Beyond Waterloo and Silicon Valley
Imagine you have an idea for a zillion-dollar business, but you need partners, skilled employees, industry contacts — and patient capital to build it.
In a perfect world, you could source all that with a few local calls. In this world, it happens in just a few places: Silicon Valley, New York City, London, and maybe Beijing and Tel Aviv. When the mix of entrepreneurial activity, knowledge, mentoring and funding reaches critical mass, help finds you.
Can Canadians build their own entrepreneurial clusters? That is being explored this week in Waterloo, Ont., at a three-day conference focusing on innovation ecosystems.
Waterloo Region, an hour’s drive west of Toronto, comes closest to the ideal in Canada. Sparked by the University of Waterloo’s founding principles of industry placements and giving researchers ownership of their discoveries, the region is home to 1,000 tech companies, as well as leading-edge science, think-tanks, and renovated coworking spaces where technology veterans and Google employees rub shoulders with ambitious startups and starryeyed students.
But it’s not really an ecosystem, not yet. Sure, it’s home to all-star tech firms such as BlackBerry, Open Text, Dalsa and Sandvine, and to overachieving juniors such as Kik Interactive, Miovision Technologies, Desire2Learn Inc. and Thalmic Labs. But even Waterloo is struggling to build its own sources of venture capital capable of hefting local companies into the big leagues.
“An entrepreneurial cluster requires both serendipity and deliberate engineering,” said Steve Blank, a Silicon Valley entrepreneur who’s best known as a founder of the Lean Startup model. “Entrepreneurial clusters require a culture of risktaking, and that requires risk capital. Not just angel investors, but capital that can scale. And that occurs in just a few places in the world.”
A speaker at the Innovation Summit in Waterloo, Blank will tell some 250 attendees that while building effective clusters is hard, now is the time to do it. “Silicon Valley has kind of run out,” he said. “There’s not enough incredibly off-thescale people.”
He says the venture capitalists of Sand Hill Road are recognizing that with the increasing dispersion of coding talent and computing resources, the Bay Area isn’t the only place where startups can congregate.
“VCs are willing to travel and see clients without making them all move to Silicon Valley. Before, they wouldn’t drive across the bay to see something new,” Blank said.
He likes to point out, though, that the top clusters have deep roots that aren’t always understood. In his Secret History of Silicon Valley, Blank explains how technology developed to foil German radar in the Second World War led to creation of an electronics lab at Stanford University to help fight the Cold War, whose civilian spinoffs created Silicon Valley.
How do you build an entrepreneurial cluster from scratch? You build on what you have. Blank noted that former New York mayor Michael Bloomberg spent millions of dollars and 10 years building up Silicon Alley, levering that city’s traditional strengths in media, fashion and finance, funding incubators, and transforming Roosevelt Island into a science hub run by Cornell University.
Similarly, Halifax could build a cluster around telecom, transportation and oceans; Montreal around fashion, media and design; and Toronto around finance, media and health care. Alberta might focus on resources and production technology, and Vancouver on telecom, gaming and Pacific culture (you know, yoga pants). But that’s the easy part. The big challenge is to get entrepreneurs, angels and financiers to back local startups, Blank said: “Entrepreneurship without financing is like one hand clapping.”
He suggests governments lead by investing in high-stakes experiments to learn how to encourage local investment. Should we embrace crowd funding? Build more accelerators? Tinker with tax rates? The Lean Startup approach is all about testing hypotheses until you find the best fit. Blank thinks new ecosystems should follow the same model.
What’s most striking about entrepreneurial clusters is how additive they are. When Harvard business professor and strategy expert Michael Porter developed his theory of industrial clusters a generation ago, it was clear only a few cities could ever hope to become world centres of manufacturing, resources or finance. Big, capital-intensive clusters required density and tight supply chains. Today, innovation arises everywhere, and we all collaborate digitally. As a result, entrepreneurial clusters don’t really compete with each other.
Each new technology, app or social-media site creates opportunities for add-ons, accessories, and further disruption. As a result, aspiring clusters are actually collaborating with each other to figure out what works, trusting that one city’s success begets others’.
Iain Klugman, CEO of Waterloo innovation centre Communitech is partnering with the University of Waterloo to focus this year’s Innovation Summit on identifying the right “ingredients” to build more entrepreneurial ecosystems, with the help of community builders across Canada, the U.S. and Europe. “A country shouldn’t have just one cluster, it should have 16 or 20,” Klugman said. “Then it’s legitimate. Then it has critical mass.