Canada has a rich history of innovation, but in the next few decades, powerful technological forces will transform the global economy. Large multinational companies have jumped out to a headstart in the race to succeed, and Canada runs the risk of falling behind. At stake is nothing less than our prosperity and economic well-being. The Financial Post set out explore what is needed for businesses to flourish and grow. You can find all of our coverage here.
The recent statements about innovation coming from politicians in Ottawa are encouraging. On more than one occasion, Minister Navdeep Bains has said he would rather see 10 high-growth Canadian tech companies scale globally than 10 more foreign branch plants open their doors in Canada.
Domestic innovators and innovation economists have long argued that to create quality jobs and prosperity, our country needs an ecosystem that enables our own high-growth anchor firms. The best returns to national economies, experts say, come from companies that generate value from intangibles like data and intellectual property — and that scale from $100 million to billions of dollars in revenue. These are the companies that provide critical public and private wealth, and that can help Canada generate the new revenues it desperately needs to fund social programs and public infrastructure across the country.
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Just look at the lasting impact of Research In Motion, now BlackBerry, where seasoned C-suite talent and private wealth have transformed Waterloo, Ont., from a rural farm town into a vibrant technology and research hub.
The government’s recent Economic Strategy Table focused on digital industries concurred that anchor firms “play an important role in creating powerful business clusters and incubating other businesses. By virtue of their size and R&D spend, anchor firms help create new organizations and transform existing ones, fostering entrepreneurship and networking on local and global levels.” They also create local philanthropists, who invest in their communities and social infrastructure.
But while experts agree anchor firms are critical to prosperity, Canada’s current public policy strategies are still heavily oriented towards pre-revenue startups. What’s worse, our current innovation programs stop supporting the very companies we need to double down on. As a result, only one per cent of companies reach the 100- to 499-employee mark in Canada.
Take for instance the National Research Council’s (NRC) Industrial Research Assistance Program (IRAP). Most innovators would agree that IRAP is one of Canada’s more successful innovation programs. It allows the NRC to partner with Canadian companies on R&D projects. In the 2018 federal budget, the government increased the size of an individual IRAP matching contribution from $1 million to $10 million. Unfortunately, it did so while maintaining the rule that, to qualify for IRAP, applicants must have fewer than 500 employees — a puzzling requirement given stated promises about helping high-growth companies.
The result is a program that fails to reach its potential because the companies with the scale needed to carry out $20-million R&D projects are barred from applying. As Canada’s fast-growing companies reach a pinnacle of success, they outgrow the very programs that helped them scale rapidly along the way — and are left to compete in the global economy on their own.
Despite the hype about our tech sector, we should be concerned that fewer than five per cent of Canadian startups graduate to the scale-up stage, especially when we take stock of the time, capital and hands-on support governments give to early-stage companies. As a recent story by The Logic reported, some government programs prop up companies that are not viable and have no market traction. Rather than propping up “zombie” startups, Canada’s innovation programs need to help proven market winners continue scaling, including with access to strategic capital.
If the goal is to have more global companies headquartered and anchored here in Canada, why has the government placed a cap on success?
To scale a successful technology company in 2019, Canadian innovators need highly-skilled talent, capital and customers. All successful innovation economies exhibit a close working relationship between proven market-winning companies and their public sector, co-developing strategic economic policies and working hand-in-glove to address challenges impacting the growth of emerging industries. In a winner-take-all tech race, governments that help their domestic innovators scale-up and succeed are seeing the greatest economic dividends for their intervention. The same needs to happen in Canada.
Lifting the employee cap on IRAP is a logical step the government should take to achieve their vision of more Canadian companies growing into the large anchor companies known around the world.
Benjamin Bergen, executive director of the Council of Canadian Innovators.