Digital Hotspot: Get to know Toronto’s startup community

The city is buzzing with digital creativity - good news for marketers

Here’s a sneak peek at the Jan. 31 issue of Marketing

The city is buzzing with digital creativity – good news for marketers

A line of backs hunch over computers at Ryerson University’s Digital Media Zone, one of Toronto’s largest incubator programs. There are a few dozen digital entrepreneurs on a cold December evening in the increasingly crowded space, which looks over the illuminated billboards of Dundas Square. Digital Media Zone (DMZ) currently hosts 53 companies and is about to expand into an additional 20,00 square feet of office space formerly occupied by Google Canada with a goal of hosting 2,500 entrepreneurs at a time within five years.

Endloop (l-r): Hook, Burk, Awad, Morrison, Thomas, Salmon, Leslie

On the second floor, Jonathan Ingham, the founder of Phosphorus Media, is standing in front of one of the large-scale touch screen displays his startup makes. Thumbnails of models float across the display, which Phosphorus created for a beauty industry trade show. Ingham touches one thumbnail and a model’s portrait takes over the screen, along with information about the hair product used to get her look. The display is one of many Phosphorus has created for brands like Holt Renfrew, Rogers and Ontario Lottery and Gaming.

It’s boom time for startups in Canada’s largest city and all of the activity is in digital. For advertising agencies and marketers, that means new potential partners, quicker access to emerging innovative technology and an eye-opening reminder of what it takes to find success in an industry changing at a dramatic pace.

The buzz is evident away from Dundas Square. Startup offices now dot the south end of Spadina Ave., a strip adjacent to the financial district that’s also home to many ad agencies. Sarah Prevette, who founded Sprouter, a site dedicated to connecting startup founders with established entrepreneurs, calls the strip “Tech Alley.”

Jonathan Ingham

“If you go to Jimmy’s Coffee at Portland and King and sit there for an afternoon you can see half the startups in the city,” says Kerry Morrison, CEO of the mobile development startup Endloop. “In that corridor between Bathurst and Spadina and King and Queen, I wouldn’t be able to count. There is an endless amount of startups and development and creative shops that support them.”

Within the last five years, hundreds of startups have set up shop in the city. Area Startups, which collects data about startups, currently lists 660 startups headquartered in Toronto. In a November ranking of the world’s best cities for startups by Startup Genome, a research company focused on the startup space, Toronto came in eighth, ahead of Chicago and Moscow.
Another report by the group listed Toronto as the fourth-best city in which to start a tech company. Many of these startups are working on ideas and concepts directly applicable to marketers—apps, mobile ad platforms, etc. Others may not be creating directly relevant products, but they’re certainly enriching the city’s pool of digital creativity.

Lindan Courtemanche, the DMZ’s marketing manager, estimates that nearly 40% of the startups in the DMZ have products or services that could benefit marketers. Courtemanche, a former Taxi account executive, walks through the coworking space doing product demos with the founders. One, Moonrider’s Jamie Alexander, shows off an interactive Adidas mock up using Moonrider’s content platform, which is built using HTML5 instead of flash (which many brands currently use) so that ads will display in industry-standard rich media ad units.

Another, DanTeb’s Laura Miller, creates cellphone charging stations wrapped in ads. Miller demonstrates how the station, wrapped in an ad for one of DanTeb’s clients, Metro, works and says a fleet of the stations will arrive in Toronto’s underground pedestrian PATH system this month.

Many more startups outside the DMZ make tech products and platforms marketers can utilize. But the relationship between marketer and startup can be much more than client and service/product, according to BNotions partner Mark Reale. Reale says BNotions, which transitioned from a startup focused on flash development to a full-service digital agency, tries to teach its brand clients about how technology works and how trends in emerging tech could affect their businesses.

BNotions invites clients to take pay-what-you-can classes at the Yorkville Media Centre, a non-profit tech school the agency opened to help foster local tech talent. For clients who are interested, Reale says his team also helps demystify trends like the lean movement—an approach to business popular with startups that uses scientific experimentation to tighten product development and lessen costs.

“We feel a responsibility to help these organizations build great technology to help them not be afraid of new technology and trends,” Reale says. “I think that’s where a lot of our dialogue ideally rests with bigger enterprise organizations.”

Reale recommends that marketers interested in partnering with startups attend meetups and hackathons to scope out the possibilities. “There are enough things happening in the city that it wouldn’t require a large amount of effort to very quickly physically shake hands with and vet out the people who run these small software companies,” he says. “They are at meetups—they are accessible and they like helping people out.”

Rethink strategist Pema Hegan echoes Reale’s sentiment. “There are also supplemental benefits of partnering with a startup—the indoctrination of the culture of a startup that you get when you partner with them.

“If you’re a brand or packaged goods company and you partner with a startup, you get to see firsthand the speed at which they move and the innovative approaches they take to solving big problems—just how quickly they react and change to be successful,” Hegan says.

Five years ago, few startups existed in Toronto. When David Crow started as editor of StartupNorth—a blog that covers Canadian startups—in 2007, the local startup ecosystem was still in its infancy.

“We started to see in 2007 an emergence of this new class of high potential growth software companies start in Toronto,” Crow says, citing success stories like GigPark and Firestroker, which grew and sold to larger firms. Many of the founders of those companies invested the money they made on their first startups into their new projects and took on mentorship roles, helping new entrepreneurs climb the ladder.

