Economics Entrepreneurship

Canada’s Pitch to Tech Entrepreneurs: We’ll Pay 80% of Your Salaries

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Imagine you are launching or running a startup and there’s a place where all of your developers—the biggest expense for most tech companies—cost one quarter what they do in Silicon Valley. Sure, it’s cold there, but talent is plentiful and the locals are friendly. Would you trade your hash browns for poutine?

Adam Adelman, co-founder of Mighty Cast, a startup working on a new kind of wearable technology, recently told me the Canadian government is paying almost 80% of his developers’ salaries. And that’s not a tax credit. It’s a rebate, a check he gets from the government whether or not his startup makes money.

Even at Mighty Cast, a two-year-old hardware startup, salaries have been 80% of expenses. Combine that with the lower salaries demanded by engineers in Montreal, where Mighty Cast moved its headquarters after its genesis in Silicon Valley, and Mr. Adelman says he’s able to stretch his angel round of investment four times as far.

But why should Canada throw all this money at tech? One reason is simply that high tech is the route to the post-industrial economy that all countries with any degree of central planning aspire to—just look at the explosion of the IT sector in China, abetted in no small part by its government. Tech represents high-paying jobs from an industry that isn’t resource intensive and, in contrast to Canada’s oil-sands boom, doesn’t pollute. What bureaucrat wouldn’t sign on for that?

That it requires incentives on this scale to attract companies from Silicon Valley, where capital and talent feed on one another in a virtuous circle, shows that the tech industry, like the markets favored by the companies it spawns, tends to be winner-take-all. When one dominant player grabs most of the resources, everyone else (Canada included) is forced to open up their treasuries to attract what’s left.

So far, it’s mostly established U.S. companies taking advantage of these incentives. In 2013 Cisco signed an agreement with the government of Ontario pledging up to billion in investment over the next 10 years in exchange for 20 million in incentives. Seven of the 10 largest tech companies in the world have outposts in Canada, including Google, Siemens and IBM.

But if you’re a small startup looking to take full advantage of these incentives, there’s a catch: you have to become Canadian. You don’t have to give up your current citizenship to get all the benefits, but your company must be majority controlled by person(s) who are residents of Canada (a different status than full citizenship). Companies merely setting up a satellite in Canada can still get 50% of the salary reimbursement a fully “Canadian” company would.

The strange prospect of immigrating to another country is probably one reason why I discovered only one U.S. company whose founders had actually moved themselves and their primary office to Canada, but hundreds of foreign companies (more than 250 since 2003, to be exact) that have set up satellite offices in Canada to take advantage of partial incentives.

Startup entrepreneurs willing to go all in can take advantage of a fast-track “startup visa,” which seems like the golden ticket to moving north of the border if you already have some investment capital (a requirement). Startup visas aside, Canada’s “selective” immigration policies, which favor education and talent, are so liberal that Facebook is essentially using them as a gateway to the U.S. Established in March 2013, Facebook’s “temporary” office in Vancouver, home to 150 freshly graduated engineers from around the world, gives the company a holding pen to train and evaluate its new recruits until they’re eligible for U.S. work visas.

The right startups could surely benefit from a significant discount on their costs. And when and if these startups leave, the leaders of their former home cities will know who to blame: Canada.

[Read the whole story here.] (http://online.wsj.com/news/article_email/SB10001424052702304811904579586283430862854-lMyQjAxMTA0MDIwNjEyNDYyWj)

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“Canada’s Pitch to Tech Entrepreneurs: We’ll Pay 80% of Your Salaries”