BC 2014 Tech Report Card: Mixed grades, huge potential

As seen in The Vancouver Sun.
Written by: Gillian Shaw

VANCOUVER, BC, NOVEMBER 3, 2014 — British Columbia’s 2014 Technology Report Card is out and while the sector gets a passing grade, there’s lots of room for improvement.

According to the report card, prepared by KPMG in collaboration with the B.C. Technology Industry Association, B.C. tech is getting straight-As when compared to other provincial industries.

But our performance falls short compared to provincial and international counterparts, earning the province only a C+ on the report card. That represents a slight narrowing of the gap between B.C. and other tech sectors across Canada and the U.S., but only a slight increase from the C it got in the last tech report card, issued in 2012.

Stumbling blocks include a lack of early-stage venture capital and shortage of talent as the number of B.C. graduates in science, engineering and related fields falls dismally short of that in other regions.

Listen to this podcast for a discussion with the reports co-authors, KPMG’s Tony Lindsay and Slave Diamandiev and Bill Tam, president of CEO of the BCTIA.

“When we look at the overall report, I think our perspective is the tech sector is doing really well in B.C. and it’s improving year after year,” said Tony Lindsay, co-author of the report and KPMG market leader for technology, media and telecommunications in the greater Vancouver area.

“It’s improving in many of the key indicators and that’s why it has been given an A rating relative to other industries in B.C. It’s obviously a very positive rating.

“I think the C+ rating can be viewed as, it’s improving, it really is improving and really recognizes there is some good potential here too. We have also looked at the C+ rating as not negative at all — it’s more that the sector’s doing well and there’s real opportunity as well to continue to do better and to continue to grow.”

B.C. has spawned its share of success stories and many of its entrepreneurs have gone on to repeat their successes. On Friday, Stewart Butterfield, who co-founded Flickr — the image-sharing site that started in Vancouver and sold in 2005 to Yahoo — was in the news with his new start-up, Slack. The company, whose workplace collaboration tool is getting rave reviews, raised $120 million US in new venture capital funding that values the company at over $1 billion.

Mike Woollatt, CEO of the Canadian Venture Capital & Private Equity Association, said the issues B.C. faces are the same as those faced across the country when it comes to venture capital.

Woollatt said the industry is “growing up” and Canada is starting to see more niche venture capital funds that focus on a single vertical market.

He said governments have a role to play, in everything from funding innovations centres to tax and procurement policies.

“What everyone forgets is that Silicon Valley was built on government involvement and still is today,” he said.

Woollatt said the U.S. government’s “huge procurement initiative,” supports U.S. companies and the government offers direct support through funding. “We just procure based on the lowest common denominator, the lowest cost, we’re not seeing it as an investment,” he said of Canadian levels of government. “The U.S. government is a massive investor in technology.”

Boris Wertz is the founding partner of Version One Ventures, which recently announced the close of its second fund — a $35-million fund anchored by BDC Capital and Northleaf Venture Catalyst Fund. He said early-stage capital is the issue in Canada.

“On the early stages we’re still pretty weak, on the later stages it might not be domestic capital that invests, as in Canadian funds, but as an entrepreneur it doesn’t matter where you get the capital, whether it’s a U.S. fund or a Canadian fund,” he said.

The majority of B.C. tech companies have fewer than 50 employees and there are a number of start-ups poised to grow. Bill Tam, president and CEO of the BCTIA, said a lack of Canadian venture capital could see more companies move south of the border.

“We’ve got one of the most fertile entrepreneurial landscapes anywhere in the country and that has served us well,” he said. “There’s been some great policies in place to encourage very, very early-stage investment.

“ … Now we’ve got I think a very full funnel of companies that are just about to make that next level, and that’s where early-stage venture capital plays a critical role. No doubt if there’s a shortage of that here, that certainly puts things at risk in terms of where companies will be located in the longer term.”

In the talent pool, we’re lagging well behind Ontario in the number of undergraduate degrees granted per capita and we’re behind in architecture, engineering, math, computer and information science degrees.

Research and development also trails other jurisdictions. B.C. is behind Ontario, Quebec and Alberta in the number of patents filed and the number granted, both in absolute terms and on a per capita basis.

Also hindering growth in the sector — which has more than 9,000 companies, some 90 per cent focused on services — is the small number of large anchor companies needed to create critical mass, according to the report.

“If we look at output we’re certainly starting to close the gaps in terms of the Canadian jurisdictions we’ve looked at, in terms of GDP per capital, revenues — I’d say we’re still behind but that gap has started to close and we’re actually growing faster than other Canadian jurisdictions in our technology output,” said Slavi Diamandiev, co-author of the report and economic practice leader for KPMG in Vancouver.

“When we look at the input indicators such as access to talent, venture capital or intellectual capital, unfortunately we’re not seeing as big an improvement in those areas.

“While there is a lot of room to grow in those areas, more focused investment is needed to make that happen.”

Compared to other industry sectors in B.C. though, the tech sector is faring relatively well. It accounts for 84,000 jobs in the province, jobs that pay an average $75,000 annually — 60-per-cent higher than average. It contributes $15 billion in GDP to the B.C. economy.

The sector’s growth rate has been second only to construction since 2007, and B.C.’s tech sector employed more people than forestry, mining, oil and gas combined in 2012.

The report points out B.C. is home to Canada’s largest defence company, MDA; Canada’s largest clean-tech company, Westport Innovations; the world’s largest machine-to-machine wireless company, Sierra Wireless; Canada’s largest social media company HootSuite and the first commercial quantum computing company: D-Wave Systems.

“When you look at companies like Global Relay and Avigilon, BuildDirect, look at Westport Innovations, a number of them I think that people would say two years ago they had never even heard of these companies,” said Lindsay.

“ … What’s really exciting for the technology community is what we’ve seen is this development of these anchor companies, companies that are dealing on more of a global scale and they are breathing some new life into the sector.”

Patrick Sauriol, executive director of DigiBC said the digital sector is growing, with major power players like HootSuite joined by other smaller, but fast-growing companies with 100 or more employees such as Elastic Path, an ecommerce software solutions company, BuildDirect, an online building supplies retailer and SoMedia Networks, a company that specializes in on-demand video content for companies and Internet marketers.

“I think we are very, very close to critical mass,” said Sauriol. “It feels like the calm before the storm.

“We’re going to be our own version of a tech hub, our own version of the city of the future. I think we’re a year or two out of that.”

While Vancouver saw an exodus of traditional large gaming studios, the indie game sector is flourishing and mobile games are taking focus away from console games. Most recently Japan’s gumi, opened a small office in Burnaby.

“Vancouver is a fantastic local for gumi, it has a really rich talent pool of developers,” said Chris Rowe, an industry veteran who is leading the new studio here. “It’s a really great hub for game development, it’s in close proximity to our other offices in the U.S. and it is also super easy to travel to Tokyo.

“It’s a perfect blend of talent and location.”

To view the full article, click here.
For a copy of the BC Technology Report Card, click here.