The Big Read

Sea Change: A startup awakening in Atlantic Canada

Illustration by John Hemminger

Jeffrey Larsen’s career trajectory is a common one where he’s from: after growing up in Halifax, he moved away for university before starting his career in Toronto. About 10 years into his legal profession, once his 20s had passed, Larsen began plotting his Maritime return. “I had really exciting work in Toronto; it was a positive experience,” he says. “But it wasn’t where I wanted to be.”

Like so many young people who leave the East Coast—and so many, myself included, do—Larsen, now the executive director of innovation and entrepreneurship at Dalhousie University, had always planned to come home. “I wanted to be in a liveable place,” he says. “A place where you can, in a half an hour, be surfing, or in wine country or at your cottage.”

He also wanted to be somewhere where he could have a fulfilling and lucrative career—criteria that, at first, were harder to achieve; criteria which drive many people from the east away in the first place.

Atlantic Canada has always struggled economically, its industries characterized by fits and starts—miniature booms and busts in resource sectors like lumber, coal mining and steel production, hydropower harvesting and oil drilling. At first, Confederation and the Canadian National Railway were expected to open the region up to the markets and a new era of prosperity. The advent of internet, more than a century later, promised to do the same by eliminating physical distance between the region, the rest of Canada and the world. Those ideals never quite panned out. As recently as between 2010 and 2015, the region’s four provinces—Newfoundland, Nova Scotia, New Brunswick and Prince Edward Island—garnered below average GDP relative to the rest of the country, and below average population growth from 2011 to 2016. The provinces consistently have the highest unemployment rates in the country, numbers that have barely budged since 2007.

But there are signs of an economic sea change, driven by innovation, and supports from governments and private sectors alike. In 2016, Nova Scotia became the first Canadian region to enroll in MIT’s Regional Entrepreneurship Acceleration Program. Last year, Creative Destruction Lab expanded its rigorous accelerator program into Halifax, the fifth city on its roster before adding New York City this September. And, in February, the region won the bid to become the country’s Oceans Supercluster.

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Talking Point

The Atlantic provinces consistently lag behind the rest of the country on metrics of population growth, GDP and labour productivity. Recently, however, the region has seen an outsized number of startups, venture capital spending and government investments towards innovation.

“The hockey stick effect is really noticeable over the last four or five years,” says Larsen, who moved back to Halifax in 2007. “You can just see it: more startup companies, way more venture capital invested, exits from people selling their companies. There are cranes in the sky and buildings going up. It’s been tremendous,” he adds. “You feel the vibe. When you talk to people, they feel it.” Indeed, leaders of Canada’s startup ecosystems are now looking east in pursuit of the country’s next promising tech hub, optimistic that, this time, the growth may actually take.

The Nova Centre, a mixed-use commercial development under construction in downtown Halifax. The project, which features a hotel tower, two office towers, the new Halifax Convention Centre, retail space and a public pedestrian arcade, costs in the $500 million range. The Canadian Press

If we were to identify the trigger point responsible for setting off the flurry of tech startup activity out east, it would be the exits of Radian6 and Q1 Labs. Radian6, a social media monitoring platform founded in Fredericton, was acquired by Salesforce in 2011 for $326 million. Soon thereafter, IBM bought Q1 Labs, a cybersecurity company, also launched out of Fredericton, for $600 million. Seeing $1 billion in exits in less than a year was unheard of in Atlantic Canada.

Patrick Keefe refers to the events as the region’s Big Bang. “It really gave the regional ecosystem a shot in the arm,” says Keefe, a Halifax-based entrepreneur and venture capitalist. “You saw a lot of talent that was built up in those companies come through and look for their next opportunities.” As a result of the deals, both Salesforce and Q1 Labs expanded their presence in Atlantic Canada, which became much-needed draws for tech talent to the region. In New Brunswick, a cluster of cybersecurity startups have since cropped up, to which the federal government recently committed $4 million.

At the same time, says Keefe, the exits jump-started the investment community: the deals rewarded angel investors who had supported Radian6 and Q1 Labs, and then turned around and invested in other Atlantic Canadian ventures. The New Brunswick Innovation Fund, for instance, garnered a $9.25-million return on its $326,973 investment in Radian6, and has since invested those returns in other local companies. According to Steve Lund, CEO of Opportunities New Brunswick, the exits also created fertile ground for the province’s outsized cannabis market and burgeoning smart grid industry.

In the seven years since the famed exits, venture capital in the Atlantic region has grown each year by 37 per cent, on average, compared to roughly 30 per cent annual VC growth for Canada in general. And while the dollar amounts are still a small portion of overall VC invested in Canada (annual investments averaged $71 million for the entire Atlantic region from 2012 to 2017, compared to $2.5 billion across Canada for the same time period), Keefe says the activity has allowed him to have a career in venture capital in the place where he’s from.

