The Growth of Vancouver as an Innovation Hub: Challenges and Opportunities

Updated: Aug 25

Camden Hutchison – The University of British Columbia

-- Around the world, cities have sought to reshape their economies by encouraging innovation and entrepreneurship. Eyeing the success of Silicon Valley, local governments across Asia, North America, Europe and beyond have attempted to boost economic growth by supporting the development of local technology companies. These efforts have often involved an element of local marketing, with many cities anointing themselves the “next” Silicon Valley.

The city of Vancouver is no exception, with many local officials, businesspeople, and other civic leaders proclaiming the city “Silicon Valley North.” But is this vision a reality or is it merely local boosterism? In either case, what types of government policies might further Vancouver’s entrepreneurial ambitions? My University of British Columbia colleague, Liwen Lin, and I attempted to answer these questions through a study of (1) the history of entrepreneurship in the Vancouver metro area and (2) the provincial and national legal policies that shape its economic environment.

Using data from commercial startup databases, our study “The Growth of Vancouver as an Innovation Hub: Challenges and Opportunities,” finds that Vancouver produces more startup companies and receives more venture capital financing per capita than any other Canadian city. We also find, however, that Vancouver trails many U.S. cities on these same metrics. In addition, we argue that legal differences between Canada and the U.S. cannot explain these disparities, and that differences in entrepreneurial activity are due to broader institutional factors, including underdeveloped business networks, a lack of Canadian venture capital, and “brain drain” to the U.S.

In terms of entrepreneurial metrics, Vancouver leads Canada—outpacing Toronto and Montreal—in number of startups per capita and amount of venture capital invested. More anecdotally, Vancouver is a major destination for U.S. venture capital, and has recently produced several home-grown “unicorns” (privately held companies valued at one billion dollars or more). Compared to U.S. cities, however, Vancouver looks less impressive. Not only does it trail major tech hubs such as San Francisco and Seattle, it also lags smaller hubs such as Denver, Austin, and the “Research Triangle” of Raleigh-Durham-Chapel Hill. Vancouver performs particularly poorly in venture capital financing, receiving only a fraction of the funding of comparable U.S. cities.

What explains this disparity in economic performance? Although many scholars have argued that legal policies (e.g., tax, securities law, etc.) play an important role in entrepreneurial success, our study of provincial and national laws reveals that the legal environment in British Columbia is more favourable than that of California, the world’s leading entrepreneurial jurisdiction. Instead, we offer three alternative explanations for Vancouver’s weaker entrepreneurial record: First, Vancouver faces a “scale” problem in that mutually-reinforcing networks of tech companies, talent, and capital have not yet developed to the extent seen in other tech hubs. Second, the local venture capital market is relatively small, with most venture capital coming from outside the province. Finally, Canada faces a major problem of brain drain to the U.S., with many STEM graduates, entrepreneurs, and even entire companies moving to the U.S. for better opportunities.

Although there is no silver bullet for any of these problems, many of Vancouver’s challenges are beginning to resolve themselves, thanks in no small part to the favourable legal environment. Developing scale may simply be a matter of time, as both home-grown and foreign tech firms (for example, Amazon and Microsoft) increase their presence in the area. As Vancouver develops closer links with the U.S. venture capital industry, the lack of local funding will become less of a disadvantage. Finally, the problem of brain drain can be partially offset by Canada’s generous and flexible immigration system. As long as government continues to maintain a favourable legal environment, Vancouver’s future as a centre for innovation looks bright.

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