If you want to understand how crucial a cluster can be to a country’s economic and cultural life, think of Florence during the Renaissance. The Italian city-state was teeming with new ideas on everything from architecture to anatomy. It connected geniuses with patrons and mentors. It also drew in many others vying for a share of its opportunities and riches.
Some have argued that Silicon Valley is today’s Florence — a global bright spot of innovation. Can Canada mimic the magic? A group of entrepreneurs, academics and financiers thinks so. With Royal Bank of Canada, they’ve formed an initiative called Tech North that aims to leverage the capabilities of a tech cluster encompassing Toronto, Kitchener-Waterloo, Guelph and Hamilton. The corridor already represents more than 17% of Canada’s national GDP and 15,000 high-tech firms. Tech North says it can build on that: creating 170,000 new jobs on top of the existing 200,000 knowledge jobs in the region, and adding $50 billion in equity value to the cluster’s current $14 billion value, all by 2025.
The group senses urgency. In last year’s Compass Global Startup Ecosystem Ranking, Toronto fell out of the top 10 all the way down to #17 (in just three years), outpaced by the growth in other hotspots. U.S. companies, meanwhile, are picking our brains: University of Waterloo grads were the second-most-frequently hired in Silicon Valley behind students from Berkeley, according to a 2015 report. Then there’s the prosperity gap: the average Canadian is about $12,000 poorer than an American.
Can Canada create that super-cluster? What are the challenges? Here are a few ideas:
Focus on capabilities, not sectors.
Clusters tend to share these ingredients: successful entrepreneurs, excellent universities, a pool of top talent, and access to financing. The best ones exert a pull that draws even more strength to each. That’s why Silicon Valley last year attracted half of all venture-capital investment in the U.S. If the Tech North corridor is to become a super-cluster, it needs to become its own gravity machine.
While 20th-century economic development used to point to sectors such as banking or auto parts as magnets, digital clusters thrive on capabilities. The corridor’s already got expertise in artificial intelligence and quantum computing. Indeed, Canada attracted over half of the global VC investments made in AI between 2010 and 2015. But other countries are catching up: global tech giants invested US$10.8 billion in AI last year, four times what they invested in 2010, giving them a better chance to draw the sectors of tomorrow, from autonomous driving vehicles to the Internet of Things.
Tech North’s blueprint includes a $250 million AI Centre of Excellence in the Toronto-Waterloo corridor, as well as a free-to-use “Quantum Experience Centre” for students and researchers.
See the world as a talent oyster.
A super-cluster sees the world as its potential talent pool, and goes aggressively after talent. That means identifying skills shortages, and when local talent isn’t sufficient, opening the doors. Fast-tracking visas for skilled foreigners is a good route. Letting some clusters identify people for visas would make it even better.
See governments as Goldilocks: not too much or too little.
Government has a place in the development of a Canadian super-cluster — by making sure our universities remain competitive, for one. And by building the infrastructure to connect communities in the corridor, whether via road, rail or fibre. It must also foster an environment in which top talent — from Canada or elsewhere — is happy to live.
It should know when to step back, too. Two-thirds of VC raised in Canada in 2014 was sourced or supported by government agencies, according to Ontario’s Institute for Competitiveness & Prosperity, which produced a report this year on clusters in the province. The Institute says government can also improve regional data to support decision-making, and loosen restrictions on foreign direct investment.
Focus scarce capital on the best clusters.
The Institute points to a common complaint among Canadian tech firms trying to scale up. Many say $10 million in financing represents something of a “capital cliff,” after which the number of domestic investors drops off, forcing entrepreneurs to seek financing outside Canada. Last year, clusters including Boston and Los Angeles attracted almost three times as much VC funding as the Toronto-Waterloo corridor. Attracting more foreign VC money is part of Tech North’s blueprint. Other Tech North ideas: a $5 billion “Canada Growth Grants” matching fund, and encouraging established Canadian firms to sponsor VC funds.
Seize diversity as a competitive strength.
The Toronto-KW corridor is among the most diverse urban regions anywhere. As was the case in Renaissance Florence, and still is the case in Silicon Valley, diversity of backgrounds tends to lead to diversity of thought. Innovation follows. Canada’s ability to promote diversity and seek inclusion has become a standard for the world, which matters a lot when the best and brightest come from around the world. Inclusion needs to includes gender, too. Canadian women’s entrepreneurship rate was only half that of men back in 2003, according to the Global Entrepreneurship Monitor’s 2015 report on Canada. Now, it’s over 85%, topping rates in the U.S. and Australia. But Canadian women still express less confidence in their skills, and a greater fear of failure, the report says. Add those concerns to the well documented under-representation of Canadian women in STEM fields, which are so critical to innovation.
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