The search for BlackBerry’s heir

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Toronto entrepreneur Ben Baldwin likens startup environments to soil. To encourage growth, the right nutrients have to be in place: talent, mentorship, funding, ambition. As older businesses expand, contract and in many cases begin to decompose – by downsizing, shuttering or being bought – the nutrient mix is renewed and bigger things sprout up.

Mr. Baldwin's company, ClearFit, streamlines the hiring process for small and medium-sized, often tech-focused businesses. In recent months, he has seen demand for sales reps and managers soar at the companies he works with, signalling a period of serious expansion.

The soil, in other words, is building up the right nutrients for growth. "Right now, there are a bunch of bushes and small trees," he says, but some time soon, "there's going to be a big tree."

As BlackBerry Ltd.'s star fades, Canadian eyes are starting to dart around, looking for the next national tech giant. Signs indicate that one may be coming. Early-stage funding is growing in Canada, while later-stage investors from abroad are more keen than ever to deploy their capital across borders. The country is retaining talent – and, perhaps more importantly, guile – as once-bootstrap digital businesses go the distance, reaching billion-dollar valuations.

But those seeking another BlackBerry might be looking in the wrong places, because Canada's next tech success story might not look like BlackBerry at all.

"I really don't think that's the way companies are being formed any more," says Scott Bonham, co-chair of C100, a network of Canadian ex-pat executives in Silicon Valley that connects Canadian tech entrepreneurs with investments, partnerships and mentors.

As overhead costs continue to shrink for digital businesses, entrepreneurs can build companies with significantly less money than in decades past. In turn, digital companies can focus on productivity, maximizing revenue per employee rather than hiring thousands of people.

"The companies of the future are not going to be the ones of the past," says Mr. Bonham, who is also a founding partner of GGV Capital, a Silicon Valley venture-capital firm.

Canadians tend to focus so much on one major player that they ignore the health of the broader sector, says Wayne Gudbranson, chief executive of Branham Group Inc., which compiles an annual list of top Canadian information and communications technology firms by revenue. "I think it's a bad thing," he says.

Canada watched as Nortel Networks Corp. boomed, then spectacularly busted. Then attention shifted to BlackBerry – and now they're looking for something else. "We have a tendency to glorify a few and not look at other plays that are doing really well," said Mr. Gudbranson, who is bullish on Canadian tech as a whole. If one were to remove BlackBerry's numbers from Branham's 2013 rankings, he says, the industry's revenue grew 13 per cent last year.

Shopify Inc., which launched in 2004, today has 500 employees. In terms of valuation, "we have ambitions to grow as big, if not bigger, than a company like BlackBerry," says Harley Finkelstein, chief platform officer at the e-commerce vendor, whose latest funding round prompted speculation of a $1-billion valuation. (BlackBerry's market cap once soared beyond $80-billion.)

Mr. Finkelstein says his company doesn't need to have an enormous employee base to be successful. "To me, head count is not necessarily a good metric of success. There's no pride in having 100,000 employees. For us, there's a lot more pride in making sure we have a great team."

He sees the same kind of explosive ambition in other Canadian tech companies, such as FreshBooks and Desire2Learn Inc., and the social-media dashboard Hootsuite Media Inc.

"Social is proving itself to be a massive industry," says Ryan Holmes, who founded Hootsuite in 2008. Rumours have circulated here, too, of a $1-billion valuation. The company, which has 700 employees, has roughly doubled its head count every year since opening.

Mr. Holmes, too, sees potential for more growth ahead. "Analysts are pegging [social media] to be a multi-billion-dollar industry," he says. "Cloud-based" software, with no hardware dependencies, is a great area to be in."

That's because digital platforms, like Hootsuite's and Shopify's, can easily cross borders. Far too often, Canadian startups struggle with distribution and access to customers, says Adam Lorant, a B.C.-based entrepreneur and investor.

Two of Mr. Lorant's previous companies, Abatis Systems Corp. and OctigaBay Systems Corp., were bought by American companies with well-established support networks and channels to market. But hardware-free services have fewer distribution barriers, giving companies like Hootsuite enormous opportunities to expand.

A 2013 study by the Business Development Bank of Canada listed financing as one of the biggest issues facing mid-sized firms. And a lack of expansion funding has long been an issue for Canadian startups. But today, more than ever, capital is willing to seek out opportunity with little regard for borders.

While Shopify faced some early pressure to relocate to the San Francisco Bay area, Mr. Finkelstein says the company hasn't faced any from its most recent investors. Joshua Gans, a professor of strategic management at the University of Toronto's Rotman School of Management, agrees that globalization has worked in entrepreneurs' favour: "Venture capitalists are willing to look around the world more."

While smaller companies might be more likely to move to Silicon Valley to seek funding, mid-sized ones are more likely to stay where they are. Talent no longer needs to be local, as employees can work remotely. And Canada's immigration laws, in many ways, are less rigid than those in the United States, giving executives more reason to lure talent here than move themselves.

Unlike Canada's more traditional economic sectors, the potential for growth is boundless.

"No one's putting more gold back in the ground," Mr. Holmes says. "That's a race to the bottom. But if we invest in technology, there's unlimited potential there."

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