Venturing in Nova Scotia

The Atlantic province of Nova Scotia has traditionally been better known for seafood rather than software. But with the fishing industry enmeshed in a prolonged downturn, economic development types have pinned their hopes for the region’s future prosperity on its lower profile techie side.

The province is home to fewer than a million people, but Nova Scotia benefits from a high concentration of universities—11 in all—that churn out a large number of IT graduates.

“We punch above our weight in Canada” says Stephen Lund, president and CEO of Nova Scotia Business Inc., an economic development organization for the province, regarding local IT talent.

With lower average salaries and lower cost-of-living than Canada’s larger urban centers, Nova Scotia boosters say the capital city of Halifax provides startups comparable infrastructure at substantial cost advantage. Venture activity is still light, but Lund says that it’s picking up and “the trend looks positive.”

Among the highlights are Coemergence and Diaphonics, two Halifax-based technology startups that were among five Canadian companies named to entrepreneur forum AlwaysOn’s list of Top 100 Private Companies. In addition, two other Nova Scotia companies, Medusa Medical and Unique Solutions, presented at the group’s most recent conference in July in Palo Alto, Calif.

Coemergence, which makes software for businesses to better track and disseminate information, raised $2 million in 2004 from BHP Billiton Ventures and InNOVAcorp’s Nova Scotia First Fund.

Diaphonics, a developer of voice-based security products, raised nearly $4 million between 2002 and 2005 from Covington Capital and Business Development Bank of Canada.

The financings don’t rank near the top of the list for large VC deals in Canada. But they are making investors stand up and notice the area. The largest venture deal in the province in the past few years was raised by Advanced Glazings, a Sydney, Nova Scotia-based maker of translucent insulated glass for buildings and greenhouses that are designed to diffuse daylight. The company raised $5.4 million in May 2006 from GrowthWorks, a Vancouver private equity firm, and other investors.

Medical device startups in the region have also drawn their share of attention. EastMed, a Halifax developer of bladder support products for women suffering from incontinence, raised $1.3 million last September from Innovacorp’s Nova Scotia First Fund and Business Development Bank of Canada. The bank also participated in a $1.5 million 2004 round for Coeur Metrics, which produces an instrument for detecting and assessing heart disease.

But exits are a little slower to come by—a factor that has left investors in other provinces less enthused than locals about Nova Scotia’s likelihood of becoming an IT and life sciences powerhouse.

“It has a lot of strong potential,” says Rick Nathan, president of the Canada’s Venture Capital & Private Equity Association, of Nova Scotia’s venture credentials. “There’s some good talent and lower cost… But it’s not yet achieved maturity to be seen as a major center because of its size.” —Joanna Glasner