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Vancouver's Startup Viability Is OK, But The Rest Of The World Is Better. We Need To Catch Up.

08/14/2015 02:54 EDT | Updated 08/14/2016 05:59 EDT
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If you're following the Canadian tech industry at all, you may have heard that Vancouver's ranking plunged in the recently released 2015 Startup Genome report from San Francisco-based Compass.

The aim of this fairly exhaustive research is to provide detailed comparative metrics for leading startup clusters (cities or regions where there is a critical mass of tech-based entrepreneurship). This analysis can then be used to provide guidance for entrepreneurs considering where to establish their next venture, investors looking for untapped value or -- crucially -- policymakers actively invested in their region's success.

It's seen as a report that matters.

The first Compass report came out in 2012 and gave Vancouver a middling rating of ninth out of the top 20 innovation ecosystems surveyed (with Silicon Valley setting the pace at number one). Which wasn't great.

But this year's report shows Vancouver toppling to 18th, tied with Toronto for the biggest single decline of any startup cluster of the 40 global centres surveyed.

It isn't that we all started to collectively do things wrong, it's that the rest of the world is getting a LOT better at this sort of thing. We need to catch up.

Reading the detailed report is instructive: it paints a pretty bleak picture of a creative economy trundling along with no co-ordinated strategy to keep pace with a rapidly changing global market.

There are some big strikes against Vancouver:

1. Our ranking in investment financing dropped from 12th in 2012 to 19th. Which is bad for an industry that lives or dies on risk capital, especially at a time when it is historically easy to raise money.

2. Our startup ecosystem's performance crashed from a reasonable No. 9 in 2012 to No. 18 today, with our growth index dropping to half of the average of all cities surveyed. Scary.

Partly, this plunge is due to methodological changes that put a heavier weighting on the value of "exits" or cash events driven by the success of the startup's innovation. But Vancouver is still way off the mark: while companies that choose to base themselves in Silicon Valley can claim close to 50 per cent of these cash events, Vancouver entrepreneurs only glean 0.5 per cent of the financial rewards.

3. So it isn't surprising that Vancouver's relative talent rating dropped from an impressive fourth in 2012 to a mediocre 14th. That really hurts in the short-term and sets the stage for longer-term challenges that will get harder and harder to surmount.

As the authors of the study state: "... smaller ecosystems with close proximity to larger ecosystems often have a hard time continuing to grow due to new and existing talent and capital migrating to the larger nearby ecosystem." Skilled labour and technical innovators have immense mobility today: they will follow the action to the place where their talents can be best realized.

And investor-heavy Seattle (No. 8) is just down the road.

Most of the leaders in our startup ecosystem have taken this in stride: we know what we're up against in a space where competition is now truly global. But the talent gap is becoming particularly vexing, not just for skilled engineers and technical innovators, but also for the C-level execs who are crucial to scaling companies from scrappy startups to those with the critical mass to become industry leaders.

You can see the evidence of this problem by looking at the makeup of our local industry, which is largely comprised of tech companies with 10 or less employees. And while they may all have the potential to become the next Hootsuite or Slack, that becomes less and less likely if their access to investment drops steadily compared to their competitors in other startup clusters.

Speaking of Hootsuite and Slack, they could probably double their quarterly earnings if they started charging the BC Liberals or the Vancouver Economic Commission a modest fee for each time they are cited as an example of the strength of our creative economy.

While there is no doubting the success of these companies, isolated examples are no replacement for concerted policies to spur innovation. Boris Wertz of Version One Ventures put it aptly when he said that a thriving startup ecosystem can't "depend on the luck of having an outstanding entrepreneur come to your city and building a company."

We need to develop new policies to co-ordinate and incentivize the activities of universities, founders, and investors. Other jurisdictions around the world have done this with notable success... success that will be impossible to emulate if our governments are content to cheerlead successes for which they can honestly take no credit or cherry-pick data from otherwise damning economic reports.

This is why the creative economy will be a crucial plank in the BC Green party's 2017 election platform. There are plenty of great minds in Vancouver that have thought long and hard about our collective future as a startup ecosystem: our party is going to engage them in the creation of a tech strategy that is second to none in Canada and one that allows us to compete and beat other centres from around the world.

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