Toronto, the Quietly Booming Tech Town

TORONTO — In late February, Microsoft opened four floors of new office space near the top of a 50-story glass tower in downtown Toronto, a block from Scotiabank Arena, home of the Maple Leafs and the Raptors.

Apple and Amazon were already in towers just down the street, and Google was about to open a new building around the corner. Meta, formerly Facebook, did not yet have an office downtown, but many Toronto start-ups complained that the social media company was driving tech salaries to Silicon Valley levels as it recruited top engineers across the city. During the pandemic, it was hiring anyone willing to work from home.

A few blocks north, construction workers in yellow vests and hard hats were finishing three floors of new office space for another social media company: Pinterest. Stripe, an American payments company, was opening an office near City Hall, where Klarna, a Scandinavian payments company, had just announced its arrival with a flashy photo op alongside Mayor John Tory.

As the tech industry continues to expand and communities all over the world compete for tech jobs outside Silicon Valley, many executives, investors and entrepreneurs are promoting warm climes like Austin and Miami as the next big tech hubs. But they are tiny tech communities compared with the new hub growing in the cool air along the shore of Lake Ontario.

Thanks to years of investment from local universities, government agencies and business leaders and Canada’s liberal immigration policies, Toronto is now the third-largest tech hub in North America. It is home to more tech workers than Chicago, Los Angeles, Seattle and Washington, D.C., trailing only New York and Silicon Valley, according to CBRE, a real estate company that tracks tech hiring.

Toronto’s tech work force is also growing at a faster clip than any hub in the United States. And unlike many cities, Toronto is likely to have the resources needed to sustain the trend. It is the fourth-largest city in North America — with about three million people in the city and more than six million in the metro area — behind only Mexico City, New York and Los Angeles, and its roots in technology run deep.

“Everyone points to Miami as the next tech hub because it offers low taxes. But it offers little else from a tech point of view,” Mike Volpi, a partner with the venture capital firm Index Ventures, said on a recent visit to Toronto. “You need anchor companies that can provide a transformative impact. Entrepreneurs come from these companies and start their own.”

These anchor companies — including the Canadian e-commerce company Shopify as well as the many American giants — have come to Toronto for the researchers and engineers who are already here. But they also believe the talent pool will grow.

“This is now a place to make a long-term bet — to build connections with the cluster of schools in the area and create a new pipeline for hiring,” said Tristan Jung, a Korean-born computer scientist who grew up in Toronto, spent six years working at Twitter’s headquarters in San Francisco and recently persuaded the company to build an engineering hub back home in Canada.

Over the last year, Twitter hired more than 100 engineers in Toronto, tripling its Canadian work force. Household internet names like DoorDash, eBay and Pinterest built similar technology hubs in the city, as did rising artificial intelligence companies like Cerebras, Groq and Recursion Pharmaceuticals.

This corner of Canada includes two universities known for generating top researchers and engineers: the University of Toronto, a short walk from downtown, and the University of Waterloo, Mr. Jung’s alma mater, roughly an hour away by car or train. In the past, much of this talent migrated to the United States. But engineers and computer scientists trained in and around Toronto increasingly are staying put.

Or, like Mr. Jung, they are moving back home after years in the United States.

In Toronto, U.S.-based companies can also speed the arrival of new tech talent from other countries — a talent stream that has long been the lifeblood of the American tech industry. As the U.S. immigration system slowed and sputtered under the Trump administration, Canada introduced programs intended to bring skilled workers into a country that is already unusually diverse. Nearly 50 percent of Toronto’s residents were born outside the country, according to the city.

“It is infinitely easier to bring that kind of talent into Canada,” said Heather Kirkby, chief people officer at Recursion, a company that applies A.I. to drug discovery. “A lot of companies have given up on immigration in the U.S. There are limits to what’s possible.”

In and around Toronto, local institutions are intent on feeding the tech ecosystem. Ontario recently passed a law that explicitly bars companies from enforcing noncompete clauses in employment contracts, encouraging employees to found their own start-ups. Backed by a $100 million donation from local business leaders, the University of Toronto is building a complex that will house A.I. and biotech companies.

When discussing the Toronto tech scene, locals inevitably point to Geoffrey Hinton, the University of Toronto professor whose research set in motion the recent boom in artificial intelligence.

In 2012, Dr. Hinton and two of his students published a breakthrough paper involving “neural networks,” a technology that could power everything from self-driving cars to digital assistants to chatbots. Soon, the world’s biggest companies were spending millions — sometimes tens of millions — to hire researchers who specialized in the technology.

Google paid $44 million for Dr. Hinton, born in Britain, and his two students, both born in the former Soviet Union. For a time, he worked at Google’s Silicon Valley headquarters. But he kept his professorship at the university, and in 2016 he opened a Google research lab in downtown Toronto.

The next year, he joined local entrepreneurs and researchers in founding the Vector Institute for Artificial Intelligence, which raised $130 million from government and industry meant to keep top researchers in Toronto, attract talent from other parts of the world and push other companies to open labs in the city.

The area was already a growing tech hub. As the financial center of Canada, Toronto was home to big banks. Microsoft had operated offices in the suburbs for years. So had computer chip companies like Intel and AMD. Google was running an engineering office near the University of Waterloo.

A month after Dr. Hinton announced his Google lab, Uber opened a self-driving car lab anchored by another University of Toronto professor: Raquel Urtasun, who had been courted by a who’s who of American autonomous vehicle companies, but she insisted on staying in Toronto.

“The one thing that was clear for me is that I did not want to go anywhere. The talent is here,” said Dr. Urtasun, who was born in Spain and immigrated to Canada in 2014.

In 2019, two Canadian researchers who had worked in Google’s Toronto lab, Aidan Gomez and Nick Frosst, created their own artificial intelligence company alongside another entrepreneur, Ivan Zhang. Called Cohere, it specializes in technology that helps machines understand the natural way people write and talk — the most promising breed of A.I. — and Google is now a partner.

A year later, as Uber’s core ride-hailing business declined during the pandemic, the company jettisoned its self-driving car efforts. And Dr. Urtasun founded a start-up called Waabi.

Waabi kept most of the same researchers who worked in the Uber lab, with Dr. Urtasun becoming chief executive. It uses the same office on the top floor of a building just west of the university. It is funded in part by Uber. But it is a Canadian company.

Driven by the pandemic, immigration policy and other forces, many other giants have followed Google and Uber into Toronto or rapidly expanded their existing operations in and around the city. Local venture capitalists like Jordan Jacobs, whose firm Radical Ventures invested in both Cohere and Waabi, believe this will feed the growth of a much larger start-up ecosystem.

Others are still unsure. The big American companies came to Toronto in part because the cost of the talent was lower. According to the recruitment website Hired, the average annual tech salary in Toronto was 117,000 Canadian dollars in 2020 (only about $90,000 in U.S. dollars), versus $165,000 in Silicon Valley. But many local start-ups are now saying that because demand has suddenly risen, so have salaries, and it has become much harder to hire the talent they need.

“A situation like this is always good for someone and bad for someone else,” said Liran Belenzon, the Israeli-born chief executive of BenchSci, a biomedical artificial intelligence company he helped found in Toronto in 2016.

Investment in new Toronto companies is still tiny compared with Silicon Valley. In 2021 and 2022, investors pumped $132 billion into Silicon Valley tech start-ups, according to the research firm Tracxn. In Toronto, that figure was $5.4 billion. But ultimately, it is tech talent that drives a tech hub, said Mr. Volpi, a Bay Area venture capitalist who also invested in Cohere.

“The money will follow the talent,” he said.