Toronto can teach aspiring tech hubs some lessons

People ice skate on a public rink at Nathan Phillips Square in Toronto, Ontario, Canada. REUTERS/Carlos Osorio

TORONTO, May 9 (Reuters Breakingviews) – Toronto has some lessons for would-be technology hubs. Favorable immigration rules and cheaper labor costs are among the factors that lured Silicon Valley tech behemoths to the Canadian city. Search engine Google (GOOGL.O) has doubled its employee base in Canada to more than 3,000 full-time staff in two years, while Facebook owner Meta Platforms (FB.O)announced in March it was creating a Toronto engineering hub and up to 2,500 jobs in the country over several years. While some advantages might fade, that may not matter for now.

Canada’s most populous city lacks the balmy climate of rival tech wannabes like Austin or Singapore, but boasts advantages like looser immigration policies. While Trump-era restrictions made it harder for U.S. companies to hire foreign employees, Canada is more welcoming. Immigrants made up nearly 38% of the country’s tech workers in 2016, according to a study by Brookfield Institute.

Toronto’s proximity to New York and access to public healthcare are added bonuses, while the government promotes technology through tax incentives for research and development. Toronto benefits from a “brain gain” of incoming workers: it added nearly 55,000 more tech talent jobs than it produced graduates, according to a 2021 study by CBRE. The city’s modest wages, which are just 65% of the U.S. average according to CBRE, also appeal to employers.

These factors trump features often touted by prospective tech hubs, like plentiful supplies of capital. With a market capitalization of roughly C$4 trillion ($3 trillion) as of the end of March, the Toronto Stock Exchange is dwarfed by bourses south of the border. And while the amount invested in Canadian startups reached almost $14 billion last year according to PitchBook data, more than double the 2019 high, it’s a fraction of what venture capitalists put to work elsewhere. Though Toronto has spawned unicorns like fintech firm WealthSimple and password management company 1Password, it lacks a broad base of homegrown tech firms.

Some of Toronto’s advantages could erode over time. Housing is getting costlier: The city ranked as the fourth least-affordable market of 30 North American metropolitan areas, according to a January analysis by Oxford Economics. The tech influx may push up wages. For now, though, Toronto remains attractive. Collision, an upcoming tech conference held in the city in June, has attracted over 33,000 attendees and more than 1,250 startups. Other aspiring tech hubs should take note.

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CONTEXT NEWS

– Toronto-based password management company 1Password said on Jan 19 that it had closed a $620 million funding round, bringing the company’s valuation to $6.8 billion. Financial technology startup Wealthsimple said in May 2021 that it had raised a C$750 million ($585 million) financing round at a post-money valuation of C$5 billion.

– Meta Platforms said on March 29 that it was creating a new engineering hub in Toronto with plans to create up to 2,500 new jobs in Canada over the next several years. It also announced an additional C$510,000 in unrestricted grants to 17 Canadian research labs working on research related to the metaverse.

– Venture capital investment in Canadian startups was close to $14 billion in 2021, more than double the previous high of $5.8 billion in 2019, according to PitchBook data.

Editing by Peter Thal Larsen and Pranav Kiran

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