In August of 2016, James Stewart’s job with an American cybersecurity firm in Fredericton moved to California. Since then, he’s been living on EI, but working on EhEye.
The company name plays on the abbreviation for Artificial Intelligence (AI), one of the world’s fastest growing sectors. Armed with degrees in computer science from the University of New Brunswick and a keen interest in crime, Stewart developed software for a camera smart enough to recognize weapons and other visual cues that alert police to a robbery in progress.
“Motivation is high when you aren’t being paid,” chuckles Stewart. “My biggest challenge wasn’t the technology; it was how to start a business. Fortunately, Enterprise Saint John embraced me.”
The economic development agency hooked Stewart up with office space at ConnexionWorks, free legal advice, and training through technology incubators in his hometown of Saint John and in Fredericton. He’s found a fulltime partner and initial financing: $5,000 from the Catalyst program, a $20,000 seed loan from ACOA, and more from a project funded through the National Research Council.
It’s too soon to say if Stewart’s “Robbery Overwatch” will make it. Half of all startups fail in their first five years. But in a province where unemployment is stuck well over nine per cent, do-it-yourself desperation is contributing to a surge in technology startups, and, word is getting out that New Brunswick offers a generous launching pad.
Using the power of cloud-computing and breakthroughs in machine intelligence, RtTECH Software of Moncton develops monitoring programs for heavy industry that reduce downtime on production lines and save money on energy bills. Its customers include Irving companies, Barrick Gold, and Michelin Tire. Considered a “gazelle” in startup speak, RtTECH is bounding along at 20 per cent annual growth, sales in 27 countries and 25 employees.
Company founder and president Keith Flynn lives in Fall River, Nova Scotia. For 16 years he was a partner in another engineering firm mentored by Nova Scotia’s venture capital agency, Innovacorp. Flynn planned to set up RtTECH there, but chose Moncton despite the three-hour commute saying the startup climate was “more favourable”.
“New Brunswick is like a petri dish for startups,” says Flynn. “They’re supported by the government; Premier Gallant has come by the office a couple of times. It’s part of the culture in New Brunswick.”
RtTECH got early traction with $750,000 from the New Brunswick Innovation Foundation (NBIF). That venture capital was followed by $1 million, then $3 million from a national fund.
The province set up NBIF in 2003 to bridge the gap between university research and industry. The non-profit agency is unusual in that it funds both research projects and technology startups. Significantly, the Foundation takes a stake in the company, so the money does not have to be paid back.
NBIF is the top of the financing food chain. By the time they get here, most startups have already knocked on the doors of what the province promotes as an “entrepreneurial ecosystem” eager to take a gleam in someone’s eye and wrestle it into a viable business plan.
Bethany Deshpande and Nicholas Clermont moved from Quebec City to Fredericton last summer after she finished a PhD in biology and Nick, a mechanical engineer, took a job running a student internship program at the Pond-Deshpande Centre on the UNB campus. The privately-funded Centre (no relation to Bethany) helps post-secondary students test business ideas.
Bethany Deshpande’s father (Satish) is an Ontario scientist with a U.S.-patented technology that reads light from a laser beam to detect high somatic cell counts and low fat counts in milk. These are indicators of mastitis, a common problem in cows. Thanks to data analyzed and emailed during milking, infection can be detected and treated early — cutting costs and improving herd health.
“I told dad about the opportunities here, knowing he had worked on this for my entire life,” recalls Bethany. “He said he would like to see if we could commercialize the technology and get it into the hands of actual farmers.” Bethany and Nick enrolled in B4Change, a social enterprise training program for a generation pumped about “doing good AND doing well” financially. They incorporated SomaDetect and, with guidance from local dairy farmers, are working to raise $500,000 to build an automated prototype.
Since opening in 2013, the $5-million Pond-Deshpande Centre, endowed by UNB alumni Gerry Pond and Gururaj Deshpande, has helped 72 student-led enterprises. About 50 are still going. Its mission is “to create a pipeline of changemakers”, and the Centre was the first to provide $15,000 and space in the basement for UNB engineering and MBA students, Rishin Behl and Peter Goggin, to test tethered hot-air balloons. Those experiments led to Resson Aerospace, a high-flying startup that now uses drones (to collect information about crop conditions) and quantum computing to tell farmers when to water and to fertilize. Resson has 30 employees and $14 million from investors that include NBIF, McCains, and Monsanto.
