Why Canada is late to the tech party

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This spring, rolls of high-speed fibre optic broadband cable will be snaked beneath Toronto's waterfront, wiring the area with Internet capability usually made available only to the world's most advanced research institutions.

It is part of an effort to entice a new breed of tech-focused companies to the city's waterfront, and one of a variety of measures Canadian cities are taking, from tax breaks to venture capital experiments, to build economies based on innovation and ideas.

Around the world, cities are courting so-called knowledge industries - technology, media, telecom, clean tech and life sciences - which are seen as the new foundation of municipal economies, a long-term source of jobs, revenue and bragging rights.

But a new ranking of international cities by the Toronto Board of Trade shows that Canadian centres are lagging when it comes to the markers of innovation, including the number of patents, size of IPOs and levels of venture capital investment available.

"There are some brilliant people here with great ideas but they can't seem to get the capital," said Board of Trade President and CEO Carol Wilding. "Why is that?"

Questions about the Canadian economy are likely to factor predominantly into the federal election: A growing chorus is urging the government to move beyond discussions of deficit management and start outlining a plan to develop knowledge-based industries.

"When you look at other countries, all the governments are heavily involved in building this aspect of their economies. You look at Israel, Finland, Sweden - all of them have programs in place," said John Ruffolo, head of Knowledge Investing for the Ontario Municipal Employees Retirement System. "We have to do it."

Mr. Ruffolo believes Canadian cities have to invest aggressively in ideas, throwing their support and their money behind young companies, and young people, who are likely to come up with the next big thing.

Earlier this year, OMERS launched a new fund called Inkef Capital specifically to invest in Canadian startups. A partnership with the Netherlands-based pension fund APG, the fund will see almost $280-million invested across the country over the next five years.

Mr. Ruffolo says the fund, which he will oversee, is specifically designed to fill a $500,000-$2-million void in the Canadian venture capital scene, which he believes is keeping companies from blossoming and forcing the best and the brightest Canadians to seek support elsewhere.

"In my view, this is about the future of this country. It's about keeping the companies here," he said of the fund. "These companies must go where the money is available. It's very simple."

When it comes to fostering startups, venture capital is a major issue for Canadian cities, where most pension funds were scared out of the game following the tech bubble of 2000.

In its annual Scorecard on Prosperity report, released this week, the Toronto Board of Trade ranked international cities based on their average venture capital investments in new startups, and found Canadian centres far behind. The top Canadian city, Montreal, boasted only a fifth of the funds available in Seattle, which ranked third, and just an eighth of the venture capital in top-ranked San Francisco.

To its credit, since 2003, the Quebec government has poured millions into pools of venture capital along with a union investment fund and the province's main public sector pension plan. By 2009, their seed investment of $600-million helped about a dozen venture funds raise another $600-million from the private sector for investment in Quebec.

Jacques Bernier, one of Quebec's leading venture capitalists and now a senior partner in Teralys Capital, says tax credits, well-funded educational programs and an established pool of skilled labour should lead to the increasingly rapid growth of new startups.

"The first 10 years put in place the skill set to allow it to grow," Mr. Bernier said. "Now I think we're going to enter the phase of harvesting, where we'll see major growth."

In British Columbia, the government has also taken steps to increase financing for innovative companies. The rate of venture capital investments, measured per million dollars of GDP, is more than double that of Toronto.

One advantage is a generous provincial tax credit for angel investors, who provide crucial funding for startups. A pot of $30-million each year is available, with individual investors able to collect as much as $60,000 apiece on investments of $200,000.

And Vancouver Mayor Gregor Robertson, a one-time entrepreneur, came to office with an aggressive business-development strategy, focused on the environment. Following the lead of cities such as Boston and San Francisco - which thrive because of deep expertise in specific sectors - Mr. Robertson saw economic possibility in making Vancouver a global hub of all things green. It was a business thrust entwined with his goal to make the city the greenest in the world, from advanced building codes to clean-energy generation.

"Vancouver is Canada's gateway to Asia and there's enormous economic opportunity, with China and India particularly," Mr. Robertson said. "We need to maintain and grow our global position and that won't happen unless we have a renewed strategy to invest in our economy in partnership with the federal government."

Some believe that Canada's reluctance to fully back the knowledge sector stems from an over-reliance on traditional resource-based industries.

As a case in point, no other major Canadian city puts less money into venture capital than Calgary, home to some of the country's highest disposable incomes. Of a dozen global cities ranked by the Toronto Board of Trade, Calgary is second from last, with just $808 in venture capital spent per $1-million of municipal GDP.

In large measure, Calgary venture capitalists believe the problem is directly tied to those rivers of cash already swishing through the city. The problem isn't the availability of money. The problem is that it's all headed to oil and gas, an industry people know and love and want to profit from. The typical destinations for venture capital - info-tech, clean-tech and bio-tech - are unfamiliar territory. So investors stay away.

"Calgary has billions of dollars. But the challenge is that a lot of that money was made in real estate and energy and those people aren't as comfortable with technology. So they go where they know," said Don Kjosness, the Calgary-based president of Capital Road, a not-for-profit society that runs the annual Canadian Financing Forum.

But even with venture capital funding in place, some knowledge-sector leaders say what Canadian cities really need is a clear commitment to innovation, articulated and supported by all levels of government.

Ilse Treurnicht, the CEO of Toronto's MaRS Discovery District, cites New York Mayor Michael Bloomberg as an example, noting that he has vowed to build his city's biomedical research capacity and is investing heavily to make it happen.

"That's part of their growth strategy, and they're very clear about that," she said. "We haven't heard that voice in Toronto for a long time."

Still, she believes Canadian cities are well positioned to become world leaders in innovation, with centrally located universities and colleges that could feed directly into a vibrant knowledge sector, and a growing entrepreneurially minded community. Already, she says Toronto is gaining a reputation as a place where interesting things are happening.

"It's not because in any way we've marketed the city as an innovation city," she said. "I think Toronto is increasingly popping up on the international radar, but almost despite itself."

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