York Region is a little north and a little nicer for startups

ITBusiness.ca
July 5, 2017
Mandy Kovacs  

Creative Capital is IT World Canada’s series that examines the impact digital transformation is having to change the face of communities across Canada. We’re doing deep dives looking at the major tech hubs on the leading edge of the 21st-century knowledge economy. Our first five stories will focus on York Region, exploring the densest ICT hub in Canada, its verticals, startups, and the factors contributing to its success.

Judging from the media headlines and gauging by the universities and incubator clusters, you’d think that Toronto and Waterloo are the only reasonable choices to found a startup in Ontario – at first. But upon closer inspection, it’s the growing area up Highways 400 and 404 that’s quickly becoming a promising place for startup and scale-up businesses.

York Region is culturally rich, with approximately 43 per cent of the 1.2 million population made up of immigrants and over 200 distinct ethnic groups. From healthcare and career coaches to innovative technology, that diversity is reflected in the wide variety of startups in the area.

“The startup culture is strong in York Region, with about 50,000 companies in the area,” Lucas Chang, community co-lead at Startup York, a grassroots organization led by local entrepreneurs to help and support early stage businesses on their path to success, tells IT World Canada. “It’s a broad community, so there’s a lot of variety; however, there’s definitely a technology and innovation emphasis, likely spurred on by major tech companies like IBM, Avaya, and Lenovo – just to name a few – having offices in the region.”

And whether because of the high real estate prices in Toronto or increasingly congested traffic to get into the city, more and more people are moving their startups north of Steeles Ave.

“There’s been so much activity in York Region within the last few years. There are good colleges and universities here, as well as supportive ethnic communities and government institutions, and that’s really convincing people to come north,” says Satheejan Gugananthan, business development and portfolio manager at Ideal Incubator, a Markham-based entrepreneur and startup incubator.

He credits the strong startup culture in Toronto as a likely factor for this economic spread in its surrounding areas.

“Companies have always gone to Toronto for business opportunities, and always will, but there are a lot of them deciding to stay in York Region now. It’s less of a commute for many people that live in the area, and it’s cheaper to live and rent a space,” he adds.

Lenny Nunno, a business development manager at IntellectDynamics, a Markham-based AI and associative neural network platform developer, agrees, saying that not only is York Region closer to where most of the company’s employees reside, he’s also found the people in the area to be “more dynamic and responsive, which is a really big help in incubating our AI platform.”

Taking a slightly different approach is Peyman Moeini, president and founder of Peytec, Inc., a Markham-based Industrial Internet of Things (IIoT) solutions company. He started the company, which offers scalable solutions for inventory accuracy, asset management, and real-time quality control, in 2016 while he was finishing his Masters degree at Ryerson University, and moved it to York Region shortly afterwards.

“We moved to Markham for a few reasons,” says Moeini, “the first being the access to IBM’s Innovation Space – Markham Convergence Centre because having access to all the valuable stakeholders and advisors based in that space is really helpful. We also chose Markham because it’s a fairly industrial region; there are a lot of factories in the area, and since our solutions are geared towards that sector, it makes sense to be immersed in that culture and environment.”

IBM’s new Innovation Space – Markham Convergence Centre is a collaboration place for entrepreneurs located at IBM Canada’s headquarters in Markham. Tenants have access to meeting rooms and office space, and share the open floor plan with ventureLAB advisors, as well as staff from the Ontario Centres of Excellence, York Angels, and the Markham Board of Trade.

Finding capital in York Region

It’s always a challenge for startups to find funding and venture capital, not to mention helpful guidance and connections with other entrepreneurs, but groups like Startup York and Ideal Incubator are trying to make it easier for those in the region.

“Ideal Incubator was started two years ago by one investor who wanted to highlight entrepreneurs in the Greater Toronto Area (GTA), but has since evolved into something bigger and now we’re a small accelerator,” explains Gugananthan. “We intake applications from various startups and work with the most promising to get them to the next level. But not only do we provide financial help, we also provide guidance, advice, and some media and marketing tips.”

