Toronto Takes on Silicon Valley to Become AI Startup Hub

But some might be surprised to learn that Hinton does his work far away from the tech sector’s geographic epicenter in Silicon Valley. For 35 years, Hinton has been a formative player in building up AI capacity in Toronto. Now, the largest Canadian city is emerging as a potential AI hub, as commercial opportunities rapidly expand. 

“Toronto is now a hotbed of startup activity,” said Hinton. 

The city’s appeal to entrepreneurs and investors has shifted from a decade ago, when Toronto exported of much of its best talent. Since then, Canada became the world’s first country to fashion a strategy on artificial intelligence in 2017. And the country’s open-door immigration policy, which targets skills like AI, has drawn a pool of talent to the city. 

“Ten years ago, people couldn't wait to get out of Toronto," said Jordan Jacobs, managing partner and cofounder of AI-focused, Toronto-born venture fund Radical Ventures. “There's now a reversal; experienced AI talent is staying to start up or to join companies,” said Jacobs, who has invested in homegrown startups such as AI chip designer Untether and autonomous driving startup Waabi. Radical has raised nearly $1 billion and counts AI expert and Stanford computer science professor Fei-Fei Li among its partners.  

“This should be a big moment for Toronto,” said Sam Altman, co-founder and chief executive officer of the startup OpenAI, which created chatbot ChatGPT, on a recent visit to the city. He said Toronto should be a hub during what he termed “the most exciting” time to found a startup since the launch of the iPhone. 

Hinton, who pioneered research in artificial neural networks — processes that teach computers how to learn rapidly — first came to Toronto in 1987 from Carnegie Mellon University to continue working on software that mimics the working of the brain and self-learns without human aid. The British national left the US when then-President Ronald Reagan announced funding of research in artificial intelligence for defense. 

He says leading experts like him, including his fellow leaders in AI research Yoshua Bengio and Rich Sutton, have been “attracted to the country’s multicultural social system.” Since his arrival, federal funding has been modest but sustained for curiosity-driven basic research, he says.

Hinton’s work over several decades laid the foundation for a swell of fast-paced AI advances, but the city Hinton calls home initially struggled to leverage the head start and spin it off into a blueprint for commercial AI technologies.

Hinton helped establish the Vector Institute, an independent nonprofit dedicated to AI research, in 2017. “The AI field had been dead for decades,” said Cameron Schuler, chief commercialization officer and its head of industry innovation. “Canadian researchers launched the current resurgence.” Vector helps provide AI training, furthers private and government partnerships in the field, and supports startups and students. 

The institute “represents the boldest sort of ecosystem-building by an early adopter metro area making a sustained bid for leadership,” said researchers Mark Muro and Sifan Liu of the Brookings Institution in their 2021 report, “ The Geography of AI.” 

Hinton credits Toronto’s progress in cultivating and retaining startups to “the talented students from leading Ontario universities” and financial support for the Vector Institute from both the private and public sector. 

About $2.86 billion in venture capital investment flowed into the province of Ontario, of which Toronto is the capital, in the year ending in March 2022, according to a report co-written by the Vector Institute and consulting firm Deloitte. That’s a a 206% increase over the previous year. Investments continue to flow, and earlier this year, a fund led by former US vice president Al Gore invested $95 million into BenchSci, a startup using AI to fast-track drug discovery. 

An estimated 22,458 AI jobs were created in Toronto and Ontario in that same 12-month period, a 210% increase over the previous year, the report said. About 1,007 masters students were enrolled in AI programs, compared with 700 in the previous year, according to the report.

Second-Tier Hubs

But despite the city’s burgeoning AI potential, Silicon Valley still lures job-seekers, capital chasers and entrepreneurs looking to crack the vast American market. 

An analysis of job postings in Toronto compared with various US cities in a new Brookings Institution analysis found that commercial activity in the area of generative AI is lagging. Toronto posted less than a tenth of the generative AI jobs as the Bay Area, and about two-thirds as many as in Seattle region. (Generative AI, which has set off a wave of AI commercialization, uses neural networks to identify the patterns and structures within existing data to generate new and original content.)

Overall tech jobs in Toronto also trail Silicon Valley and several other US cities, according to the real estate consultancy CBRE. But the city was the third fastest-growing market for tech jobs in North America after San Francisco and Seattle in 2021, CBRE found. 

“Toronto is never going to be Silicon Valley,” said Bernie Li, a partner at venture capital firm Antler. The venture capital ecosystem, which accounts for much of the magic of Silicon Valley, doesn't yet exist in Toronto. 

Instead, the moment Toronto is in is similar to that of some cities around the world, like Bangalore, Boston, London and Beijing: It’s a moment of potential. With the Vector institute, strong AI/computer science departments at two local universities, and a diversity of upstarts building artificial intelligence tools, Toronto has the opportunity to amplify its success through a phenomenon economists called clustering. That’s when a network of players feed off one another, exchanging ideas, founding companies and creating local jobs. 

Similar to other young startup ecosystems around the globe, Toronto will take time to mature. But it’s also early in the evolution of AI technologies, said Ajay Agrawal, professor of entrepreneurship at the University of Toronto's Rotman School of Management.

“We're on the precipice of an overhaul of the entire economy. Every industry will be redesigned for a post-prediction world. Every major city wants to be dominant in the transition because being so will mean jobs and prosperity for residents,” he said. “Toronto is a meaningful competitor.”

One of the first startups to apply AI to drug discovery, Atomwise, was based in Toronto but had to move to Silicon Valley to raise capital, said Agrawal. That was in about 2014. A couple of years later, another Toronto-based entrepreneur also using AI to enhance drug discovery was able to attract capital from Silicon Valley to his company in Toronto, Deep Genomics.

“The dynamics had changed a lot over the few years between Atomwise and Deep Genomics,” he said. “Toronto was established as an AI hub so founders could attract [Silicon Valley]-based capital and keep their companies in Toronto.”

The city is also attracting AI laboratories of global corporations, beating other global cities. Samsung, Nvidia, Google, Johnson & Johnson, LG Electronics and Roche are among those that have set up AI operations in the city, says Agrawal. “Global corporations that have no Toronto tie end up choosing the city over others is a strong signal of Toronto as an AI hub,” said Agrawal, who specializes in the economics of artificial intelligence. 

To compete with Silicon Valley, Toronto has been pitching itself as the best of both worlds: higher value for the VC dollar compared with the Bay Area, and better proximity to markets like New York and Chicago.

“It takes 70 cents to build a product in Toronto versus $1 in the US,” says Allison Harris, who incorporated her company, Glassbox, three months ago. Harris returned to her native Toronto after working on Wall Street, and hopes to remain there while marketing her company’s technology to investment bankers and PE funds on Wall Street and elsewhere.

Aidan Gomez, a Hinton protégé who cofounded the generative AI startup Cohere, said it used to be a default move for newly minted computer science engineers from the University of Toronto or the University of Waterloo to head straight to Silicon Valley until Shopify Inc. set a precedent by basing in Canada. Shopify, the Ottawa-headquartered e-commerce platform that's among the city’s tech industry anchors, established in 2006.“That gave entrepreneurs like me the confidence that there's an option to stay here,” said Gomez. Cohere is backed by Hinton as well as Fei-Fei Li and raised $270 million earlier this year from the likes of Nvidia and Salesforce at a $2.2 billion valuation.

“Talent is Toronto’s little secret,” said Gomez. Founders don’t need to go to Silicon Valley to raise capital. These days, a Zoom call suffices, he said. “The reasons for leaving Toronto are falling away one by one.”

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