By |By Christopher Mims
Imagine you are launching or running a startup and there's a
place where all of your developers--the biggest expense for most
tech companies--cost one quarter what they do in Silicon Valley.
Sure, it's cold there, but talent is plentiful and the locals are
friendly. Would you trade your hash browns for poutine?
Adam Adelman, co-founder of Mighty Cast, a startup working on a
new kind of wearable technology, recently told me the Canadian
government is paying almost 80% of his developers' salaries. And
that's not a tax credit. It's a rebate, a check he gets from the
government whether or not his startup makes money.
Even at Mighty Cast, a two-year-old hardware startup, salaries
have been 80% of expenses. Combine that with the lower salaries
demanded by engineers in Montreal, where Mighty Cast moved its
headquarters after its genesis in Silicon Valley, and Mr. Adelman
says he's able to stretch his angel round of investment four times
as far.
But why should Canada throw all this money at tech? One reason
is simply that high tech is the route to the post-industrial
economy that all countries with any degree of central planning
aspire to--just look at the explosion of the IT sector in China,
abetted in no small part by its government. Tech represents
high-paying jobs from an industry that isn't resource intensive
and, in contrast to Canada's oil-sands boom, doesn't pollute. What
bureaucrat wouldn't sign on for that?
That it requires incentives on this scale to attract companies
from Silicon Valley, where capital and talent feed on one another
in a virtuous circle, shows that the tech industry, like the
markets favored by the companies it spawns, tends to be
winner-take-all. When one dominant player grabs most of the
resources, everyone else (Canada included) is forced to open up
their treasuries to attract what's left.
So far, it's mostly established U.S. companies taking advantage
of these incentives. In 2013 Cisco signed an agreement with the
government of Ontario pledging up to $4 billion in investment over
the next 10 years in exchange for $220 million in incentives. Seven
of the 10 largest tech companies in the world have outposts in
Canada, including Google, Siemens and IBM, and startups like Square
are setting up offices in the Waterloo region, where tech employers
tend to concentrate.
But if you're a small startup looking to take full advantage of
these incentives, there's a catch: You have to become Canadian. You
don't have to give up your current citizenship to get all the
benefits, but your company must be majority controlled by person(s)
who are residents of Canada (a different status than full
citizenship). Companies merely setting up a satellite in Canada can
still get 50% of the salary reimbursement a fully "Canadian"
company would.
The strange prospect of immigrating to another country is
probably one reason why I discovered only one U.S. company whose
founders had actually moved themselves and their primary office to
Canada, but hundreds of foreign companies (more than 250 since
2003, to be exact) that have set up satellite offices in Canada to
take advantage of partial incentives.
Startup entrepreneurs willing to go all in can take advantage of
a fast-track "startup visa," which seems like the golden ticket to
moving north of the border if you already have some investment
capital (a requirement). Startup visas aside, Canada's "selective"
immigration policies, which favor education and talent, are so
liberal that Facebook is essentially using them as a gateway to the
U.S. Established in March 2013, Facebook's "temporary" office in
Vancouver, home to 150 freshly graduated engineers from around the
world, gives the company a holding pen to train and evaluate its
new recruits until they're eligible for U.S. work visas.
There are pitfalls in moving to Canada. One is being cut off
from the investors and engineering and executive talent who throng
Silicon Valley or other U.S. tech centers. If a startup hub isn't
big enough, says Andreessen Horowitz managing partner Scott Kupor,
executives who can take a company to the next level won't relocate
for a new job, because if the company fails, there aren't dozens of
other places they could go work, as in Silicon Valley.
My own view is that entrepreneurs looking to build the next
Facebook, and VCs looking to fund it, probably shouldn't look to
startup hubs outside the Valley, and certainly not in Canada. Part
of the reason is culture. One reason he left Silicon Valley after
selling his first company, says Mr. Adelman, is that he was tired
of its kill-or- be-killed ethos. Engineers in the Valley are
"single minded" in their focus on how many stock options they're
being offered and the size of their potential windfall when the
company goes public or gets bought. This can also lead candidates
to switch jobs more frequently as they seek an ever greater
potential exit.
In Montreal, by contrast, it may be easier to find candidates
who are motivated primarily by building a product they believe in.
The downside is a more European attitude toward work-- less
intense, less ambitious, more likely to have wine with lunch, Mr.
Adelman says. This doesn't mean Canada's engineers are any less
talented than their American counterparts, as the satellite offices
set up throughout Canada by the giants of tech attest. Canada is
also home to at least a half-dozen top-tier universities, and
Montreal has the highest proportion of university students of any
city in North America.
The right startups could surely benefit from a significant
discount on their costs. And when and if these startups leave, the
leaders of their former home cities will know who to blame:
Canada.
Follow Christopher Mims @mims and email
christopher.mims@wsj.com
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