Morning Post Exchange – Ontario Cross-Border Technology Innovation Ecosystem Report Finds Start-Ups With Larger Social Networks Receive More Venture Capital $

Toronto – There is a positive link between social networking outside of Canada and innovation reveals the initial results of OCTIE, a first-of-its-kind research study conducted by Ryerson University. The preliminary report, which is part of a larger innovation research project, finds Ontario technology start-up organizations with larger social networks are associated with more start-up funding, at an average rate of $1.7 million more per relationship. Findings of the report also revealed that nearly half of network connections in the best funded companies come from San Francisco, Boston or New York.

Initiated by Cdling Capital Services Inc. and co-funded by MITACS, the first-ever analysis of social networks of Ontario venture capital funded technology start-up companies was led by Wendy Cukier, Vice President of Research and Innovation, Ryerson University and coauthor of the best selling book, Innovation Nation: From Java to Jurassic Park, with Professor Charles Davis, Associate Dean of the Faculty of Communications and Design. More than 400 individuals involved in the building of 50 Ontario technology start-up companies since 2006 with total funding of $1 billion were identified in the study.

“New social network analysis tools have the potential to illuminate the role of strong and weak ties among financiers, startups, universities, incubators and other players in the Ontario innovation eco-system,” said lead researcher Saif Al-Naib, a recent Ryerson MBA graduate. “We know a lot about how the strong ties of clusters help sharing. This study gives us insight into the equally important role of weak, international market and capital connections that are critical to creating a globally competitive technology leader.”

There is a strong demand for insights into improving innovation and start-up funding in Ontario and across Canada. Previous research shows that Canada ranks very low in areas of open innovation and collaboration and the Canadian Venture Capital and Private Equity Association recently reported that the country is currently experiencing a period of contraction in terms of total amount of funds being invested in start-ups.

“I have been in the technology and research industry for more than twenty years and we have had many reports identifying drivers and impediments to innovation in the province and in the country,” said Cukier. “Millions of dollars are spent annually in an effort to advance Canada’s Innovation Agenda. But with increased global competition, our international position is slipping. At Ryerson we are working with partners in industry to better understand the complex eco-system that fuels innovation. This study will be another piece of the puzzle.”

John Ruffolo, CEO of OMERS Ventures agrees, “The OCTIE study is very informative and beneficial to early-stage companies and investors. We know that access to capital is a big issue for startups and domestic VCs. We need to change how we network to better position our local community for international success.”

The Ryerson report confirms the need for new innovation solutions, revealing that 57 per cent of investors backing Ontario-based technology start-ups over the last five years are based outside of Canada, 34 per cent are backed by Ontario-based funders and the other nine per cent received funding from other regions across Canada.

In addition to the correlation between extensive social networks and larger funding, a surprising trend emerged from the research — the majority of people involved in Ontario technology start-ups are clustered, but this leads to redundant social networks and less funding. “Our findings illustrate the importance of building your professional network, assembling a cast of players in a startup that have large and diverse social networks and the positive effect this has on funding start-ups,” says Al Naib.

Other report findings include:
-Toronto start-ups have the most social networks and are the most funded compared to Ottawa and Kitchener-Waterloo region start-ups.
– A few individuals are highly active in the majority of Ontario start-up funding. This causes bottlenecks. Those individuals have tremendous pressure on them due to their position on the critical path for the rest of the community.
-Investors tend to favour investment in new or unknown entrepreneurs rather than experienced entrepreneurs.
The Ryerson University initial findings will launch a broader and more in-depth study called Ontario Cross-border Technology Innovation Ecosystem that will involve more organizations and investigate in greater detail the strengths of relationships, methods of building relationships such as social media and face-to-face as well as analyzing social networks by region. So far, more than 50 organizations have already signed up for the next phase of the project including Cisco, OMERS, Communitech, Deloitte and Coral CEA.