Having worked in venture capital in Boston, following his MBA at Harvard, Keefe returned to Halifax in 2003 and tried to get an investment career off the ground. “There was very little happening here in terms of the robustness of the ecosystem and the prospects of raising capital,” he says. “I did give it a shot, but there was no way to make it happen.”

Ten years later, Keefe helped launch Build Ventures, the region’s sole VC firm focused on seed-stage funding. The firm’s first fund, worth $65 million, has invested in 14 companies since 2013. Now he and his partner, Rob Barbara, are in the process of raising their second fund, which they aim to close with $50 million to $70 million by year’s end.

The Centre for Ocean Ventures & Entrepreneurship (COVE), an innovation hub for oceans technology startups in Dartmouth, NS. COVE

One explanation for why the Atlantic provinces are seeing an uptick in innovation is because they’re beginning to emerge from their silos and work together as a region. “We’re realizing that New Brunswick isn’t competing with P.E.I.,” says Larsen. “We’re all competing with the rest of the world. That takes time and trust and relationships, but that’s the path forward.”

Nowhere is that approach more critical than when it comes to the region’s ocean technology sector. While the national ocean economy accounts for just two per cent of Canada’s total GDP, in Atlantic Canada, the sector makes up between 15 and 20 per cent of the economy. In 2010, the OECD forecast the industry would balloon from US$1.5 trillion to US$3 trillion by 2030—growth that could be a boon to Canada’s East Coast.

Jim Hanlon is well aware of that potential. “If you really want to change the economics of Atlantic Canada in a positive way, the biggest lever you have to pull is the ocean economy,” says Hanlon, CEO of the Institute for Ocean Research Enterprise (IORE), based in Dartmouth, N.S. “We have natural competitive advantages and you don’t have to change the numbers a lot to have a big impact on the overall economy.”

That’s the message Hanlon wanted to communicate to the federal government when he learned of its search for Canada’s five innovation superclusters. Following the announcement two years ago, Hanlon immediately joined a group of industry leaders for regular dinner meetings where they planned their bid for the oceans cluster.

At that point, Hanlon had already been working on cross-sectoral initiatives to boost the region’s ocean industries and, in turn, its economy, through IORE, which he helped found in 2012. The institute brings together government, academia and industry to collaborate on R&D projects aimed at improving the competitive advantage of private-sector companies in oceans industries.

In keeping with that mandate, IORE spun out an oceans-centric innovation incubator this summer called COVE, which stands for Centre for Ocean Ventures & Entrepreneurship. The 30-plus companies slated to take up residence on the former Canadian Coast Guard lands will work at building scalable technologies around underwater acoustics, sensing and imaging, marine communication, navigation and more. The idea is to spawn collaboration between research institutions, big industry players and startups, and, when possible, share costs of pricey equipment and even R&D. So far, COVE has secured $7.2 million from the federal government, $21.5 from the provincial government and $4.5 million from Irving Shipbuilding, which—with a $26-billion federal shipbuilding program unfolding across the harbour from COVE—has a vested interest in seeing the region produce relevant oceans technology.

Adding to the work at IORE and COVE, this week, the region officially launched the Dalhousie University-based DeepSense project, a $26-million, five-year research partnership between academia, industry players (including COVE and Irving Shipbuilding), and governments to help solve the oceans industry’s data analytics problems.

With IORE, COVE and DeepSense underway, the federal supercluster seemed a natural fit for what was already becoming an oceans innovation hub. On February 15, the designation became official.

Nova Scotia premier Stephen McNeil at Volta Labs in December, 2017 to announce $2.25 million in government funding for the centre. Volta Labs

The sixth-floor window in the Maritime Centre offers a clear view of the Halifax Harbour, sailboats dotting the water past the slope of mid-rise buildings and cranes in the foreground. There, in the unfurnished lounge in Volta Labs, Jesse Rodgers, CEO of the Halifax-based startup hub, recalls a talk Tom Jenkins gave last year on Canadian innovation. “He said, in the mid-to-late 90s, you’d look at Halifax and Waterloo and you’d bet on Halifax as being the tech hub,” says Rodgers, paraphrasing. “It’s a curious observation.”

Before moving to Halifax in 2013, Rodgers had a hand in forging Waterloo’s thriving startup engine as the founding director of University of Waterloo’s Velocity Labs. “[Halifax] has always been interesting to me,” says Rodgers.”There are only so many ecosystems in Canada that are going to move at any speed and achieve scale. Waterloo has figured it out, Toronto is outperforming, Montreal is starting to put its foot on the gas, Ottawa is doing great. This place should really be taking off. We should be able to figure this out.” he adds, “There is a growing ecosystem here that can follow a version of a Waterloo playbook to reach a new level.”

