Pebble founder Eric Migicovsky’s success raising money on Kickstarter after being ignored by venture capitalists is a startup story that warms the cockles of our collective hearts in the entrepreneurial community. But after live blogging Eric’s Skype chat with a small audience hosted by Startup Grind, I’m not convinced it’s a story that the Toronto-region should be completely thrilled with.

The story of Pebble, a startup that’s making watches that link up wirelessly with your smartphone to deliver awesome features to your wrist, starts off pretty well for Canada and the Waterloo-region in particular. Eric attends the University of Waterloo and takes an engineering program. He is developing his smart watch at the same time. Because of Waterloo’s unique entrepreneur-friendly policy of allowing students to maintain ownership of intellectual property they develop while at the school, he’s encouraged to continue working on Pebble. He also joins the Velocity incubator at the school, which allows him to continue his education while also receiving help for his startup.

Eric made good use of the government funding programs available to startups in Canada, including the federal IRAP and SR&ED tax credits. At the beginning of Pebble’s startup life, the startup eco-system is working well and doing what it should do – investing in talent, fostering a company with high-growth potential, and giving good incentive to stay put. Until Eric reached the point that he needed to raise a big round of venture capital – that’s when it all falls apart.

Unable to attract venture capital in Canada, Eric moves his stakes to Silicon Valley. Once there, he opens up a U.S. corporation so that he can use Kickstarter to raise funds. It’s not just a satellite office, but the new headquarters of Pebble, as Eric closes his Canadian firm and transfers all assets and IP to the U.S. corporation to avoid legal headaches. He advised the room of Toronto-based entrepreneurs to do this

Brian Jackson, Editor, ITBusiness.ca
Brian Jackson, Editor, ITBusiness.ca

if they ever open a firm in the U.S., too.

In fact, Eric endorsed Silicon Valley as a superior place to build your startup in several ways. He told the audience it was unparalleled in the access to talent it offered, and basically the only reason to continue building your business in Toronto is if your family lives here.

When I asked him if he’d consider returning to Canada for any reason, Eric said he’d consider having a development officer here for Pebble, because of the engineering talent in the Waterloo region.

So taking stock of this situation, was all that Canadian investment in Pebble worth having the potential of another development office opened in Waterloo? Shouldn’t Canada be gunning to have that corporation, the jobs it creates, and the ancillary benefits related to a growing firm located right here?

For all that time educating Eric, pouring resources into Pebble through an incubator, and government funding, you’d think so. But instead, we’re left cheering for that success that’s unfolding on the opposite side of the continent.

Pebble’s Kickstarter win deserves credit as a startup success story. But a good look at the story of this smart watch shows that its time for Toronto region to ask why that success couldn’t happen here.

 

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  • http://m.cdling.com Michael Cayley

    Hey Brian,

    Thanks for asking the tough questions about this story.

    I did put a few facts in check over on TechVibes spin on your coverage here:

    http://www.techvibes.com/blog/pebbles-eric-migicovsky-silicon-valley-is-a-better-place-to-build-your-startup-than-canada-2012-06-01#comment-545428443

    The most important point to note, if you recall Eric went out of his way to note that they are paying back their loans from CYBF and OCE. Plus interest. So if anything, Pebble’s success is 100% fuelling the Ontario startup scene because those agencies will now be able to reinvest in new startups, compared to if they had stayed in Waterloo and just failed, losing the original investment.

    Cheers,
    mc

  • http://designdialogues.com Peter Jones

    Brian captured the money headline from Eric’s story. And of course, Silicon Valley has the financing and the engineering community packed into one tight neighborhood. Its startup heaven.

    In Canada, the financing and the talent have come together in the largest city, Toronto – now the fourth “best” startup location in the world, if not the 4th largest: http://www.thestar.com/business/article/1159633–toronto-tech-city-is-fourth-best-place-in-the-world-for-a-startup

    So here it is unfair – startups are level with and even competing with global firms for business and attention. The business and capital ecosystem could be better, but it has a lot to show in the last 5 years. Toronto’s made huge progress and has the chance to build the next kind of startup ecosystem. The Silicon Valley model is not the best for seed stage, new idea companies. VC’s aggregate, chew up, (and spit out) small players for lunch. Find one good deal from a 100 crappy outfits. Their ecosystem accepts this – we don’t have to.

    Eric’s Kickstarter story also shows how Canada’s smart funding launched his first prototypes and got him noticed. In fact, Silicon Valley failed to appreciate Pebble and he gave up on VC. Palo Alto people didn’t fund Pebble, eventually (mostly) American citizens funded it themselves on Kickstarter. So of course as Pebble grows it may be good in the Valley. But did they really help him reach this level of success?