Winter is Coming: Why Canadian SaaS is About to Change the World
L-SPARK will be hosting the new SaaS North conference running from November 30-December 1, 2016 in Ottawa.
Canada, the land of the two Justins, is set to become a global leader in cloud technology and software as a service (SaaS). While one Justin (Bieber) is bent upon giving the world frivolous pop music, the other (Trudeau) is opening up international opportunities for legacy technology companies, small businesses, and startups.
Thanks to a somewhat limited domestic market, the country has always been outward facing, highly competitive, and set on expansion. In fact, the wintry land to the north, with its 36 million inhabitants, has inspired venture capitalists from the United States, including Bessemer — the world’s largest investor in cloud tech — FF Ventures, Point Nine Capital and GrandBanks Ventures to invest in the up-and-coming tech scene.
In Ottawa alone there are more than 580 software companies and 22,000 employees. Both veteran and fresh-faced software founders have stayed in the capital, in order to work from a community which boasts the highest concentration of talented scientists and engineers in the country.
So let’s take a look at Canada’s rich tech landscape, the plans and programs that are helping it expand, and see why the rest of the world should be taking note.
A rich combination of competition and experience
The worldwide public cloud services market is set to reach $204 billion by the end of 2016, according to Gartner, and the Canadian SaaS contribution is growing.
In recent years, the Canadian ecosystem has produced more than its fair share of leading SaaS startups. These include Vancouver-based Hootsuite, Montreal’s LightSpeed, Ottawa’s Shopify and Halogen Software, and Toronto’s FreshBooks.
Each one has raised a wealth of venture capital funding. Hootsuite in particular achieved $165 million in a series B, to make a total of $250 million investment to date. Halogen brought in $55 million in its IPO in 2013 and Shopify achieved $100 million in a series C — and is now also publicly traded. To further underline the depth of Canada’s tech pool, Salesforce acquired a number of SaaS startups including Golnstant from Halifax, Rypple from Toronto, Radian6 from Fredericton for a total of half a billion dollars in 2014.
This flood of VC funding is no surprise. Canada is quite notably the most competitive nation in the G7 in 2016, as reported by Global Affairs Canada. Following the report, Canada excels in R&D Services, with a cost advantage average of 27.7 percent over other G7 countries.
The country also has a 30.6 percent cost advantage in digital services, and a 22.1 percent cost advantage in software design over the U.S. Moreover, thanks to the rise in the U.S. dollar, labor costs are also 31.2 percent lower than like-for-like costs in the U.S.
What’s more, Canada is both talent-filled and educated; at last count, 53 percent of adults in Canada held a tertiary-level of education. This is far higher than other Organization for Economic Cooperation and Development (OECD) countries, which average at 32 percent, according to a report from the organization.
The Capital of SaaS
Ottawa, in particular, has reemerged as an inviting place for SaaS startups and legacy enterprises moving into this space. For example, when compared to San Jose — the jewel in the crown of Silicon Valley — Ottawa has lower housing and salary costs and there are also more than 2,200 hectares of land earmarked for business development. The capital is also in the top three rankings of Canadian cities for its quality of life, environmental sustainability, and for its suitability for families — giving it broad appeal to entrepreneurs and employees alike.
Past successes in the city’s tech scene have created a fertile environment and paved the way for a new industry to emerge. Ottawa’s long history of telecommunications companies began in the 80’s and 90’s. And though they might be greying at the temples, the executives who grew up in the heydays of Blackberry, Mitel, Nortel, Newbridge Networks and Cognos have a wealth of experience. The IPO successes of these companies might have faded from memory, but their legacies have created a foundation of talented executives.
These battled-scarred and wise business people have moved on from their corporate castles and are now working in the community to mentor and grow new entrepreneurial tech talent. Accelerators and community groups like Wesley Clover, Invest Ottawa, Startup Garage, Founder Institute, Lead to Win, CENGN, and of course our own L-SPARK, are just some of the key resources in the Ottawa region.
As a result, the city has become a veritable petri dish for SaaS ventures and an anchor to a super corridor that connects to the generalist tech hubs of Waterloo and Toronto.
Government support and incentives
Canada’s flourishing private sector is bolstered by government support and incentives. These include a wide range of tax rebates and special considerations, which are available to any company invested in R&D. The government aims to protect early-stage companies and help them take risks, think big and innovate fast.
The Industrial Research Assistance Program (IRAP), is one example of a government initiative. It provides small and medium-sized enterprises with grant-based assistance. The program’s website lists a number of notable success stories from 2007 to 2016.
Startups and innovators can also leverage the Scientific Research and Experimental Development Tax Incentive Program (SR&ED). The federal tax program is designed to incentivize Canadian businesses of all sizes and in all industries to focus on R&D, by minimizing financial risks through tax breaks.
The Canadian federal government has also committed heavily to innovation via the well-funded Venture Capital Action Plan (VCAP) and the Canada Accelerator and Incubator Program (CAIP). Trudeau’s government is currently investing $200 million CAD a year in its new innovation agenda until 2018. The Canadian Innovation Council, led by OMERS CEO, John Ruffolo and the CEOs of Shopify, Hootsuite, D2L, Wattpad & vidyard, formed as a result, with the mandate to push homegrown Canadian ventures into becoming global leaders.
So what does the future hold?
In such a vast land, thinking big comes naturally to Canadians. We have a deep pool of serial entrepreneurs and super angel investors in Ottawa and beyond. This has been paired with the presence and participation from global corporate companies and leading venture firms, creating a foundation for a supportive entrepreneurial ecosystem.
Startups are growing and garnering support from peers groups like Fresh Founders, Product Hunt, and meetup group SaaS Ottawa. There is also corporate backing from Microsoft Bizspark, Amazon AWS, Hubspot for Startups, Shopify, IBM, OpenText, Mitel, Salesforce, and Google.
Really, this is just the beginning. We are on the cusp of seeing Canadian born-and-bred companies scale up to grow and become global enterprises. This new generation of SaaS companies are growing rapidly, expanding globally, and have the ‘umph’ to take the rest of the world on.
