Toronto as a Tech Hub
When looking at what makes a city a tech hub there is a wide range of variables to consider. Regulations, laws, taxes, educational systems, office infrastructure, public transit, immigration policies, cost of living, talent, skills, and salaries are all essential components required to foster and grow a metropolitan area into a suitable tech hub where ideas and innovations can thrive.
Within the Canadian landscape, there has already been a few established tech hubs that have attracted both mature and early-stage technology companies. By looking at the amount of capital invested across seed, early, mid, and later-stage VC raises as well as the volume of transactions across these stages we hope to gain some insight as to which Canadian metropolitan areas are succeeding as tech hubs.
For the past seven years, Toronto has dominated in terms of both number of deals and total capital raised in the technology space. Given that Toronto is located in Southwestern Ontario and is currently the largest city by population (2.9 million people) in Canada it is not surprising that it continues to be the most active tech hub within Canada.[1] However, as we have seen more recently in established tech hubs like Silicon Valley that have had large migrations to other metropolitan areas such as Miami and Austin, it is not a given that these tech hubs remain central forever. Cities need to remain agile in order to retain firms and workers over longer periods of time, adjusting the variables that we mentioned before to continually ensure they remain attractive.
To put some context behind the mass migration we are seeing south of the border, it was reported that 74 companies had left California in the first 6 months of 2021 when compared to a total of 62 in all of 2020.[2] The major reasons for these firm departures ranged from tax policies to regulatory environments to talent availability. The reasons for individuals leaving these areas included rapidly increasing costs of living and more flexible working environments elsewhere.
Comparing this modern example to Toronto’s data, the city has maintained its grasp on attracting mature and growing early-stage technology firms. In 2018 alone, Microsoft, Uber, and Shopify invested C$1.27bn into investments, new jobs, and engineering hubs in Toronto.[3] Other mature companies such as Cloudflare, Netflix, Wayfair, Pinterest, and DoorDash have recently announced the opening of new offices in Toronto.[4] Later stage VC companies based in Toronto such as Wealthsimple, Tulip, Paper, and FreshBooks continue to attract investment from around the world. Earlier stage companies such as Humi, Waabi, Voiceflow, and Flyscan choose to remain in Toronto as they scale up their operations.
The reason for Toronto’s continued success as a tech hub in Canada stems from the number of graduates it produces annually, access to local incubators and accelerators, and the attractive business incentives and ecosystem.
To dive into the numbers, Toronto produces approximately 25,000 science, technology, and engineering graduates every year that can be used to fuel early-stage, growing, and mature firms. Incubators such as MaRS, YSpace, VentureLabs, 111, and HalTech provide strategic and financial resources to continually produce new ideas and successful early-stage firms. The business ecosystem and provincial government in Ontario are supportive of Research and Development (often referred to as SR&ED) credits and low corporate tax rates to help offset costs to firms while encouraging innovation and reinvestment.[5] In terms of operating costs, Toronto has been on average 18.2% more cost-competitive than other major metropolitan areas such as New York.[6] When looking within Canada’s borders Toronto’s average office rental price per square foot (C$24.31) is below that of Vancouver (C$29.93) but higher than Ottawa, Waterloo, and Montreal.[7]
Aside from all the tangible benefits of being in Toronto, there are many intangible advantages that firms are increasingly seeking. Intangibles such as a globally diverse talent pool that thinks differently and has a wider set of cultural norms that can help firms scale globally and better understand the world population. Canada in 2019 had welcomed more than 340,000 permanent residents and 184,000 in 2020 (despite Covid-19 challenges) and has invested over C$85mm in reducing processing backlogs.[8] Toronto gained the most of any city taking approximately 34% of these new permanent residents in 2019. Vancouver took the second most with only 11% of the 340,000 new residents. Many firms and executives have flagged this diverse talent pool as a key selling point for deciding to expand operations into Toronto.
As the Canadian technology ecosystem continues to develop and mature over time it is almost certain that new tech hubs and vertical niches will emerge from other metropolitan areas other than Toronto. In the near future, regulations and laws could change the way firms view other metropolitan areas and create a more competitive and attractive atmosphere in other cities. However, for the time being, it is clear that Toronto will continue to play a major role in influencing, retaining, and growing the technology space within Canada.
[1] https://www.populationu.com/cities/toronto-population
[2] https://www.newsnationnow.com/us-news/west/companies-are-rapidly-leaving-california-study-finds-heres-where-they-are-going/
[3] https://torontoglobal.ca/our-industries/technology
[4] https://www.investontario.ca/spotlights/7-tech-companies-expanding-toronto-ontario
[5] https://torontoglobal.ca/A-Competitive-Edge/Low-corporate-taxes
[6] https://torontoglobal.ca/A-Competitive-Edge/Incentives
[7] https://www.theglobeandmail.com/business/industry-news/property-report/article-canadas-lease-rates-for-offices-increasing-despite-soaring-vacancies/
[8] https://www.canada.ca/en/immigration-refugees-citizenship/news/2021/12/canada-welcomes-the-most-immigrants-in-a-single-year-in-its-history.html