While Resson Aerospace is a compelling story, the difficult question is whether all the activity around startups is actually lifting New Brunswick’s historically resource-based economy.
“The entrepreneurial ecosystem is robust and operating with a small group of early adopters”, says Karina LeBlanc, executive director of the Pond-Deshpande Centre. “But the mainstream, the majority of New Brunswick, are not able to participate. So you hear a lot of negative rhetoric … ‘things are bad, there aren’t enough jobs, the government isn’t doing anything’. There ARE nuggets of change, but the problem is it still affects too few people.”
One reason both the private and public sectors in New Brunswick continue to invest heavily can be traced to a big win five years ago. The sale of two homegrown IT businesses to global companies (Q1Labs to IBM and Radian 6 to Salesforce.com) generated $350 million for New Brunswick Investors. Radian 6 developed breakthrough software that told companies what their customers were saying about them on Twitter and Facebook.
“It was a $1.1.-billion record-breaking return on investment that received national attention and got a series of things going — known as momentum,” says Gerry Pond, an early investor and past president of Aliant.
“Essentially, the angel investors who made money on those deals are now re-investing in other startups — New Brunswick companies such as EiGen and Fiddlehead ,” said Calvin Milbury, executive director of NBIF. The Foundation also plowed back the $9.25 million it earned on Radian6, doubling its pace of investment in Internet-based companies. Instead of 10 deals a year, the agency has closed more than 20 in each of the last three years. Momentum is also building thanks to the $60 million NBIF received when the former provincial Conservative government announced a five-year, $80-million innovation strategy.
“Innovation is the foundation of our growing economy,” said Premier David Alward in January 2013. “It is the key to increasing productivity in every sector, from industrial manufacturing to natural resource development.”
At that time the economy was anything but growing. By most standards, it’s still a basket case with just 0.5 per cent growth in 2016 after four years of zero growth. The present Liberal government continues to support high tech startups through NBIF, $15 million in the Atlantic region’s Build Ventures capital fund, and $4.4 million to 227 small businesses delivered last year by its economic development agency, Opportunities New Brunswick. Premier Gallant convinced David Alston, former chief marketing officer of Radian6, to take on an unpaid advisory role as the government’s “Chief Entrepreneur in Residence”.
Over the past 14 years, NBIF says it has invested $73 million in applied research and 47 new technology startups, creating more than a thousand jobs. It has leveraged $300 million from other sources. Of 429 research projects, only 20 have been commercialized. In a province with a half-billion-dollar deficit and fewer jobs than in 2008, it’s fair to question whether citizens are getting enough bang for the buck.
“We don’t focus on jobs, we focus on wealth,” says Calvin Milbury, executive director of NBIF. “The benefits of these fast-growing companies are they bring in export revenue, and they employ higher salaried people which lead to higher tax contributions. If successful or acquired, they re-invest their profits.”
But intellectual capital moves freely. Just as RtTECH was a plus for New Brunswick, Nova Scotia benefited when a handful of former Radian6 employees moved to Dartmouth to launch Affinio. Affinio employs about 50 people and counts L’Oreal and BBC Worldwide among customers for its marketing intelligence platform.
In its 2015-2016 annual report, NBIF Board chair Cathy Simpson states the agency supports technology companies that contribute more than $65 million a year to the province’s GDP. That figure includes goods and services purchased, salaries averaging above $70,000, and personal/corporate taxes paid. It’s about six times what the Foundation spent in each of the last two years. Although the full report has not been released, a study by Deloitte on NBIF’s tenth anniversary showed for each dollar spent, $2.60 was generated in federal/provincial taxes.
Venture capitalists like Patrick Keefe (Build Ventures Fund) and Gerry Pond (East Valley Ventures) agree New Brunswick has momentum. But they say what’s needed is a breakthrough on the scale of Radian6 every five years to maintain its reputation as a startup haven.
The clock is ticking.