The Business Development Bank of Canada has committed $160-million to help improve Canada’s spotty track record for commercializing intellectual property (IP) by funding young companies trying to capitalize on their ideas.
The Crown corporation, a key financier of Canada’s innovation sector, will provide debt and equity funding to startups generating revenue from patented inventions they own or license. BDC has recruited the five-person team at Quantius Inc., a Toronto-based alternative commercial lender that specializes in funding companies with intangible assets such as patents and trademarks, to run the program.
“I believed that there should be a new way of investing and lending to knowledge-based companies,” said Lally Rementilla, chief executive of Quantius and a veteran tech industry financial executive. Joining BDC is “a bigger step because now we can do this at scale.”
Fixing Canada’s chronic weakness in capitalizing on IP became a priority for the Liberal government in its last mandate after industry proponents, notably former BlackBerry Ltd. chairman and co-CEO Jim Balsillie, pushed the government to act. He and others in the field have argued Canada lags other nations on IP. Patent filings per capita are well below countries such as China, the United States and Germany, while the average share of value of Canadian public companies attributable to intangible assets, such as IP, is only 70 per cent, compared with 91 per cent for S&P 500 companies. Canadian universities and research institutes trail U.S. peers when it comes to licensing campus inventions and spinning out startups.
Ottawa in 2018 unveiled an IP strategy that included a legal clampdown on ”patent trolls” (shell companies that sue innovative companies for patent infringement); funding for IP education and awareness; and the launch of a “patent collective” to buy and hold patents that Canadian companies can license to protect themselves in IP lawsuits.
The BDC fund – which is separate from the IP strategy – “is a welcome development,” said Mr. Balsillie, who was consulted on both initiatives. “I only wish Canada did this 20 years ago so that we could have positioned our economy for prosperity in the global marketplace driven by IP and data.”
Jérôme Nycz, executive vice-president of BDC Capital, said the fund is just a start as the bank gets accustomed to financing companies based on their IP potential. “Like many things BDC Capital tries to do, it’s a demonstration project,” he said. “If we see deep market traction and we have to [provide more funding] in three years, we will.”
The fund will target globally minded companies that generate at least $1-million of annual revenue selling IP-based products in a range of fields and have had difficulty securing backing from traditional funders. BDC will invest $3-million to $10-million a company. “It’s meant to be a very flexible, patient and highly customized strategy,” Ms. Rementilla said.
While BDC will focus on companies with stated IP strategies, its funds will go toward working capital and won’t be tied to any IP performance indicators. “The success criteria for us is to see these companies grow,” Ms. Rementilla said.
The country is still in the early days of developing its IP chops. Mr. Basillie said BDC should increase the size of the fund, which should be matched by government policies “so that we can catch up in generating, commercializing and protecting IP for the benefit of Canada’s economy.”
Commentators have raised chronic issues including a lack of IP sophistication among Canadian tech firms. Several Canadian inventions have been taken to market by foreign companies, while most of the top artificial intelligence (AI) patent filers in Canada are foreign companies. Meanwhile, there are concerns that valuable, publicly funded discoveries made on Canadian university and research institute campuses continue to pass into the hands of foreign entities with relatively little economic benefit remaining in the country.
For example, China’s Huawei Technologies Co. Ltd. is one of the top private funders of Canadian academic research in such domestic specialties as 5G wireless technology and AI. It has gained ownership of publicly funded inventions despite security concerns that have seen its equipment banned from 5G wireless networks in four of the “Five Eyes” intelligence-sharing nations. (Canada is the lone alliance member that has not done so). Canadian universities funded by Huawei have largely shrugged off those concerns, saying they won’t stop taking money from the company unless they get explicit instructions from the government to that effect.
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Sean Silcoff