Burgeoning tech sector primed for big year after major investment in 2019

An interconnected tech ecosystem is sprouting in Saskatchewan thanks to eager startups, established tech companies, venture capital funds and the provincial government.

The shared goal is to make Saskatchewan a destination for tech companies to grow and thrive. The provincial government has a goal of tripling the tech sector by 2030 and its tax incentive aimed at startups is having a major impact, less than a year into its existence.

The signs are there. According to the most recent report from the Canadian Venture Capital and Private Equity Association, nearly $100 million in venture capital was invested in Saskatchewan in 2019 — more than the past five years combined.

More than half of that investment went to two Saskatoon-based tech companies: Vendasta and 7Shifts.

The investors

Regina businessman Jason Drummond is one of those keen to invest. 

A year and a half ago — with the help of more than a dozen friends and associates — Drummond decided to invest in eight prairie startups: four in Regina, three in Saskatoon and one in Winnipeg.

The group calls itself the Broad Street Bulls.

Drummond said it was the first group in the province to commit to funding tech startups at the earliest stages.

"This is typically the hardest stage to attract capital. Founders usually beg and plead with family and friends to get the ball rolling," he said.

"Before they can get funding from the larger [venture capital] firms they need angel investors or individuals to back them and support them with mentorship and help them build their business."

The Bulls' fund, which is now moving into its second stage, is growing. Drummond brought in managing partner Trevor Phenix to help take the fund to its next round.

Phenix said the Bulls provide more than just money. The network of investors "can provide everything from sales support to mentorship."

"What we're doing is helping them develop as individuals that are about to go and build big companies," Phenix said.

Drummond said the ultimate goal is to create something lasting, rooted in Saskatchewan.

"What it does is create jobs, attracts talent, attracts people. Our kids can hopefully come out of university and be really excited to stay here and work on some innovative projects with some innovative companies," Drummond said.

"What our group is really excited about is being able to invest in our own backyard. It's going to be a great thing long-term for the city and province."

He said he wants to create momentum and bring as many people along as possible.

"We can't do all these deals ourselves. We can't even do one deal all by ourselves; we've got to pull in others."

The startup

One of the Bulls' investments was Offstreet. Started in 2016 by Matt Fahlman and Kyle Smyth in Regina, the company sells parking management software.

Offstreet offers parking validation software that makes it easier for businesses to pay for and validate customer parking.

Smyth said the company, which has a presence in a handful of Canadian cities, is focused on further North American expansion but parking is a worldwide market.

"We can grow the product to anywhere in the world, but parking problems exist, whether its South America, Europe or China," Smyth said. 

In the second half of 2019, Offstreet signed contracts with two major parking companies based in Vancouver, prompting Fahlman to temporarily move there, while the staff works in Regina.

Fahlman said early funding provided by the Bulls is filling a gap, allowing companies to get going and build out before securing a larger investment from bigger funds.

"Being able to get that first $100,000 to $200,000, there's not a lot of options for that as young companies. If they can kind of help fill that gap it helps a lot of startup companies," Fahlman said.

"What we're hoping to do is be one of those early anchor companies that can, you know, show some sizeable growth in the next couple of years and employ a significant number of developers."

Fahlman said Saskatoon's existing tech companies had been established for several years before growing to 100 or more employees. In a year, Offstreet went from two employees to five and is expecting further growth in 2020.

The credit union

For the past 12 months, Offstreet's staff have been working from a unique space in Regina called Cultivator, a business incubator established by Conexus Credit Union.

Sean O'Connor moved from Vancouver to run Conexus's venture capital fund, which was launched in 2019. The $32-million fund is the first in the province dedicated to tech companies. The fund invests in companies further along in their development.

O'Connor said groups like the Bulls get involved financially in startups at an earlier stage than Conexus. To borrow a sports analogy, Conexus is scouting the Bulls' investments and will be ready with their money when the time comes. 

"Having the proper angel fund like the Bulls here — that understands technology companies and how to grow — has really been a huge boost to the ecosystem." O'Connor said.

"Our belief is that entrepreneurs in Saskatchewan are exceptional and because it's been a largely overlooked province in the technology ecosystem we can drive outsized returns while we're really supporting the entrepreneurs while they're trying to build and scale their companies," O'Connor said.

He said in 2017 and 2018, Saskatchewan secured less than half a per cent of all the venture capital deployed in Canada, but 2019 was a different story.

"[As of October] we are $98 million deployed in venture capital into startups in 2019, which is more than the past five years combined."

The incentive

Conexus, Offstreet, and the Bulls point to a government incentive that has allowed more people to invest in startups while assuming less risk.

The Saskatchewan Technology Startup Incentive (STSI) started as a government pilot in 2018. It allows for a 45 per cent tax credit for investments into eligible startups.

The province's minister responsible for innovation, Tina Beaudry-Mellor, said about $8 million has been invested, resulting in $3.5 million in tax credits for 123 investors with 51 tech companies applying for eligibility.

"It was an important move I think for us as a province. So that's been huge in terms of attracting investment into the province," Beaudry-Mellor said. 

At the same time, established tech companies in the province are expanding, she said. 

Saskatoon software company Vendasta received $40 million from private investor groups in 2019, allowing it to more than double in size over three years, to 650 employees. It was one of the largest venture capital investments in prairie tech sector history.

Other Saskatchewan tech anchors include Saskatoon-based companies 7Shifts, Coconut Software and Solido, which was bought by Siemens in 2017. 

Beaudry-Mellor said the government is focused on not only attracting tech and fostering investment but keeping local companies in Saskatchewan. 

In 2016, Skip the Dishes moved its head offices to Winnipeg, in what is the most high profile re-location of a Saskatchewan tech company in recent years.

"It's a highly competitive environment everybody wants to have these tech companies. It's important especially for the 7Shifts or the Vendastas that they stay anchored here because losing an anchor or lacking in the ability to secure an anchor actually impacts the whole ecosystem and how it functions."

Beaudry-Mellor said the province's goal to triple the tech sector, add 100,000 jobs and grow the population as part of its 10-year growth plan have her, the premier and government as a whole focused on tech and innovation.

"We need to grow the investment community here that supports the companies that are also growing here so that they are not lured away by their investors."