NACO Academy Podcast

Benjamin Bergen is Executive Director of the Council of Canadian Innovators, a national business council led by the CEOs of Canada’s fastest growing technology firms.

It’s easy to be a pessimist these days. We have now been slogging through the turmoil, strain and heartache of a global pandemic for more than a year — long enough to grind anybody down. But by their very nature, innovators are optimists. We don’t accept the world as it is today. We insist that it can be better, and when we see problems, we work to make it better by building the solutions.

Innovators have helped carry us through COVID-19. E-commerce, cloud computing and an array of other technologies have saved countless lives by allowing us to continue working in our socially distanced reality. What’s more, innovative, cutting-edge techniques allowed us to develop vaccines at breakneck speed. As we look toward putting COVID-19 behind us, our world will only be more data-driven and technology-infused, and when the post-pandemic recovery comes, we can be sure that it will be led by innovative companies. There’s no guarantee, though, that Canada will enjoy the full benefit of this economic boom. If we aren’t engaged and proactive, Canada can’t expect to claim its share of the global knowledge economy. If we don’t put the right policies in place to support homegrown Canadian innovators, there is a very real possibility that Canada will be left buying technologies and services from the countries that get it right, and we will all be poorer for it.

A thriving innovation economy is an ecosystem, and everything is interconnected — high-growth scale-ups, emerging startups, established players, research institutions, venture capitalists, angel investors and public policy experts. A growing, prosperous ecosystem creates wealth in terms of equity and intangible assets, which get invested back into the ecosystem, driving the next generation of growth. This growth also creates public wealth in the form of taxes, which help pay for the social services we all value as Canadians.
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The combined impact of the health pandemic and economic crisis hit hard and fast. This resulted in initial government relief taking what was described as a “people first” approach, with an emphasis on employees at risk of layoffs, and trying to minimize the impact on individuals. –– All of this was focused on helping to flatten the curve. And the curve is flattening.

As provinces begin to slowly open up, the longer-term economic realities are starting to take hold.

In a recent survey conducted by the Council of Canadian Innovators (CCI), 76% of respondents said that without capital and customers, their companies will continue to be reliant on government relief programs to sustain themselves and their workers.

Compounding this issue is the lack of available capital in both the current environment, which was already an issue in emerging ecosystems prior to the crisis.

In preparing NACO’s Canadian Angel Activity Report, to be released next month, our research indicates that angel investment activity continues to be distributed unevenly across Canada. Central Canada (Ontario and Quebec) account for 86% of investments compared with 13% in Western Canada and 1% in Atlantic Canada. Central Canada’s dominance is even greater in terms of the amount invested, accounting for 94% of the total.

Big cities do not have a monopoly on great founders or world-class companies.

When entrepreneurs in emerging ecosystems don’t have adequate access to local capital, as a nation – we miss the opportunity to produce more world-class companies like Skip the Dishes in Winnipeg, Slack in Vancouver, Solium in Calgary, and Verafin in St. John’s.

According to Entrevestor, most funding generated by Atlantic Canadian companies comes from outside the region.

St. John’s based Verafin - supported by local investor Mark Dobbin from Killick Capital and Toronto-based Information Venture Partners - speaks to the importance of national connectivity between regions - and the power of local capital within an integrated national funding continuum. The combined effect of local angel investors in St. John’s and venture capital from Southern Ontario, is Verafin – a company that has 300 employees in Canada, over $100 million in annual recurring revenue, and this past September announced the completion of a $515 million equity and debt recapitalization.
Verafin is a massive Canadian success story.

What does all this have to do with unlocking government funding to survive the crisis?

As has been discussed in past roundtables, the current focus of the policy response is emergency relief – with the view that later, weeks or months from now, the role of startups in the “economic recovery” will move into greater focus. However, if high growth companies don’t survive the crisis, there will be nothing to recover from. Startups in particular are at risk with a lack of financing options available to them.

That said recent announcements to extend relief to pre-revenue companies is promising. And we commend the government on their efforts. But the point still needs to be made –––

Without startups there are no scale-ups. Without angels, there is no funnel of high growth companies for venture capital.

In our last roundtable Janet Bannister, Managing Partner at Real Ventures, referred to the narrow focus on scale-ups in recent years, as equivalent to Canada producing a strong cohort of graduate students, and pulling back support for earlier education.

In the economic recovery following the crisis, we need an even stronger and more vibrant pipeline of startups than existed in the past, to produce a stronger and more robust wave of scale-ups and high growth companies to lead the economic recovery.

The stakes are high and Canada’s economic future hangs in the balance.

Earlier this week, an article that appeared in the Toronto Star stated that “The Canada Emergency Wage Subsidy program should be broadened to include high growth firms, software-as-a-service firms, firms whose revenues are seasonal or project-based and pre-revenue firms that are heavily invested in research and development.”
With economic confidence low, investment capital is drying up. Many of Canada’s highest-potential companies will run out of it in coming months. Without quick, strong government action, they will fail,” the article states.

We are now going to move into the next portion of our program where we hope to explore these ideas in further conversation.

Participants included:

Angel Investors

• Serge Beauchemin, CEO at Anges Québec Capital (Montréal)
• Judy Fairburn, Co-founder of The51 (Calgary)
• Sam Elfassy, Physician and Founder at HaloHealth (Toronto)

Entrepreneurs

• Alexandra T. Greenhill, Co-Founder and Chief Medical Officer at Careteam (Vancouver)
• Naheed Kurji, Co-Founder, President and CEO of Cyclica (Toronto)
• Julie Angus, Founder and CEO at Open Ocean Robotics (Vancouver)

Innovation Leaders

• Yung Wu, CEO at MaRS Discovery District (Toronto)
• Michelle Simms, President and CEO at Genesis (St. John's, NL)
• Jeff White, CEO at New Brunswick Innovation Foundation (St. John, NB)

Quotes

Big-picture government response: The Honourable Mélanie Joly

“The first priority is to keep Canadians healthy, as we are all flattening the curve. We need to make sure people are able to follow the strict rules and strict recommendations of our public health officials. I would say this is our biggest economic measure—the more we’re able to flatten the curve on the health risks, the more we’re able to flatten the curve on the economic risks.”

“Our second priority is having a people-first approach. What we did was massively expand the definition of EI and we created a new benefit—the Canada Emergency Response Benefit. We wanted to expand the social safety net in order for people not to fall through the cracks and to make sure we wouldn’t be increasing inequities at the end of this crisis.” Melanie

“We also came up with the CEBA (Canada Emergency Business Account) program, which is for businesses that had wages between $20,000 and $1.5 million. I’ve never seen policies developed as fast as we’re doing right now. We know we have to be fast and nimble.”

Proposed solutions for government from industry leaders: Yung Wu

“I commend the government for acting quickly to mobilize a massive response to this crisis—leadership has been truly impressive. But I’d like to be really candid here because we don’t have time to be polite right now: Operationally, that response has fallen short and, in particular, it’s fallen short in the tech sector. Most of our most promising companies are not yet backed by banks—they’re not yet backed by later-stage venture capital firms. They’re pre-revenue and backed by angels or are growing their companies by acquiring new customers or markets. I recommend that the government immediately grant blanket acceptance into the wage subsidy program for founders and employees who are part of a recognized accelerator or incubator, or who are backed by angels from a recognized angel organization.”

Final remarks: The Honourable Mélanie Joly

“To thrive in the business world, you have to be extremely optimistic. My message to you is to continue to keep that optimistic approach and know that things will get better and we will be helping you cross the bridge to get on the other shore. The future will be brighter.”

Originally Recorded on April 16, 2020. Click here to join future roundtables.<