While it is often said that finding startup funding is difficult to find in Canada, Gugananthan believes this is not true. He says there are a lot of angel investors – generally affluent individuals who invest in small startups or entrepreneurs and focus on helping them take their first steps rather than the possible profit they can make – and angel money available in York Region, and will likely increase going forward.

“There’s money out there for startups and scale up companies, especially with our American counterparts coming in and bringing money with them to start funds. And I think the sky high real estate prices in the Toronto area have helped too – startups give people an alternative investment opportunity, and it’s often a cheaper way to diversify their portfolios,” Gugananthan points out.

Angel groups exist all across Canada, including York Region’s own York Angels, and neighbouring municipalities’ organizations such as Maple Leaf Angels (Toronto), Spark Angel Network (Whitby, Oshawa, Cobourg), and Golden Triangle Angelnet (Cambridge).

However, he notes that there’s been a mentality shift in the entrepreneur bubble, from wanting startup capital to thinking that they deserve it immediately, and that has made securing funding more difficult.

“Entrepreneurship has become a career choice now, and with that, the startup capital circle has tightened. I see people working on ideas and expecting to get funding right away before even proving the idea is legitimate or market-worthy, or before even having a prototype,” Gugananthan continues. “There’s a lot of that out there, and it can make investors more skeptical. But for proven startups with genuinely valid ideas, there’s money out there for them.”

Echoing these thoughts is Edward Shume, managing director for Studio1Labs, a Markham-based healthcare startup that develops fabric sensor technology.

“It’s definitely hard to find private investors, especially in the healthcare or tech industry,” he says. “As soon as anyone hears ‘medical devices,’ they run, but we’ve done almost all the necessary research and development already, we have working prototypes, and we’ve even completed clinical trials to prove to potential investors that our idea can work.”

He adds that while venture capital can be hard to come by, all three levels of government have noticed, meaning grants and government funding have become easier to obtain.

For example, IntellectDynamics is a recipient of the Ontario Centres of Excellence’s SmartStart Seed Fund, which gives “Ontario’s next generation of entrepreneurs access to much-needed funding to take their startup to the next level.” SmartStart is co-funded by the federal government through the Federal Economic Development Agency for Southern Ontario (FedDev Ontario), and Ontario’s provincial government as part of its Youth Jobs Strategy.

“The SmartStart program is the only funding we’ve had; we’ve been self-funded since the beginning by our board of directors,” Nunno tells IT World Canada. “We had lots of venture capital meetings to see if we could raise money, but we actually turned down the investments due to low valuation and them not really understanding the innovation in what we were doing.”

York Region-based entrepreneurs need a space

Startup York’s Chang highlights one particular challenge that startups in York Region face: not having a designated space for startups to meet due to the area’s vast geographic boundaries.

“Unlike other communities like Toronto or Kitchener-Waterloo, there’s no real natural place for entrepreneurs to go to meet up and exchange ideas or talk about funding opportunities,” he explains. “We have to deliberately choreograph these meetings, and that can be a challenge. The ecosystem is not as evolved as say, downtown Toronto, so that’s what Startup York is working towards. We’re trying to help entrepreneurs connect.”

He points to IBM’s Innovation Space – Markham Convergence Centre as a great step towards fostering such an ecosystem, while adds that Startup York is also working towards hosting several “Pitch It” events that allow startups to practice their investor pitches in front of advisors and peers in a dress rehearsal-type of situation.

“Pitch It originated in Toronto because there are so many startups actively seeking money, but no place for them to practice. They go in front of their own families, or just go directly in front of investors. But if they’re nervous and make a significant error in front of potential investors, they can lose their opportunity to raise funds. So the audience we gather for these events gives them feedback and asks difficult questions, which is intended to help them brush up and refine their pitch before they approach a significant investor,” Chang says.

Overall, York Region is a great place to start a business, says Ideal Incubator’s Gugananthan, and will only continue to garner more interest from entrepreneurs as investors, and collaboration spaces, flock north.