CVCA Roadmap for Canadian Innovation and Growth

September 27
11:43 2016

By Mike Woollatt, CEO
Canadian Venture Capital and Private Equity Association

Back in January, Prime Minister Trudeau told the World Economic Forum that while natural resources are important, he wants Canada’s image to pivot from resources to resourcefulness. Or, as he put another way, for Canada to grow and prosper it “isn’t what’s under our feet, it’s what’s between our ears”. I agree with the direction of the statement but not the magnitude. Or, as I would put another way, for Canada to grow and prosper we must continue to reap the benefits and opportunities within our natural resources, while paying more attention to our innovation, growth and infrastructure sectors. Which, of course, is way more boring and perhaps therein lies yet another reason I am not in politics.

That said, the Government’s focus on innovation is very timely as Canada is at a pivot point both as a result of negative external factors such as the price of oil and international competition in areas like manufacturing, and positive internal factors like the boom in number of startups and entrepreneurs.

That is why all of us in the innovation and growth ecosystem were very pleased to see the Government follow up on Prime Minister Trudeau’s words with an ambitious Innovation Agenda over the summer that has drawn out no shortage of opinions and recommendations. For our part, to ensure that we captured the views of the wide diversity of our ecosystem in our submission to the Government, we held 14 roundtables from Halifax to Vancouver including hundreds of industry stakeholders and entrepreneurs.

Over the course of this intensive summer, we found that across this country there is a striking similarity of issues affecting immigration and growth: challenges to attracting and retaining talent, red tape around immigration, structural impediments to fundraising, poor strategic procurement support to homegrown Canadian startups, lack of Government leadership, undue regulatory burden on too-few incentive programs, and relatively poor digital infrastructure.

The solutions that were proposed at each session centred around four key themes:

  1. Focus on scale – For over a decade, policy makers have focussed on building our seed and early stage ecosystem. We need to expand the focus to ensure that companies have the resources to scale and grow to global levels.
  2. Long-term vision – Building an innovation ecosystem takes time and the benefits of our recommendations will only bear fruit many years from now.
  3. Participation, not competition – Canada is part of a broader North American ecosystem in which we have to participate, not compete. We should not be seeking to replace Silicon Valley, but rather use our many competitive advantages to thrive alongside it. This is why the free flow of talent across the border is particularly important and must be improved.
  4. Leadership matters – Governments at all levels should not underestimate the role their words and actions play in leading the innovation charge. But where direct policy is concerned, leadership should be in the hands of the private sector as driving financial returns is key to sustainability.

A vibrant Canadian venture capital and private equity market must be a cornerstone of any discussion on innovation and growth. We have all seen the consequences where excess reliance on US venture firms led for too many Canadian entrepreneurs to move their companies south of the border in order to obtain the required financing. But more than that, having local private capital managers brings more than just money to the ecosystem—they bring local talent, connectivity, know-how and experience that Canadian entrepreneurs can benefit from. And the proof is there: Canadian VC and PE-backed companies dramatically outperform their non-VC and non-PE counterparts in sales, revenue, employee, asset, wage and R&D expenditure growth. In short, they are a key component in the ecosystem. However, Canada’s venture capital industry in particular is still relatively young when compared to the US and Europe and requires government support on its path to sustainability as it does in many other jurisdictions.

Over the course of this summer, we gathered a number of recommendations for the Government on innovation and growth. However, distilling them proved relatively easy as these two in particular best reflected our themes above, are the most urgently needed, and were the most commonly mentioned:

1. Create a follow-on Funds of Funds Program (a Venture Capital Action Plan 2.0):

In 2012, the Government created a funds of funds matching program into venture capital that matched private sector dollars on a 2 to 1 basis. This program has successfully fanned a $340 million Government investment in to $1.4 billion for innovation companies at little or no real fiscal cost to the Government or taxpayers (and will likely net a return). This program also has a whole host of other indirect benefits including attracting new and returning players to the ecosystem – a key to long term sustainability. However, the first phase will be fully committed by the end of 2017. We recommend the government establish a second VCAP program to avoid the industry taking a step backward at precisely the wrong time, and build on the positive economic benefits of the first program.

2. Attracting and Retaining Talent Through Immigration:

There is a current talent shortage that creates a drag on our innovation ecosystem—notably among engineering and sales functions. Improving the immigration process for the innovation sector is the most efficient way to address this in the short-term. The red tape involved in obtaining work permits for non-residents and the settling process is too long, costly, and has been described as a ‘nightmare’ by many in our industry. The Government should ensure that high skilled talent can more easily immigrate or return to Canada.

To read a summary of our recommendations to the Federal Government’s Innovation Agenda, click here.

To read a summary of what the VCAP program is, click here.

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