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Could startup boom be Atlantic Canada’s engine for growth?


“Boom” is not a word usually associated with Atlantic Canada’s economy. At the moment, economic growth is stagnant and employment is flat.

Yet a job boom in Atlantic Canada’s startup sector is leading some observers to conclude the region has found a much-needed “engine for growth.”

[From Financial Post]

Photo Credit: Sivajan

A report released today by Entrevestor, a daily news service focused on Atlantic Canadian startups, concludes that employment in the startup space is expanding rapidly.

Entrevestor’s founder, Peter Moreira, surveyed the region’s roughly 280 startups. 162 responded, reporting total employment of 1,453. That was up 43% from 2012. Mr. Moreira said that figure is “astonishing” considering total employment in Atlantic Canada rose by only 0.3% in 2013.

The startups surveyed expect their ranks to grow by 759 positions in 2014, which would be a 52% jump in employment over 2013. Meanwhile, an Atlantic Provinces Economic Council report from late 2013 predicted “little” job growth in the Maritime provinces in 2014. In Newfoundland and Labrador, employment is expected to dip in 2014 due to a reduction in construction activity.

Mr. Moreira said the region’s “startup boom” has created roughly 3,000 direct jobs (when more established companies are factored in). With spinoffs, he pegs the total figure at 15,000. Nearly 60% of the companies are less than three years old, and most are in the information technology sector.

“There are things happening here that I wouldn’t have expected three or four years ago,” he said. “It has the potential to make a mark on the economy, as it has in Kitchener-Waterloo, Austin, Texas, and Boulder, Colo. We’re really just at the early stages.”

So what explains the recent activity?

 

For one, the region has recorded a few major exits. Most notably, San Francisco-based Salesforce.com bought Fredericton’s Radian6 in 2011 for $326-million. Q1 Labs, another Fredericton-founded company, was later nabbed by IBM. In 2012, Saleforce returned, buying Halifax-based GoInstant for a reported $50-million.

Those exits benefited local investors, many of whom have pushed some of their earnings into other startups. Another factor: startup capital goes further in Atlantic Canada. “You can set up an office in Sydney, Cape Breton a lot cheaper than you can in Toronto,” Mr. Moreira said.

Dawn Jutla, a professor of business and computer science at Saint Mary’s University in Halifax, attributes the “startup job boom” to a number of factors, including maturing mentorship networks, business accelerators, and local adoption of startup methodologies developed outside the region.

She also pointed to the increase in funding that Atlantic Canadian startups are accessing.

Take, for instance, Build Ventures, a new $65-million venture capital fund supported primarily  by the four Atlantic provinces. According to the Entrevestor report, venture capital investment in the region increased to $30.8-million in 2013, up from $23-million the year before. That was driven mainly by an increase in funding from outside the region.

Saint John, N.B., Xiplinx Technologies Ltd. is one of the startups benefiting from these changing conditions. The startup, which has developed software to help manufacturers and other industrial clients gather, track and interpret regulatory compliance data, graduated from Launch36, a regional startup accelerator, and went on to raise $1.3-million. Launched in 2012, the company has eight employees and plans to hire five to 10 more this year. It has 10 paying clients, and CEO Brent MacDonald expects that number to at least triple in 2014.

However, Mr. Moreira said the boom may not last. “Two-thirds of the startups are in IT. And everybody is after programers right now,” he said, noting this talent crunch will inhibit the growth of existing companies and hamper the emergence of new ones.

As well, there is a large number of startups producing either weak or no revenue. “There’s a feeling that we are going to see more failures in the next two or three years, and that that would be a good thing,” he said. “If a company does go bust, then all the talent that’s in that company will be liberated to go elsewhere.”

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