological development. Some of these include:

• Scientific Research and Experimental Development (SRED): This federal tax incentive program was developed to encourage Canadian businesses of any size to conduct R&D that will result in new, improved or technologically advanced processes or products.

• FedDev Ontario: FedDev Ontario delivers programming to help create, retain and grow businesses, cultivate partnerships and build strong communities. Financial support is available through 14 programs and initiatives. Some are delivered directly by FedDev Ontario, while others are delivered by organizations that have received funding through FedDev Ontario.

• International Science and Technology Partnerships Program: Small and medium-sized businesses with R&D programs in science and tech can receive additional financial support to partner with foreign researchers.

• Conservation Fund: This is a program designed to fund new energy conservation technology and programs for businesses.

Affordable healthcare

This could be grouped under the “supportive local government” heading, but the Canadian universal healthcare system means that everyone is entitled to free healthcare benefits, lifting the financial burden for employers. Because everyone gets equal free healthcare, workers don’t feel pressured to settle for jobs solely to secure coveted benefits, but instead feel encouraged to take risks and follow an entrepreneurial path. Without the burden of paying for healthcare, startups can operate more leanly and reinvest those dollars into growing their businesses.

Attractive leverage/favorable currency exchange

With government support programs and universal healthcare, dollars invested in Toronto businesses provide the possibility of going much further. Taking into account the benefits described above and the typical benefit package afforded a Toronto startup, investment there has the opportunity to extend 1.2X-1.4X further versus investment in American companies.

What’s more, for the past three years, the U.S. dollar has enjoyed strength versus the Canadian dollar. The exchange rate (at the time of writing) is 1.30 CA to 1.00 U.S., a 30 percent change from where rates were as recently as 2012. For financings denominated in Canadian dollars — as they often are for seed-stage Canadian companies — U.S. investors enjoy a 30 percent advantage (for the time being).

The RIM diaspora

With RIM‘s (BlackBerry) continual transition from a large technology leader of approximately 10,000 employees to a significantly smaller outfit, many talented engineers and technologists in the Toronto area have begun to disperse and launch businesses of their own or team up with local entrepreneurs. As a result of “the RIM diaspora,” significant talent has been unleashed on the Greater Toronto ecosystem.

Strong startup foundation

Torontonians are a creative and entrepreneurial people. The culture of the city lends itself to the tech field, particularly with the backstop of the Canadian government behind them. Toronto is already home to a number of successful venture-backed businesses, such as Shopify, KIK, FreshBooks, 500px, Assurex Health, Influitive, Wattpad, SoapBox, Figure 1 and Vidyard.

There’s also a strong network of emerging local venture capital supporting the ecosystem, firms such as Golden Venture Partners, OMERS, Georgian Partners and Relay Ventures. Finally, there are more incubators and accelerators hatching every month, including Ryerson’s DMZ, MaRS, Highline, The Next 36 and Communitech.

There’s also a strong community developing with lots of weekly events; the TechTO Meetup is one of the largest, with more than 11,000 members, playing a role very similar to the one the NY Tech Meetup served for New York City five-10 years ago.

Vibrant and growing city center

Similar to the way some New Yorkers think we’re the center of the universe, Toronto is, in fact, the center of Canada. Not only is the city the center of commerce and industry in the country, but it has an exciting and diverse urban core that’s focused and invested on development and infrastructure. Toronto is the epicenter of Canada’s construction boom, claiming the most high-rise construction projects (and cranes) of any North American city with 130 projects underway.

The city itself exudes creativity, especially the Queen West neighborhood, which serves as the de facto center of startup activity with its abundant restaurants, cafes and flexible creative workspaces (it reminds me a lot of the east village of New York in the 1990s). The neighborhood was recognized by Vogue as having the second-best street style in the world. The proximity of Queen West from the downtown core — a five-minute taxi ride or 20-minute walk — means startups have easy access to large corporations, enabling natural collaboration.

Friendly and entrepreneurial people

The international community has long regarded Canadians as being a kinder, friendlier and a more accepting culture; in my experience, it’s true. Softer and less aggressive both socially and in business, Canadians are pleasurable to work with, which is worth a lot in my book.

Toronto is also ranked one of the most multi-cultural cities in the world, with half the population being foreign-born. In addition to making for a diverse and interesting population, it sets a good precedent for the birth of startup businesses, because we know there’s a strong correlation between immigrants with the sense of adventure to relocate and entrepreneurial activity.

Delightfully efficient transport

Where else can you walk from the airport to the office in 10 minutes? Porter Airlines and Billy Bishop Airport make this possible. Launched in 2006, Porter is a regional Canadian airline that serves Eastern Canada, as well as New York, Boston, Chicago and Washington, DC. The company has a vision of returning aviation to its former prestige, with flight attendants dressed in vintage attire and guests treated to complimentary beer, wine and snacks.

Billy Bishop Airport, located on Toronto Island, serves as the airline’s hub and is literally a few blocks from downtown. My favorite thing to do when traveling to Toronto is walk to my hotel from the airport, just because I can. Toronto is perhaps the only city in the world where this is possible (particularly on an international flight) and it makes traveling there a joy.

If you haven’t noticed, I’m bullish on Toronto and plan to continue spending time there hunting for our next investment.