Rethink’s Hegan was one of those startup founders. After he and his business partner, Noah Godfrey, sold GigPark, the social recommendation startup they founded in 2007, to Canpages in 2009, Hegan took an ad agency job and helped Rethink open its Toronto office as a partner and managing director. Within two years, though, the startup itch returned. In the spring of 2012, Hegan cut back his time at the agency to one day a week so he and Godfrey could launch their next project, an app that offers deals on packaged goods called Checkout 51.

Pema Hegan

Much has changed since the GigPark days. “When Noah and I founded GigPark, it felt like about 50 people worked on startups in Toronto. You’d see the same 50 people at every event and party you went to,” Hegan says. “When I came back to the startup scene, I was amazed by what I saw. There are literally hundreds of thriving, successful companies and thousands and thousands of people working in the startup ecosystem now.”

Hegan is also a mentor at Extreme Startups, one of several newly established incubator programs that offer mentorship and funding. Similar incubator programs like Jolt and the Next 36 have opened their doors to eager startups over the past two years. Extreme Startups, which is financed by a group of investors that include Extreme Ventures and the BlackBerry Partners Fund, enlists established entrepreneurs like Hegan to coach fresh founders. In the spring of 2012, Hegan mentored a company called Granify that analyzes shopper behaviour.

Venture capitalists, the catalyst for a healthy startup ecoystem, have taken notice of what’s happening in Toronto and started investing money in the city. A series of high profile investments and acquisitions began in 2010, when Google acquired BumpTop. In 2011, digital giant Salesforce bought Rypple and just last year Yahoo co-founder Jerry Yang was part of a group that put $17.3 million into Wattpad. Homegrown capital from the Ontario Municipal Employees Retirement System (OMERS) is powering several Canadian startups, including Wave Accounting, WattPad and a $20-million deal with Vancouver’s HootSuite. Funding from the Toronto-based fund Extreme Ventures has also fueled the likes of Well.ca and Xtreme Labs.

The amount of activity is “still taking a lot of people back,” says Lucas Walker, co-founder of Venngage, a startup that provides simplified analytics reports to ad agencies and marketers. “ There is a halo effect, absolutely. Now those people who have benefited from it are on the other side. They’re in a position to reinvest monetarily into the startup ecosystem.”

Because Toronto startups have historically had access to less venture capital to fund their businesses than their Silicon Valley counterparts, many have chosen more sustainable, revenue-driven business models that often include client work, creating a class of companies that resemble niche digital agencies as much as they do traditional startups. While most startups are designed to scale cheaply and provide investors with high returns, the relatively smaller pool of investment dollars in Toronto has led to startups that focus on revenue.

Endloop’s Morrison puts it this way: “Every time I turn around there is another mobile shop that is opening up to do services to take advantage of the perceived goldrush of mobile—the sheer volume of work in mobile. It’s growing exponentially.”
More money is pooling into Toronto, but the initial lack has led to some first-class development shops, like like Endloop, BNotions and Xtreme Labs, which all partner regularly with ad agencies to develop mobile apps and interactive web experiences on behalf of their brand clients, giving marketers their pick of partners.

Evgeny Tchebotarev is one of the founders who has benefited from the ascent of Toronto as a startup hub. In 2010, his company, an online photography community called 500px that has more than 1.5 million users, was one of three Toronto startups in which the New York based ff Venture Capital invested. Before 2010, Tchebotarev says many U.S. investors were hesitant to invest in Canadian companies. After seeing the successes of Canadian companies like HootSuite, BumpTop and Rypple, he says U.S. investors now look north for opportunities outside the saturated market in Silicon Valley.

500px (l-r): Plett, Gravitis, Aysan, Tchebotrev, Gutsol

Sitting in the 500px office, Tchebotarev says nearly everything has changed since he founded 500px in 2003. “Back then it was mostly a hobby,” he says. “I don’t think there was any kind of venture capital money in Canada. I didn’t know anyone who was in a startup.” Today, Tchebotarev says that’s all changed. Investors have sunk millions into local startups and there are countless events aimed at people who work at companies like 500px. As he speaks, Tchebotarev writes the names of four recent Toronto hackathons on the surface of the table, which is made out of the same material as a dry-erase board.

First is PyCon, a conference about the coding language Python where developers work together on projects. Next: Pure Imagination, a two-day hackathon held by Microsoft Canada. Then Angel Hack, a weekend-long event held simultaneously in Toronto, Paris, L.A. and San Francisco. Last is Pixel Hack Day, a hackathon hosted by Tchebotarev and 500px. There’s an event for the tech savvy almost every day in Toronto, a city that’s active startup scene is helping to boost its collective digital IQ. Digital natives are opening new companies, hatching new ideas, trying new things and, yes, often failing. In the past few years, the Toronto tech scene has come alive and is buzzing with a remarkable vitality. At a time when many brands are still trying to update their marketing for the digital era, this is very good news.

As above-the-line ad agencies struggle to navigate a digital landscape that changes daily, there are now hundreds of potential partners that can help build digital client work and expose marketers to new technologies and emerging trends. And as Jen Evans, chief strategist at the digital agency Sequentia, points out, the breadth of tech talent in Toronto is bound to have a halo effect on the local ad industry. Where there are great technology companies, there are great digital marketers.

Photography credits: Sara Collaton (500px), Robert Poulson (Endloop), Pam Lau (Pema Hegan), Mike Ford (Jonathan Ingham)

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Correction: In the original version of this story in the Jan. 31 issue of Marketing, Checkout 51 was incorrectly called Grocery 51. Marketing regrets the error.

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