Wealth from deregulation funds newest supercluster

Kicking off the new year, Shopify Money Project Manager and commenter on all things tech, Alex danco, published a remarkable piece: an indepth analysis of why the Canadian tech startup ecosystem is fundamentally — and potentially fatally — flawed. you don’t have to look hard in the triumphalist traditional media to see why this analysis landed like a bombshell: how dare this man deny that Toronto will be the next Silicon Valley?

unfortunately, danco’s criticism hits close to home. Silicon Valley recruiters may love the university of Waterloo, and Shopify may be a world-class business but any resemblance to San Francisco’s tech scene is fleeting at best. We’re a branch-plant economy. danco’s assessment of Canada’s “angel investors” is that they’re too process-oriented, too focused on milestones and valuations, and so obsessed with grinding out a profit from their businesses that they choke them to death.

In the Bay Area, angel investors are generally former founders. In Canada, they’re lawyers, bankers and bureaucrats. It’s not an indictment of Canada in 2020 that this is our best and brightest, but it certainly doesn’t make us a tech founder’s dream. even worse, Canada lacks another crucial quality of the Silicon Valley secret sauce: our deal flow (the number of new companies seeking funding and the speed at which these deals are made) is glacial by comparison. danco is not the first to make this observation: the Council of Canadian Innovators has been beating this drum for as long as the organization has existed.

We should consider this criticism carefully. everyone wants what the Bay Area represents. If you don’t believe me, just read anything said by outgoing Innovation, Science and economic development Minister Navdeep Bains over the past five years. The government invested $1 billion into the Supercluster Initiative to juice innovation. I worked at General electric at the time and led that company’s efforts as a founding member of the B.C. digital Technology Supercluster. But no matter how hard you try, no government-sponsored corporate subsidy scheme will kick-start an explosion of innovation and private-sector wealth creation. Canada just doesn’t have the makings of an ecosystem like the one danco describes.

At least not in Tech. But Canada does have at least one thriving economic ecosystem that operates along Silicon Valley lines. It’s all Palo Alto: rapid expansion, hungry founders, lightning-fast deal-making, and a group of angel investors focused on growing the entire pie rather than just their piece of it. The explosion of wealth created by the cannabis industry’s rapid legalization and expansion represents just that. Those early cannabis entrepreneurs who made their money in the heady time before C-day have fanned out to find new opportunities. In their wake, there has been a truly remarkable expansion of laboratory capacity, exploratory science, commercialization and wealth creation. It’s part of the reason why so much of the expansion of psychedelics companies is happening here.

I’m hardly an impartial observer in this process: I sit on the board of Psyched Wellness, along with Terry Booth, founder of Aurora Cannabis. I’m working with a second set of founders focused on launching the first legal manufacture of a psychedelic substance to supply clinical trials based right here in Canada. Other former cannabis founders, such as Bruce Linton and Lorne Gartner, are heavily engaged in the sector as well — and joining the ranks of such Silicon Valley laureates as Peter Thiel, another early investor in the life sciences.

To be sure, there is a difference in magnitude — nobody truly expects a psychedelics startup to offer the same network effects as Facebook. But Canada also now boasts a private-sector hub of excellence across the life sciences, health and wellness, and related consumer products that would be the envy of any nation. In my work with these cannabis veterans, I’ve seen the same combination of optimism and determination that pulses through the San Francisco startup scene: they’re playing the “infinite game,” to borrow danco’s turn of phrase.

This hub wasn’t built by a subsidy scheme or an r&d tax credit, just the simple act of finally legalizing a mildly-intoxicating plant and letting markets do their work. As someone focused on public policy, I’m especially seized with the fact that it was an act of deregulation that spurred the creation of this ecosystem. In most parts of Canada’s political left, deregulation is a dirty word. deregulation is Thatcher and reagan, not Trudeau and Obama. regulate is what good governments do, according to many of my friends, and Canada’s approach to economic development is certainly burdened with all of the report-writing and milestone-setting a good regulatory bureaucrat would expect.

Considering how much money the Trudeau government has invested in corporate Canada, it would be a supreme irony if its most lasting economic impact came from legalizing marijuana.