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Canada: The Next Start-up Frontier?
 

With its new Startup Visa program, Canada's hoping to lure foreign entrepreneurs. But what do start-ups stand to gain by heading north?

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Jason Kenney, Canada’s minister of citizenship, immigration, and multiculturalism, says he has the United States Congress to thank for Canada’s new start-up visa program. "There's been a bill sitting on the order paper in Congress for several years to create a start-up visa," Kenney says. "We thought it was a brilliant idea, and we wanted to beat the U.S. to the punch."

Those, in case you were wondering, are fighting words.

Canada's Startup Visa Program, which kicked off Monday, is awarding permanent residence visas to foreign entrepreneurs who are able to secure Canadian venture capital or angel funding. Now in its pilot phase, the country is freeing up 2,750 visas this year, a number that should grow once the pilot phase is over. As the U.S. Congress deliberates over the many pieces of start-up visa legislation that have been put in front of it in recent years, Canada's program is a tempting proposition, especially for foreign-born entrepreneurs who can't afford to let their businesses languish.

Minister Kenney, for one, is not afraid to brag about his country's comparatively progressive approach to immigration and entrepreneurship. "The U.S. has thousands of brilliant young tech entrepreneurs, many who have fantastic start-up concepts, yet they're in the U.S. on temporary visas running out of time," he says. Indeed, U.S. companies are reaching the cap on their yearly allotment of skilled worker visas sooner than they have since before the recession. "We want, working with our VC industry, to invite those people to begin their promising careers in Canada."

The question is, what do business owners stand to gain (or lose) by forgoing American entrepreneurial hubs like Silicon Valley and New York City and heading north?

The Pros

In recent years, while American politicians and business owners alike have contributed to much gnashing of teeth over corporate tax rates, Canada has quietly tweaked its own tax code, reducing federal corporate tax rates to 15 percent last year (it's 35 percent in the U.S.). Since 2010, Canada has risen from No. 28 to No. 8 in the World Bank’s list of easiest places to pay taxes, both in terms of the price you pay and the red tape involved in filing. Canada outranks every other country in the G8. The United States, by comparison, comes in at No. 69.

While the government has been making it easier to do business on a federal level, Canadian entrepreneurs have been doing their own part, leading a grassroots movement called Startup Canada that is intended to make the country's start-up scene more integrated, and therefore, more powerful. Startup Canada launched last year with a cross-country tour, in which the team interviewed some 20,000 Canadians in 40 communities about what gaps and opportunities exist for entrepreneurs. The six-month tour helped the Startup Canada team, led by CEO Victoria Lennox, develop a few key programs it will be rolling out this year. Launching in May, the first is Startup Communities, which will be a national network of 15 start-up hubs, intended to break down the barriers between business owners and get them networking. The second initiative, Startup Connect, will involve launching a personalized online dashboard for entrepreneurs to find funding, support, mentors, and local events.

"One of the things we found on our tour is everything a Canadian entrepreneur needs exists, but entrepreneurs have a hard time finding it," says Lennox. "That's partly because it's bureaucrats running the ecosystem. We're launching Startup Connect to make it easy for entrepreneurs to just plug into that infrastructure. It'll be the place Canadian entrepreneurs start."

Lennox confesses one challenge business owners in Canada face is getting access to capital. That's why the Startup Visa program requires entrepreneurs to secure either $200,000 from a designated Canadian venture capitalist or $75,000 from a Canadian angel investor before becoming eligible for the visa. Both the National Angel Capital Organization and the Canadian Venture Capitalist organization have partnered with the government to support this program, and will therefore, proactively seek out foreign entrepreneurs. The idea is, rather than arriving in Canada and then scrambling to find funding, an entrepreneur will get the search for funding taken care of before she even arrives.

After being nominated by an investor, the visa candidate must prove he can speak intermediate French or English, has two years of post-secondary education, and pass a criminal record and health screening to be approved. According to Minister Kenney, after the investment decision, the process should only take about four months.

"When they arrive at the airport, they'll be stamped in as a permanent resident," says Minister Kenney. "And if their business fails, we're not going to kick them out of the country."

This revised process also may help entrepreneurs compete for funding more easily than in the Valley. "There's no shortage of competition here, but it's not the frenzy you see in the Valley," says Kenney.

That was one reason David Kapitany, co-founder of the travel industry start-up Guideally, decided to launch his business in Toronto. A native of Hungary, he met his co-founder Rutul Sharma while pursuing an MBA in Brazil. Kapitany was living in New York City when he and Sharma decided to start a company, but of all the places in the world they had lived, the co-founders settled on Canada, where Sharma's from. "My contacts in the U.S. told me to launch in Canada, because it's not as overrun as Silicon Valley," Kapitany says. "They have plenty of positive spillover in Canada, but it’s more difficult to get noticed in the Valley."

The Cons

There are, of course, disadvantages to defecting to Canada. Aside from the comparative lack of funding, it's worth noting that there is a shortage of significant success stories on par with the likes of Google, Twitter, Apple, and Facebook. Asked to name a Canadian company of that status, Michelle Scarborough, chairperson of Canada's National Angel Capital Organization, suggested BlackBerry, the once-admired smartphone-maker that has lately earned a reputation for being behind the times. And while companies like the Vancouver-based HootSuite, a social media management tool, and Ottawa's Shopify, have certainly made names for themselves, they're not the types of tech juggernauts that beget thriving start-up ecosystems. Lennox hopes Startup Canada will help increase awareness about companies like these.

"We don't toot our own horn enough," she says.

Another problem plaguing Canadian companies is a shortage of skilled labor, says Kenney. It's both the reason Canada hopes to attract foreign talent and, potentially, the biggest obstacle for business owners once they arrive. "In most fields that require specialized skills, there are significant and growing shortages," he says. His hope is that, though some businesses that get funded through the Startup Visa program will fail, the founders behind them will take advantage of their new permanent residency, stay in Canada, and find work until they launch their next company.

"There's going to be a relatively high failure rate, as with any start-up hub, but our attitude is that these bright people who have been selected by a credible investor have the human capital to succeed in Canada,” he says. “If their first concept doesn't succeed, hopefully the second or third will. We take a more patient human capital approach."

IMAGE: matthiasfromm/Flickr
Last updated: Apr 3, 2013




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