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Why international investors are investing more in Toronto-based startups

In 2003, before Flickr, Facebook or Instagram existed, Evgeny Tchebotarev created an online photo-sharing community called Russian Photography. Then a student at Ryerson University, Tchebotarev had bought his first film camera the year before, and wanting to improve his skills as a photographer, decided that sharing his photos was the best way to do so. In less than a year the website gave way to a new one called 500px (pronounced 500 pixels), and with it came a new focus—he didn't want a website where members simply shared their photos, he wanted one where they shared their best photos.
How he intended to accomplish that feat was right there in the name; every photograph uploaded to the website had be a uniform 500 pixels wide. "When we started building features, we started with things we wanted to see ourselves—nice clean portfolios, and the largest photos we could get on the site at that point," Tchebotarev starts. "We decided that the experience of getting something high-quality was important, even if it meant loading the photos would be slow for some people." 
When 500px moved from a side-project to full-fledged startup in 2009, Tchebotarev and company abandoned the size limitation that had once defined the platform, but the emphasis on quality remained. That decision helped the company create a platform where some of the world's most talented photographers have uploaded more than six million photos. 
Growing Pains
500px turned four years old on October 31st. In many ways, the challenges and successes it experienced along the way have been mirrored throughout the city's startup ecosystem, especially when it comes to the difficulty the company had in securing its first investment. 
The once wide-open photo-sharing space had become filled with big names such as Flickr, and monetization was an issue for everyone involved. Those two factors combined with a poorly developed venture capital ecosystem in Toronto meant that Tchebotarev and co-founder Oleg Gutsol found it difficult to secure capital from local investors.   
"We started going to demo camps and other startup events, but no one in Toronto was interested." They went back to work. Six months later, the two attended another series of startup events and again no one was willing to put anything forward. 
Securing International investors
Three individuals by the names of Naval Ravikant, Babak Nivi, and Brendan Baker were about to help the company in a big way.  
Ravikant and Nivi are the co-founders of AngelList, a San Francisco-based website that helps connect startups and investors. They launched their company in 2010 and hired Baker shortly after. One of the first startups to join their platform was 500px. According to Tchebotarev, Nivi and Ravikant took a special interest in the company and helped them with their pitch deck and mentored them on how to approach and talk to investors. Whatever magic Nivi and Ravikant preformed on 500px's deck was enough to help the company garner the interest of John Frankel, the founding partner of New York-based ff Venture Capital.  
Frankel, himself an amateur photographer, found in 500px something that appealed to him on multiple levels. "One of the tests, because a lot of things can seem attractive at first sight, is that I found myself going back to look at their website everyday," he says. "I could tell from the user experience and design that a lot of thought and care had gone into it.” After several phone calls and a visit to Toronto, ff Venture Capital decided to lead on 500px's $525-thousand seed round. 
Frankel saw in Toronto a city that was close to his base of New York and a space that was only going to grow in the coming years. He was right. Two Palo Alto venture capital firms with deep pockets, Andreessen Horowitz and Harrison Metal, seemed to reach the same conclusion in 2013. In August, the two firms led 500px's $8.8-million Series A round.   
That Frankel and his firm decided to invest in 500px after he found them on AngelList is somewhat unusual, but speaks to the ways in which VCs are changing how they go about finding companies to invest in. 
"I think people are more open to geographic diversification, they certainly should be anyway," says Frankel. "The world is flat and is unevenly distributed. I think there are a lot of talented people throughout the world, but [when] you get a concentration of people in places like Toronto, it really helps. If you’re an entrepreneur in Toronto, there’s a lot of opportunity."  
Indeed, capitalizing on that opportunity, startups like Wave, Wattpad, InteraXon and Top Hat have all managed to secure significant funding in the past year from both local and international venture capitalists. More than ever before, foreign investors are realizing the potential of Canada's startups. Still, the majority of startups in this country are self-funded. 
Foreign investments help local economies
As for 500px, the recent influx of cash helped in multiple ways. First, the cash has enabled Tchebotarev and Gutsol to add extra talent to the company's existing development team. "For the most part, our system was built by two or three developers, and for the longest time there were only two designers working on everything. Now we’re actively hiring, and we’ve added about 14 people to the team in the last six to eight weeks and we have 4 or 5 that will be starting later," says Tchebotarev. "We’re starting to do more things at the same time instead of building things one by one. We can now start four or five things in parallel, which is a big help, because it allows us to move much quick on things like our mobile apps.” 
Secondly, 500px is now in the process of opening an office in Palo Alto, and both co-founders will be moving there. Initially, the office will house the business development and marketing teams the company plans to hire, but down the road California might also be home to its development team. "I think there’s a lot of technical talent that we can get in Toronto and Waterloo, so want to take advantage of that; obviously the salaries are lower and people aren’t moving to from company to company as often," says Tchebotarev. "We want to build that kind of tech-hub culture here, but at the same time, we realize that going forward for our future will mostly be in California." 
Paying it forward
It might be difficult to see how a budding startup leaving Toronto is healthy for local economy, but it's important to remember that a VC invests into a company and its co-founders expecting them have a profitable exit. Ideally, the co-founders will either sell their startup to a larger, more established company—much like Daniel Debow and David Stein did when they sold Toronto-based Rypple to Salesforce—or by becoming a publicly traded company. 
"The definite hope is that the founders will come back and start investing into the community where their roots are, and you already see that happening with a lot of successful Canadian entrepreneurs and VCs," says Megh Gupta, a senior associate at OMERS Ventures. Indeed, one can already see that happening at Gupta's own firm. Kevin Kimsa, the firm's managing director, sold his previous two startups, Solect Technology and Casero, and has helped OMERS Ventures invest in InteraXon, Wattpad and Wave.  
"I think you'll also see a lot of companies that want to remain here and want to be the next billion dollar Canadian company. They want to be that real anchor in the Canadian tech scene that attracts top talent and helps keep it here. HootSuite is a great example, as is Shopify and Desire2Learn," Gupta says. Each startup must decide its own best course of action, but for the most part, they all need outside funding to get started, and that's where the venture capitalists come in. 
For Tchebotarev, however, he hopes that 500px won't have to secure any future investments. 
"Ideally we would become a hyper-profitable company, so that we don’t need another round of investment," though he admits, "that also puts the company in a great position, because then everyone wants to invest in it."

Igor Bonifacic is a Toronto-based writer interested in exploring the intersection of technology, entrepreneurship and life. His last piece for Yonge Street looked at how video game company Ubisoft is changing the Junction.

**Correction: This article originally reported that 500px turned four-years-old on November 1st. They actually turned four on October 31st. In addition we have added in the name of the third person at AngelList, Brendan Baker, responsible for helping 500px secure funding.
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