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Michael Katchen moved away from his native Toronto because he was excited about what was happening in Silicon Valley. Then after three years — and selling his startup for several million dollars — he left California because he was excited about what was happening in Toronto.

When he moved to Silicon Valley in 2010, Katchen became close with a half-dozen ex-pat Torontonians who were working for tech heavy hitters. Within two years, all of them had moved back home and started their own companies but brought with them elements of the Valley’s culture of innovation. They were changing the city of Toronto.

“I saw something special happening in the Toronto tech sector and I really wanted to be a part of that,” says Katchen, now the CEO and co-founder of Wealthsimple, an app-based investment service that automates money management. Katchen raised $30-million in seed funding six months after launching the initial app; the two-year-old company currently has 25,000 clients.

“One of the most rewarding parts about moving back to Toronto is just how far the [tech] community has come and just how much of an ecosystem has developed here in recent years,” he says. “It’s pretty staggering.”

He credits that ecosystem — a coming-together of universities and other research institutes, startup firms, funders, private equity firms and venture capitalists — as playing “a hugely important part” in launching Wealthsimple. The company was part of the OneEleven startup accelerator and the MaRS Financial Technology Cluster and is a member of TechToronto, a grassroots organization aimed at strengthening the city’s tech ecosystems.

The OneEleven space in Downtown Toronto. (COURTESY ONEELEVEN)

But a big boost came from the city’s diverse sectors. “If you look outside of our investments team, there are very few who come from the financial services sector. They come from all sorts of different companies around town,” notes Katchen.

“To me, the most important trend driving innovation in cities is the desire to live in the urban core,” says David Wolfe, a professor of political science at the University of Toronto Mississauga and co-director of the Innovation Policy Lab at the Munk School of Global Affairs. “The shift away from the suburbs back to downtown — we’re seeing this in the decline of the big suburban research parks and the move to what are being called ‘innovation districts,’ which are closer to downtown.”

“There’s no city that’s not trying, in some way, to leverage its research institutions to increase their innovation capability.”

Innovation districts are usually anchored by a university, such as the biotechnology campus of the University of California, San Francisco; the University of Washington’s medical research hub in Seattle; and the U.K.-based City, University of London, as well as the other universities in the revitalized King’s Cross area, now called the Knowledge Quarter. In Toronto, the Discovery District includes the University of Toronto, a number of the research institutes of �Թϱ���’s partner hospitals, the MaRS district and the OneEleven startup accelerator.

That kind of close physical proximity, says Alex Norman, is crucial for a simple reason: “Collaboration leads to better success.”

Norman is the managing director of TechToronto, whose mandate is threefold: to build awareness, increase the talent pool and, crucially, boost collaboration.

Like Katchen, Norman is part of Toronto’s tech reverse exodus. He’d spent 14 years working in New York, San Francisco, Philadelphia and London, England, and, since returning to Toronto in 2007, has seen big changes here in the past decade.

“I’m seeing a lot more collaboration — at the organization level, at the government level and between companies,” he says. “Four or five years ago, it was almost competitive. Now, there’s a realization that if we work together, we can build a bigger pie for the whole community.”

Katchen has grown the company to 25,000 clients in the two years that Wealthsimple has been operating. (FRED LUM/THE GLOBE AND MAIL)

A major goal of these hubs is to boost in-person interactions with a diversity of participants. “Different perspectives leads to breakthroughs,” Norman points out. “It can’t be just the programmers and it can’t be just the marketers. If it’s health-care technology, it has to be the programmers and the doctors, [all] talking together. In the technology community, if you want to have a breakthrough, it has to be 10 times better than the current product, not one time or two times better. There are many ways to be 1 per cent better, but collaboration is how you become 10 times better.

“There are simple things that may seem obvious to each side, but you get them in a room talking and it’s eye-opening for all of them.”

TechToronto regularly holds events and dinners with the express purpose of breaking down silos. Norman recalls that it was just 10 years ago when Toronto was “engineering-led,” running on the build-a-better-mousetrap philosophy that an invention will naturally find a market.

That, says Prof. Wolfe, is a common misconception that can impede progress. His work shows that innovation activity is becoming increasingly concentrated in cities; the attraction, however, is as much about a city’s social characteristics and the promise of connectivity as it is about economic resources.

“The people who do the research are not necessarily the ones who innovate,” he explains. “Research has very long lead times and unpredictable outcomes. Research may contribute to innovation, and if you don’t do research, you’re not going to get innovation. But it doesn’t translate automatically, and directly, into innovation.”

This is where social connections become important. Prof. Wolfe gives the example of multitouch technology, which allows the use of two fingers to shrink or enlarge an image on smartphone screens. Computer science researcher Bill Buxton, in fact, invented that technology in his �Թϱ��� lab in the 1980s, but it took companies like Apple to find a way to make it ubiquitous in people’s lives.

(FRED LUM/THE GLOBE AND MAIL)

“I saw another university researcher, Geoffrey Hinton, demonstrate his artificial intelligence research 25 years ago, but nobody was beating down his door. Now, he’s been recruited by Google. The whole world is now reaping the benefits of some of the incredible research that’s been done at the university for 25, or more, years. What I’m seeing right now is that really long-term, sustained investment in research programs [is getting attention from] companies that see the applications of that work.”

Katchen at Wealthsimple has seen the value of diverse perspectives first-hand. “A lot of [financial] people might have said, ‘Automated rebalancing through an ETF [exchange-traded fund] is not that innovative. It’s a service that’s been around for 20 years.’ But what we’re doing is actually hugely innovative because we draw together different disciplines — technology that actually manages the money, a design experience that looks more like Facebook than a bank [and] customer-service people that come from the best client-service places in the world. It’s the ability to pull those things together to deliver that experience. It’s all packaged to deliver this service. That’s been important for us to figure out.”

Katchen is excited by what he sees as a coming-of-age for a whole cohort of Canadian tech success stories — “Shopify is kind of the poster child of that for the last year,” he notes — but he thinks Canada’s innovation capacity still has some growing to do.

“The [Silicon] Valley is a special place. If you go out for drinks after work in downtown San Francisco, you’ll find yourself in a bar where half the people have started their own businesses. The other half work at places like Google, Twitter, Facebook or [aerospace manufacturer and transport services firm] SpaceX — the kind of companies that have the naïve ambition that they can change the world and many of them that are actually doing that, which is pretty fantastic. That community in the Valley has permeated everything. It’s a driving force of the whole city,” says Katchen.

Toronto may not be the Valley — yet — but Wolfe is excited by what he sees happening.

“In the 30 years that I’ve been involved with this space — studying it, working with government — I have never seen as much going on in the city as what is going on now. I’ve never seen something like the banks beating down the doors of the fintech companies. I see corporations coming to the university, looking for cutting-edge ideas and research that they can capitalize on. There’s a huge flow of talent, for example, back and forth between [the Toronto branch of software designer] Autodesk and the University of Toronto’s computer science department — to such a degree, I’ve heard, that even though Autodesk is a Silicon Valley firm, a huge amount of its global research activity is going on in Toronto.

“The city has been energized in the last three to five years in a way that I have not seen it energized in a long time.”