TECH SECTOR CHALLENGES
Everybody wants diversification, but how?
In a room of tech startup rookies and veterans, it took only a moment of prodding to convince Karan Nagpal to stand up and share his news.
Nagpal, a University of Alberta business student, needed just a beat before launching into a description of ServerTab, his new company seeking to use artificial intelligence to improve digital sales tools at restaurants — think updates to ordering on touchscreens. He’s beta testing his product in a sit-down sushi restaurant and a fast-service pizza kitchen.
It wasn’t precisely the reason why people from Edmonton’s hightech scene were gathered for the March meeting at the Edmonton Convention Centre; its intent was to gauge the success of city-backed programs aimed at helping hightech hopefuls. But it was the kind of Edmonton story many would desperately like to hear more of, especially if they share Nagpal’s attitude toward the city’s place in the international tech ecosystem.
“As far as I’ve seen, as far as I know, Edmonton is where it’s at,” Nagpal said in an interview after the meeting.
The challenge facing the city, particularly Innovate Edmonton (the startup support venture of the city’s Edmonton Economic Development Corporation) is how to turn those glimmers of high-tech enthusiasm into something much, much bigger and then sprinkle it like fairy dust to build even more of that entrepreneurial magic.
What I would hope to see from EEDC is that tolerance for risk and a humility that comes with knowing that not everything is going to work out.
Innovate Edmonton thought it was on the right track in 2018 with a plan to help the local tech sector take off, only to have its plan derailed six months ago in a heated council meeting.
Now, with the value of both Innovate Edmonton and the entire arm’s-length economic development agency under serious scrutiny at city hall, there are worries that lucrative high-tech opportunities are passing the city by as it debates how to get the ball rolling.
Nagpal, who attended the Innovate Edmonton meeting taking the temperature of the tech sector, isn’t cynical about perceived obstacles here. He agrees Edmonton has fallen behind other cities’ tech industries, but he sees that as an opportunity: it’s hard to walk into events in Toronto and Vancouver where it feels like everyone is already well-established.
There’s a gap, and he thinks he and other young entrepreneurs like him can fill it.
But can this ever be the home of a future Silicon Valley North?
A decAdes-old buzzword
Alberta as a whole, and Edmonton along with it, has talked about the need to break its dependence on an economy fuelled by oil and gas for decades.
Political leaders from all levels of government, and all parties, have preached the wisdom of diversification. And in 2019, there are places where Edmonton shimmers with potential. Good things are already happening in the fields of artificial intelligence, health and life sciences, and in big data and analytics. Google’s DeepMind, the London-based research division of the online giant, set up shop in Edmonton, in partnership with the University of Alberta.
Yet when it comes to fledgling early-stage technology companies, the city is still trying to find its footing. Edmonton’s startup ecosystem is worth $77 million, according to a valuation by Startup Genome, an organization that works with tech startup communities in cities around the world.
That’s small potatoes compared to more advanced markets.
Munich’s $4.4-billion ecosystem is considered a mid-range performer when compared to all the communities surveyed in Startup Genome’s 2018 annual report; Silicon Valley is the top performer in the world at $619 billion. When ranked against the biggest tech markets in the world, Edmonton’s few startups are getting on average $60,000 in early funding, a quarter of the global average of $252,000.
Proponents of the innovation sector see that potential as the city’s best chance to prepare for “life after oil.”
Innovate Edmonton’s vice-president Cheryll Watson — who left the financial tech company Intuit to join EEDC about two years ago — thought her team had landed on the idea that would give the sector a needed boost. Last fall, the organization drew up a plan for a new “innovation hub” in a downtown building that would offer workspace for entrepreneurs starting or scaling up companies, as well as event space and other options for programming.
But when they put their “big bet” in front of city council, they lost.
At an executive committee meeting in October 2018, council members got an earful from angry entrepreneurs who said they hadn’t been consulted and argued that EEDC making a real estate investment wasn’t what the tech industry needs at all.
Others were ticked about the prospect of moving Startup Edmonton, the existing EEDC-supported tech incubator, out of its current location in a trendy building on 104 Street.
“We left a lot of people out of the conversation. And that became apparent,” Watson said in a March interview in her downtown office, a few floors up in a building on the corner of Jasper Avenue and 100 Street.
The following week, council passed a motion to rethink the plan.
The fallout shook Watson, who described it as one of the most challenging points in her career. The objections made her question if she was the right person to head up what her division is trying to do.
“The aggression, I guess, the pent-up frustration — the extent of it was a bit of a surprise,” she said.
In the end, she went back to the drawing board. Following council’s directive to go back and consult more widely, Innovate Edmonton came up with a strategy.
A new independent advisory council was formed. It was made up of people with companies at both the startup and scale-up stages, as well as investors and students.
Innovate hired Edmonton firm ZGM to talk to people in the field and find entrepreneurs who haven’t been tapped yet to hear their ideas. And they’re holding regular, ecosystem meetings — like the March meeting Nagpal attended — where they offer presentations on the process and ask those in the room what they think of the ideas.
