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In "Silicon Valley of the North," It Takes an Ecosystem
A look at what's behind the thriving tech innovation in one Canadian city.
September 23 , 2013
Blackberry's woes may be dominating the headlines—after losing market share to Apple and Android-based phones, the smartphone pioneer is undergoing a strategic review that could result in a sale or breakup of the company, and is reported to be preparing for more layoffs. It will certainly be a hit to the community in the company's hometown of Waterloo, Ontario, but the tech community there has been busy building the next billion-dollar company.
Waterloo and its twin city, Kitchener, about 70 miles west of Toronto, are home to roughly 1,000 tech companies that employ 30,000 people and generate $30 billion in revenue annually—companies such as Desire2Learn, a cloud-based enterprise learning platform that raised $80 million in funding last year, and OpenText, a global provider of enterprise information management software.
That's helped the region earn its reputation as the Silicon Valley of the North. Waterloo was recently ranked #16 in the top 20 startup ecosystems in the world by Startup Genome.
In Waterloo's case, it truly is an ecosystem. Anchored by the University of Waterloo; Communitech, an accelerator and innovation center; Blackberry, which at its peak employed 9,000; and tech powerhouses such as Google, Apple and Microsoft that have a significant presence in the area, Waterloo has a deep supply of talent and expertise—vital ingredients for any entrepreneurial cluster. Add to that a lower cost of living than pricey tech enclaves like Silicon Valley and New York City, and it's become a magnet for ambitious entrepreneurs.
A key element of the ecosystem has been the University of Waterloo, which churns out some of North America's most sought after engineering graduates. The school is one of Google's top three global recruiting universities.
Blackberry—then called Research In Motion—was cooked up by U-Waterloo students nearly 30 years ago. Today, dozens of ambitious startups sprung from its halls. They include Kik Interactive, a mobile messaging platform that has signed up 80 million users—20 million more than Blackberry's Messenger service. The company recently raised close to $20 million in Series B funding from Foundation Capital and second-time investor Union Square Ventures, among others. Pebble, another U-Waterloo student project, broke crowdfunding records last year when it raised $10 million on Kickstarter to turn its smartwatch prototype into a product.
The public university encourages entrepreneurship. Under a program started in 2011, it awards University of Waterloo students with $300,000 in grants each year and the opportunity to build their startups at the university's VeloCity Garage in downtown Kitchener. Another draw for students and faculty: under the university's "creator-owned" policy, they get to retain ownership of any inventions or products they develop while at the university.
Communitech is another integral piece of the puzzle. Housed in a sprawling former tannery in Kitchener, the incubator-cum-accelerator is one of the most comprehensive innovations hubs around, addressing everything from early stage ventures to large, global companies. "Our model is to put the whole ecosystem under one roof," says Avvey Peters, vice president for external relations at Communitech. The tannery's 120 tenants run the gamut from startups to strategic partners, such as Google and Intel, that have teams embedded in the center.
HyperDrive, Communitech's seed stage incubator, has graduated 18 startups that have raised $3.7 million in its first two programs. It just admitted its first international participant: Kreyonic Ltd., a Sri Lankan startup developing an educational gaming platform. There are also two university-run incubators, including VeloCity. Accelerator program helps startups get to the next stage, while another program helps established businesses go global. There's an App Factory and a Big Data center. And the building is also filled with lawyers, accountants and mentors, including former Blackberry co-presidents Mike Lazaridis and Jim Balsillie.
To be sure, it's hard to escape the influence that Blackberry has had on the region. Communitech, in fact, was founded with the help of Blackberry founder Lazaridis back in 1997. "Blackberry has been a real driver of entrepreneurial activity in the region," says Peters. "People look to it as a great example of how to build a billion-dollar business."
And now, perhaps, a cautionary tale. Some observers fear the loss of Blackberry's R&D spending—$1.5 billion in 2011— could leave a vacuum in the local economy. But in other ways, Blackberry will keep on giving. Thalmic Labs, a motion control company founded by three University of Waterloo grads in 2012, recently hired two former high-level Blackberry executives.
Whatever the outcome for Blackberry, the area's tech denizens believe Waterloo has a strong enough ecosystem to not just survive, but thrive. "We try to encourage startups to be the next example of a billion-dollar business," says Peters.
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