Atlantic Canada Rural Revival: A Post-Pandemic Blueprint?

The Reversal of Fortune: Atlantic Canada's Tech Renaissance

Mike Morrison’s journey from Fredericton, New Brunswick, to Calgary, Alberta, initially seemed like a one-way trip. He anticipated never returning, except for brief visits.

The Western Pull and a Changing Tide

Morrison’s move mirrored the common trajectory of Atlantic Canadians seeking employment in the booming western provinces. During the mid-2000s, Alberta’s oil-driven economy presented appealing opportunities. For Morrison, remaining in the east meant limited prospects, such as supply teaching or call center work.

Upon arriving in Alberta, Morrison undertook multiple jobs. Simultaneously, he began a blog to share his experiences with friends and family back home, also offering television and movie recommendations. This blog, known as Mike’s Bloggity Blog, evolved into a prominent Canadian entertainment platform. He subsequently secured a newspaper column and regular appearances on television and radio. He also founded Social West, a digital marketing conference that eventually expanded to three cities, solidifying his identity within his adopted province.

He jokingly stated he was “being compensated for professionally embodying the spirit of Calgary.” However, in 2021, Morrison made a significant change, relocating back to Halifax, Nova Scotia.

A Return East and a Growing Ecosystem

Morrison and his partner represent a growing trend of skilled individuals reversing Canada’s traditional internal migration patterns. This shift is contributing to an economic revitalization with the potential to reshape the future of the Atlantic region.

Returning individuals are discovering a thriving startup ecosystem that has quietly matured, resulting in over a dozen acquisitions by major companies like IBM and Salesforce, totaling over $5 billion in cash and stock.

The story of Atlantic Canada could serve as a model for other rural regions aiming to leverage the decentralizing effects of COVID-19, transitioning from resource-dependent economies to knowledge-based industries.

Overlooked Potential

Many Canadians perceive Toronto as the easternmost major city, despite a distance of 1,900 miles separating it from St. John’s, Newfoundland and Labrador, the easternmost point in Canada and North America. The four provinces comprising Atlantic Canada – New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador – are often overlooked due to their remote location.

Known for its tranquil coastal towns, lively kitchen parties, and abundant lobster, Atlantic Canada has faced economic challenges in recent decades.

From Hardship to Hope

The collapse of the cod fishery in the 1990s, coupled with the relocation of shipbuilding to Asia, positioned Atlantic Canada as Canada’s economically disadvantaged region. Since the 1990s, the region has witnessed a steady outflow of young people seeking opportunities in Alberta’s oil fields and the metropolitan centers of Toronto and Montreal.

This narrative of hardship became deeply ingrained. Former Prime Minister Stephen Harper famously described the region as suffering from “a culture of defeatism,” a perception that became self-reinforcing.

A Pandemic-Fueled Shift

However, the pandemic brought about a dramatic change. In September 2020, Kinduct, a Halifax-based fitness data management company, was acquired by mCube. This was followed by Verafin, a Newfoundland-based firm, being acquired by Nasdaq for $2.75 billion in cash in November 2020. In January 2021, ScreenScape Networks, based in Prince Edward Island, was acquired by Spectrio, and Wattpad, a Halifax-based storytelling platform, was acquired by Naver for $600 million.

These four major tech acquisitions occurred within a five-month period, surprising many outside observers, but representing the culmination of building momentum.

The Seeds of Change

Business writer Gordon Pitts identifies 2011 as a pivotal year for the Atlantic Canadian startup scene. In his book, “Unicorn in the Woods,” he details how Salesforce acquired New Brunswick-based social media monitoring company Radian6 for approximately $300 million in March 2011. Then, in November of the same year, IBM acquired Q1 Labs, another New Brunswick-based startup specializing in cybersecurity, for a reported $600 million.

The Radian6 acquisition was initially considered a singular event, but the subsequent success of Q1 Labs demonstrated the region’s potential.

Staying Rooted

Unlike typical scenarios where founders relocate to Silicon Valley, the founders of Radian6 and Q1 Labs remained in Atlantic Canada. Both Salesforce and IBM established engineering offices in Fredericton rather than relocating the acquired companies.

Verafin appears to be following this trend, with Nasdaq committing to maintaining the company’s headquarters in Newfoundland, investing in the local university, and fostering the local ecosystem.

A Self-Sustaining Ecosystem

Q1 Labs and Radian6 have become cornerstones of a thriving, self-sustaining ecosystem. Peter Moreira, founder of Entrevestor, reports that the ecosystem has attracted over $1 billion in investment across 700 companies, creating over 6,000 jobs. Approximately 100 new companies are founded annually, spanning diverse fields like life sciences, cleantech, and ocean tech.