Whatever Innovate decides to do, whether it’s to focus on programming, community building and shared space, or zero in on attracting more private investment to the city, they’ve got to do it soon, Watson said.
“This is an area that we need to pay attention to now because we will miss the window.” she said. “This will pass us by.”
doubt on council
While Innovate worked to reboot its startup tech strategy, questions about the workload and effectiveness of EEDC as a whole continue to percolate at city hall.
The city auditor added a review of EEDC’s books to his workload following the revelation that the agency fell victim to a $375,000 phishing scam in late 2018. Multiple members of council had pushed for EEDC to submit to an audit earlier, and were vocal about their concerns about the value of the city’s investments in the agency.
Though the Innovate issue spilled into public view in October, Ward 5 Coun. Sarah Hamilton said people in the local tech industry have been contacting her with concerns since shortly after she was elected to council in 2017.
Hamilton, who represents a segment of west Edmonton, said at this point she’s agnostic about what Innovate ultimately does in terms of ramping up involvement or getting out of the way.
But she wants to see clear signs in both the short and long term to show its work is making a difference.
She said it’s her view that the economic development agency can be nimble and take risks in a way that a city government can’t.
“With that adaptability comes risk,” she said. “What I would hope to see from EEDC is that tolerance for risk and a humility that comes with knowing that not everything is going to work out.”
Ward 11 Coun. Mike Nickel said the city’s economic development agency has always struggled to demonstrate the value of its work. He said that while it’s likely some of their work is paying off, right now there isn’t a good way of measuring either way.
For Nickel, who represents a slice of southeast Edmonton, it’s a simple calculation of value for money. Are jobs being created? Is there a return on investment for tax payers?
“The best and greatest thing an economic development agency can do is cut the red tape for business,” Nickel said.
Watson said the goal is to build companies worth $100 million — but that’s the end result.
The challenge is figuring out how to measure if what they’re doing at the very beginning is working. She said Innovate has hired Startup Genome to help figure out what those early markers might be.
“Investment in this space is a long game,” she said.
One of the city’s biggest cheerleaders for innovation and embracing tech companies as a means of economic diversification is Mayor Don Iveson. The mayor thinks EEDC is doing good work now to engage with entrepreneurs and figure out how to best support them, but he hopes they’re able to arrive at a solution sooner rather than later.
The agency is expected to come back before city council in midApril to discuss Startup Edmonton’s budget.
“We are going to need to come to a consensus so that we can take stronger action in this area, but clearly listening and engaging is the right posture for right now,” he said in an early March interview.
‘From the ground up’
Getting that consensus might be tough. There are still members of the entrepreneur community who believe Innovate Edmonton’s original plan to create a new hub was the right way to go.
“I believed in what Cheryll was championing, and I was disappointed that a vocal minority that hadn’t really engaged in this process through their own choice was able to sideline it,” said James Keirstead, who heads up Rainforest Edmonton, a community initiative to try to replicate conditions and culture that created the success of Silicon Valley.
“While government can work on infrastructure and resources, the culture has to come from the ground up,” he said.
Kam Nemec was among the entrepreneurs who attended the public meeting in October and cried foul on the innovation hub plan. He said he hasn’t been involved in any of the engagement efforts that followed the October blow-up because he’s too busy, but he does have thoughts about what might help.
Getting investment for startups in Edmonton is a problem, Nemec said. He thinks it’s because local investors think in terms of projects: they’ll put their money into real estate, into an energy company. They don’t take a “portfolio” view and decide to invest in 100 companies, expecting one to be a mega success and the rest to fail or do just so-so.
But he also said he’s worried that being too closely tied to government funding and programs creates a “zero sum” mentality among local entrepreneurs.
“At the end of the day, it shouldn’t be a pie division exercise. It should be everyone collaborating to build a pie-making machine so there’s more pie for everybody,” he said.
He’d like to see EEDC focus its efforts of marketing the industry, or facilitating more private investment through a model such as co-investment or backstopping investors.
Kyle Richelhoff began dabbling in the tech industry at the age of 12, and launched his first product at 18. He agrees the city has a problem with funding for startups. He said many of his computer science classmates from the U of A left the city for jobs elsewhere, and that Edmontonians who are successful in the tech sector have often gone to other places to get cash to make it happen.
“It just feels like it takes so much extra effort here to really see success,” he said.
Richelhoff said he was one of Startup Edmonton’s first dropin members. He attends the ecosystem meetings, participates in community-led networking initiatives, and personally takes several meetings a month to offer technical mentoring to entrepreneurs trying to get their ideas off the ground.
Even though it’s hard, Richelhoff said he wants to stay in the city, to see it grow. He’s hopeful a solution will come out of Innovate’s engagement work.
“I can believe in Edmonton, but I also need Edmonton to believe in me,” he said.