The Peace Tower of Parliament Hill in Ottawa on Dec. 13, 2023.Sean Kilpatrick/The Canadian Press
Adam Froman is the founder and CEO of Delvinia, and an award-winning entrepreneur and innovator. David A. Wolfe is a professor of political science at the University of Toronto Mississauga and co-director of the Innovation Policy Lab at the Munk School of Global Affairs and Public Policy.
Success for technology startups and scale-ups is crucial for Canada’s economic future, yet prospects for this sector are not as bright as they should be.
The problem is sometimes hard to see, because Statistics Canada data shows that technology-based scale-ups, defined by revenue growth, display the highest levels of productivity growth in the country. However, even with this demonstrated success, there are simply not enough of these firms to make a dent in Canada’s overall innovation performance.
Policy-makers seemed to recognize this in the past, yet now Ottawa is dithering. There is a yawning gap between the government’s aspirations and its efforts to support Canada’s tech scale-ups.
In February, 2023, the government released its blueprint for the Canada Innovation Corp. It was a follow-up to a commitment it made to help drive Canadian business investment in research and development. The CIC was designed to operate with an initial budget of $2.6-billion over four years, and it was to begin operations before the end of 2023.
Last December, the government delayed. The Departments of Finance and Innovation, Science and Economic Development surprised the technology community by postponing the implementation of the CIC until “no later than 2026-27.″ This put the brakes on a considerable amount of work by government, industry and academics into reimagining Canada’s innovation support system.
While it is understandable that a strategy to stimulate R&D spending as the COVID-19 pandemic receded would not be easy, no one expected such a complete halt. Telling an exhausted, pandemic-drained, financially strapped and talent-starved Canadian technology community to sit back and wait three years to “possibly” receive support from the new innovation agency is effectively flashing a big sign saying: “You are on your own.”
Canada’s tech companies will have no choice but to figure out on their own how to navigate high interest rates and an unstable global economy, while they wait for an efficient and harmonized federal innovation corporation that may or may not come. This is not the co-ordinated and streamlined solution that entrepreneurs deserve and expect from their government to help support growth and expansion into global markets within a fast-paced, dynamic technology sector.
A new research study from the University of Toronto’s Innovation Policy Lab interviewed more than 100 chief executive officers of technology scale-ups. It found that 86 per cent agreed on the significance of direct government grants to accelerate their growth. At the same time, 70 per cent said they’re concerned about how to access grants.
Current policies aren’t doing what’s needed to help the sector. For example, labour market policies focus on hiring domestic talent, but don’t support the need for firms to access a remote global work force.
Meanwhile, current interest rates are creating significant cash flow issues for many growing companies, and banks have tightened their lending policies. This makes it especially difficult for technology companies to borrow the money they need to grow; they have intangible intellectual property assets that do not show up on their balance sheets.
The initial announcement of the CIC called for policy-makers to “adopt a more strategically focused industrial policy that deploys multiple policy instruments in a holistic fashion toward supporting promising Canadian technology firms.” Postponing the CIC erodes the confidence of our tech sector in the government’s commitment to deliver a relevant policy framework to support startups and scale-ups at their pace of growth.
Until the government catches up with the pace that Canada’s most innovative companies operate at, tech entrepreneurs will have to remain resourceful while holding their breath. Since expectations were set with a great deal of optimism from within the technology community, delivering on the initial promise would have been better.
Now, let’s hope that our technology startup and scale-up entrepreneurs will not lose their confidence to remain in Canada as they grow. There are already whispers within the venture community that startups are leaving Canada to seek financing south of the border.
While the government has stumbled in its efforts to establish a new agency to support our innovative companies, technology entrepreneurs should not lose faith. Many other programs still exist, but they operate independently, thus requiring firms to complete separate applications. Thus, it remains up to technology entrepreneurs to identify and navigate these programs on their own.
The Canadian technology community is resilient and optimistic, and entrepreneurs will continue to hold their breath for the government to deliver on its commitment to support their growth.