Attracting Investment

Venture capital firms have taken notice, with notable investors including Breakthrough Energy Ventures, backed by Bill Gates, Jeff Bezos, and Richard Branson. The recent exits are remarkable for their diversity across industries, ranging from fraud detection to fitness data and video technology.

Local Champions

Sandy Bird exemplifies the tech-driven economic revival. Co-founder of Q1 Labs, he became CTO of IBM’s security division after the acquisition. In 2017, Bird and the former CEO of Q1 Labs launched Sonrai Security, a cloud-focused cybersecurity company that has raised nearly $40 million in venture capital.

Bird emphasizes his commitment to remaining within a 30-minute radius of his home, demonstrating that significant success can be achieved without relocating.

The Advantages of Location

Bird notes that IBM chose to maintain an engineering division in New Brunswick due to the high quality of engineers and low employee turnover, a contrast to the competitive labor market of Silicon Valley. Atlantic Canada fosters a culture where long-term employment is valued.

He highlights the region’s high retention rates, enabling a strong company culture, and the advantageous time zones for communication with both Europe and North America.

Acknowledging Challenges

Bird acknowledges the region’s challenges, such as difficult airline connections. Reaching destinations like Denver can require a full day of travel with multiple connections. Sonrai Security maintains its engineering team in Fredericton while its sales and marketing teams are based in New York, with regional salespeople located throughout North America.

Securing initial funding is achievable within the local ecosystem, but growth beyond Series B requires access to U.S. venture capital. Rapid hiring to meet the demands of a growing tech company also presents a challenge. To scale hiring, Q1 Labs established a parallel engineering office in Belfast, Ireland.

A Blueprint for Rural Revitalization

What lessons can other rural regions draw from Atlantic Canada’s success? Insiders emphasize the low cost of living and high quality of life as key factors in attracting and retaining talent. A welcoming approach to immigration is also crucial.

Canada proactively leveraged concerns about U.S. immigration policies to launch a startup visa program, attracting entrepreneurs and H1-B visa holders, providing a strategic advantage to the coastal provinces.

Government Support

Proactive government initiatives have played a role. After years of unsuccessful top-down economic development efforts, both provincial and federal governments have implemented programs to stimulate new companies through grants, repayable funding, and non-dilutive funding.

Entrepreneurs frequently cite IRAP, the National Research Council of Canada’s Industrial Research Assistance Program, as a vital source of funding for subsidizing wages. The Atlantic Canada Opportunities Agency (ACOA) provides funding ranging from CA$500,000 to CA$3 million through its Atlantic Innovation Fund (AIF). Each provincial government also offers its own incentive programs, including grants, wage subsidies, and incentives for private investors.

The Power of the Private Sector

Despite government support, local entrepreneurs emphasize that the region’s success is primarily driven by the private sector. Each province typically has a prominent figure who champions local startups through investment, advice, and connections.

The accessibility of successful founders is also noteworthy. In a region where ostentatious displays of wealth are uncommon, founders are readily available to offer advice, contacts, and even capital. The region’s 16 public-private universities contribute to a diverse talent pool across STEM and humanities fields.

Remaining Hurdles

Despite these advancements, challenges remain. It remains to be seen whether politicians and policymakers can match the ambition of entrepreneurs. Unlike countries like Ireland and Estonia, which have revised their corporate tax codes to attract tech companies, Atlantic Canada maintains higher tax rates than neighboring provinces and U.S. states.

Past innovation hubs have relied on physical proximity to build networks. Atlantic Canada spans 500,000 square kilometers, much of which is remote and poorly connected.

A New Narrative

Having established a new narrative and a renewed sense of self-belief, entrepreneurs hope to transition away from a declining resource-based economy, creating a future where ambitious Atlantic Canadians can pursue fulfilling careers without leaving home.

Reasons for optimism abound: each exit provides success stories that inspire new ventures, each investment strengthens the region’s network, and each innovation deepens its expertise.

The reversal of traditional migration patterns, with workers returning to seek a lower cost of living and higher quality of life, further expands the talent pool.

The Future of Work

In a post-COVID world where talent can locate anywhere, physical proximity is no longer a prerequisite for building high-performing companies. However, replicating the Atlantic Canada model requires more than just a lower cost of living, as housing prices tend to rise with demand.

Atlantic Canada’s success stems from fostering a collaborative ecosystem involving companies, universities, investors, and government, ensuring access to human, social, and financial capital. Building such an ecosystem allows opportunity to chase talent, rather than the other way around.