In some ways, that’s what Rodgers, along with Patrick Keefe and Jevon MacDonald—founder of OMERS Venture-backed Manifold—have done with Volta: they’ve created an innovation headquarters for startups in the community, and gave them access to programming, mentorship, physical space and events. Quite simply, “It’s a place where founders can come out, work on their stuff and be around peers,” says Rodgers. This year, five years after opening, Volta tripled its space in the Maritime Centre to 60,000 square feet. It has 600 network members and about 30 startups renting office space.

The growth, says Rodgers, is related to a general shift away from a scarcity mindset to an abundance mindset. “For a long time, no one had seen new stuff here,” says Rodgers. “Now you have new ships on the docks, new helicopters in the sky, new buildings going up—everything is changing. People’s perceptions start to change.”

Of course, not all of Atlantic Canada is benefitting from the fledgling innovation ecosystem.

One evening on a recent trip home, after a rare Nova Scotian heat wave finally broke, I sat on a patio listening to Tim Baker, the former frontman of Newfoundland’s recently disbanded Hey Rosetta!, play to a sold-out room. Another young woman doing the same struck up a conversation with me. “It’s my first time home in six years,” she said, remarking on how much had changed. Across the road from where we sat is Halifax’s brand new Convention Centre, part of a $500-million mixed-use development in the city’s downtown. At one million square feet, it’s the biggest development project in Nova Scotia’s history.

The woman, named Jillian, told me she had come home from Calgary for her little brother’s funeral in Cape Breton. “Here, there’s all this,” she says gesturing towards the modern new building streaming light onto the pedestrian street below. “And back home, there’s so little.”

In the 15 years since the coal mines closed in Cape Breton, the island has failed to effectively diversify and stabilize its economy. Unemployment has ballooned to above 20 per cent, a third of Cape Breton children live in poverty, and epidemic opioid use—triggered by prescriptions from mining and steel-working injuries—fills the void created when jobs left the region.

Cape Breton’s decline is an egregious example of the laggard Maritime economy, but it’s not the only place that’s struggling. Rural GDP makes up 64 per cent of Atlantic Canada’s economy (Nova Scotia is the most urban with 46.2 per cent of its GDP coming from rural economic activity), compared to 27 per cent for all of Canada. And while the region still relies on its rural operations to buoy the economy, the output of those activities dropped to the tune of 7.7 per cent of GDP from 2011 to 2016.

Populations of Newfoundland, New Brunswick and Nova Scotia grew just 2.6 per cent between 2007 and 2017, compared to 11.6 per cent for all of Canada (P.E.I., an outlier on this front, saw population grow 10.4 per cent over the same period, driven by immigration), and the number of deaths each year frequently outpaces births. Atlantic Canada has the lowest labour productivity rate in Canada. And, despite having a high proportion of post-secondary institutions, only 24 per cent of Maritimers have any university education, compared to 32 per cent of all Canadians.

To address the problems, the federal government and four Atlantic provinces launched the Atlantic Growth Strategy in July 2016. The project homes in on five priority areas: immigration, innovation, clean growth and climate change, trade and investment, and infrastructure. So far, tangible progress has been made on the immigration agenda: it’s three-year employer-driven pilot program brought another 2,000 immigrants to region in 2018—another 4,000 immigrants per year are expected to come through the program by 2020.

There’s a perception that wages out east are low and opportunities are few. That perception is, in part, why I moved away. I didn’t want to leave my family and friends and my 20-minute drive to the beach—not for long, anyway—but like Larsen, I thought I needed to move some distance west to gain experience and, eventually, make money. It’s impossible to say, even in retrospect, whether that move truly was necessary.

Matthew Thomson is helping others consider that question when they start their careers and before they leave the region. He co-founded Placemaking 4G in October 2017 to recruit and retain young talent in Atlantic Canada at the start of their careers—a niche among recruiting firms, which typically focus on executive-level positions. The company connects people who want to be in the Maritimes, but aren’t sure how to make it work there, with opportunities suited to them. “Our objective is to build the Atlantic region,” says Thomson. In pursuit of that goal, the company goes beyond filling job vacancies; they also invest 60 per cent of their profits back into the region, as a Community Interest Company—a designation for social enterprises, only available in Nova Scotia and B.C.

“The catalyst, for me, was my kids,” says Thomson, who grew up in Montreal and moved to New Brunswick for university before eventually settling in rural Nova Scotia. “I’ve got a two- and a four-year-old, and a two-week old, and we want to make sure that, in 20 years, these kids have an actual Nova Scotia with opportunities.”

As for Larsen, he ended up creating his own opportunities when he moved back east. “I eventually started working with some engineers who had an idea for a renewable energy company, and we created jobs,” he says, referring to Watts Wind Energy. Today, he works with governments and universities to build a community in which other entrepreneurs can do the same. “We’re trying to build those innovation ecosystems so that people have an opportunity to live in Atlantic Canada and do jobs they love.”

Catherine McIntyre is a proud Maritimer living in Toronto—for now.

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