There are plenty of fun things to do in this very summery province: street festivals, boating, hiking, camping. All very B.C. And as we've seen so far this season, there are some new activities being taken up by our political class: cheerleading (economic news of questionable provenance) and cherry-picking (data).
Certainly we saw plenty of both during the recent bit of political theatre that was the LNG summer session. And now it seems that the cheerleading-and-cherry-picking approach to policy is coming to the province's tech sector.
Fresh on the heels of the B.C. Liberals' recent exhortation to "get out there and cheer on #bctech!" (hashtag for extra street cred), Vancouver's ranking plunged in the recently released 2015 Startup Genome report from San Francisco-based Compass.
The aim of its exhaustive research is to provide detailed comparative metrics for leading startup clusters (cities or regions where there is a critical mass of tech-based entrepreneurship). This analysis can then be used to provide guidance for entrepreneurs considering where to establish their next venture, investors looking for untapped value or policymakers actively invested in their region's success.
It's seen as a report that matters.
The first Compass report came out in 2012 and gave Vancouver a middling rating of Number 9 out of the top 20 innovation ecosystems surveyed (with Silicon Valley setting the pace at Number 1). Which wasn't great.
But this year's report shows Vancouver toppling to Number 18, tied with Toronto for the biggest single decline of any startup cluster of the 40 global centres surveyed. It isn't that we all started to collectively do things wrong, it's that the rest of the world is getting a lot better at this sort of thing.
If provincial policymakers—regardless of their political stripe—are concerned about these outcomes, they need to start taking an interest.
Here's why. Innovation-based startups are interesting economic entities in that they are self-contained engines for growth: the more of them you have, the more of them are likely to spring up nearby. And this concentration leads to the rapid incubation and commercialization of new ideas and technical innovations.
It attracts big investment money to fund rapid growth, which in turn draws in typically younger, more creative and more entrepreneurial talent to make these companies viable. Ryan Holmes and the Hootsuite story is an excellent local example.
Startup viability means more locally concentrated wealth, which seeps into the overall economy in the short-term through increased consumption and a healthier tax base to fund needed social improvements. And in the longer-term, it helps create a much more diverse and robust economy...which should be of interest to any politician who can imagine a future where we don't define our joint prosperity from hewing wood, drawing water, and fracking for natural gas.
Reading the detailed report is instructive. The overall drop is deeply troubling, though the depth of the swoon may be partially due to changes in methodology since the 2012 report. But on reference points common to both studies, it paints a pretty bleak picture of a creative economy trundling along with no coordinated strategy to keep pace with a rapidly changing global market.
There are some big strikes against Vancouver:
1. Our ranking in investment financing dropped from Number 12 in 2012 to Number 19.
This is bad for an industry that lives or dies on risk capital, especially at a time when it is historically easy to raise money.
Vancouver startups tend to raise 34 percent less venture financing than their counterparts in other clusters, are less likely to share that smaller pot of wealth with their employees, and often exit earlier for smaller sums.
As a result, the report's authors specifically cited Vancouver as a stagnant investment climate.
This is a crucial failing, as success on these points are what primes the entrepreneurial pump. Founders flush with cash after an exit are more likely to invest in the next generation of local tech startups and their example serves to both inspire other startup execs, potential investors, and top talent considering where their next career move should take them. Success breeds success.
2. Vancouver's relative talent rating dropped from an impressive Number 4 in 2012 to a mediocre Number 14.
That really hurts. As the authors of the study state: "smaller ecosystems with close proximity to larger ecosystems often have a hard time continuing to grow due to new and existing talent and capital migrating to the larger nearby ecosystem." Skilled labour and technical innovators have immense mobility today: they will follow the action to the place where their talents can be best realized. And investor-heavy Seattle (Number 8) is just down the road.
What's worse is that, as a matter of policy, we seem to have contributed to this exodus of talent. While the provincial government has made much of recent expansions in Vancouver by leading tech companies like Microsoft, there is increasing evidence that these facilities will be used for "people laundering". Microsoft can poach tech talent from around the world and, after a minimal period in Vancouver, transfer them to their operations stateside.
Net benefit to Vancouver's tech talent pool? Zero.
3. Finally, our startup ecosystem's performance crashed from a reasonable Number 9 in 2012 to Number 18 today, with our growth index dropping to half of the average of all cities surveyed.
Scary. Partly, this plunge is due to methodological changes that put a heavier weighting on the value of "exits" or cash events driven by the success of the startup's innovation. But Vancouver is still way off the mark: while companies that choose to base themselves in Silicon Valley can claim close to 50 percent of these cash events, Vancouver entrepreneurs only glean 0.5 percent of the financial rewards.
This is almost certainly why Slack, a Vancouver company, has such a strong and growing presence in San Francisco. And there is no shortage of other local founders who quickly made the move south or would choose to do so from day one in their next venture.
For those that do stay, we give up easy access to the significant capital available to our competitors. We are—in the words of the immortal Erlich Bachmann—bringing piss to a shit fight.
Most of the leaders in our startup ecosystem have taken this in stride: we know what we're up against in a space where competition is now truly global. But perhaps we haven't been cheering loudly enough to meet Technology, Innovation and Citizens' Services Minister Amrik Virk's policy goals.
If the provincial government is at all serious about having a competitive startup ecosystem sector, it needs to roll up its sleeves like the rest of us and get to work on policy changes that matter.
And municipally, the city of Vancouver needs to do the same.
The first step to fixing a problem is admitting you have one...so it was a little weird to read a frankly head-scratching piece from the Vancouver Economic Commission that celebrated Vancouver's diminished standing in the Compass report.
Without attempting to rebut every single rationalization made by the VEC, suffice to say that—in this blog post at least—it draws some very unsound conclusions. Like the proximity argument for competing clusters. Or the undervalued gems argument for secondary centres. We just can't afford to get those things wrong.
So, in sharp contrast to others on the policy side, the B.C. Green party is taking an interest in analyzing why Vancouver has fallen so far, so fast. We feel this is crucial to our collective future.
The means to create and support an active industrial strategy for the creative economy are a fraction of those deployed to defend the present government's pipedream of British Columbia as an LNG superpower. The jobs produced are cleaner, greener, more sustainable, better paid, and less environmentally destructive than those in the resource-intensive industries that dominate the political discourse in this province. And much of the wealth generated is recycled right back into the startup cluster and the local economy that supports it.
This is why the creative economy will be a crucial plank in the B.C. Green party's 2017 election platform. But we're not going to wait until then to start work: we're going to end this summer season of cheerleading and cherry picking by rolling up our sleeves and talking directly with local entrepreneurs. There are plenty of great minds in Vancouver that have thought long and hard about our collective future as a startup ecosystem: it's time to engage them in the creation of a tech strategy that is second to none in Canada and allows us to compete with other centres around the world.