Canada needs to do more to scale-up our top young tech companies

TORONTO—Once in a while, somebody gets it. A recent example is Stephen Welton, the new chair of the British Business Bank, an organization formed to foster the growth of British tech start-ups, help them commercialize new ideas, and then grow into successful companies. It is an innovative group. Its latest effort is to create a growth fund so that pension funds and other institutional investors can invest in a portfolio of young companies supported by the bank. But like Canada, Britain has the same challenge: big multinationals or foreign private equity groups are constantly on the prowl to buy up the best new firms and their potentially rich intellectual property so that the full benefit is captured elsewhere. Instead of growing the best start-up companies to scale and scope so they become domestic anchors for growth, good jobs, and wealth creation, both Britain and Canada have too many examples of where multinationals have come in and scooped up the stars. A recent report showed that the big multinationals, with their deep-money pockets, are outspending traditional venture capital firms on investments in young companies. Britain may be trying harder to address this issue than Canada. But unless we do more to scale-up our top young tech businesses, we will not develop the new economy we need to replace the fossil-fuel and high-carbon industries on which we currently rely. In an interview with The Financial Times, Welton declared that he did not want Britain to be seen as an “incubator economy” mainly developing businesses for foreign buyers. We don’t have that kind of concern in Ottawa with multinationals buying promising young companies and no one caring very much. Yet without our own large-scale firms, with their own intellectual property, we will continue to fail as a successful innovation nation able to create and fairly share the wealth we need for a decent standard of living. Welton, an experienced financier, told The Financial Times that “we’re developing these companies, and then they are being acquired either…by corporate—often U.S. corporates, but not exclusively—or they’re being acquired by U.S. investors, who then re-domicile the business.” But, he continued, “we don’t want to be an incubator economy taking all the risk of these very, very tiny companies, and then not being able to capitalize on that by following through with the scale-up capital to turn some of these into true global companies.” In Canada, the House Science and Research Committee issued a report last November on proposals to support the commercialization of intellectual property coming out of our universities, research hospitals, and colleges. This is a huge challenge. Over the years, Canada has been investing billions of dollars in academic research and funding of start-ups, but has failed to capitalize on the commercial benefits that should come from these investments. Instead, foreign corporations are buying up the best new companies and the patents and talent we are producing, or they are establishing R&D branch plants where they use Canadian talent and domestic research to produce intellectual property for the foreign parent, with the resulting discoveries being used for commercial production and growth abroad. While the committee had some recommendations to improve the commercialization process, it did not address the huge issue of scaling up promising Canadian companies so some could become global players, and benefit from ongoing development of intangible assets in this country—including intellectual property, branding, software and unique business models—although some witnesses did point to the lack of larger Canadian anchor firms that could be markets for, investors in, and mentors to younger home-grown businesses. If we are simply creating small spin-out companies to do the early high-risk work of testing out their new ideas and then—after there is greater certainty on the value of their discoveries—sell them to foreign buyers for commercialization elsewhere, then we are simply creating seed corn for others while our own country lags in higher-value new industries, jobs, exports, and wealth creation we need. Instead, we export our ideas for a low price and import, at much higher price, the resulting commercial results. We export knowledge, and import innovation. For young Canadian entrepreneurs who develop patentable new discoveries, too often there are no Canadian companies to whom they can sell their ideas. So they are forced to sell to foreign investors if they want to see their discoveries commercialized. In the process, we are creating new knowledge and new commercial possibilities to benefit other countries. The next decade will demand significant change in Canada if we are to sustain our way of life. According to a paper from Industry, Science and Economic Development, analysis from the Harvard Growth Lab shows that “many countries have overtaken Canada in its ability to produce diversified and complex products for international markets.” In 1995, Canada ranked 22nd out of 129 countries in its ability to export sophisticated and diverse products; in 2021 we ranked 41st. This reflects our lack of sustained investment in innovation, and the much greater focus on building successful businesses in advanced technologies and value-added in other countries. Canada remains heavily dependent on trade in carbon-intensive products, led by oil and gas. But this may not be sustainable, the ISED analysts say, “as the global economy and consumption patterns move away from these products, driven by the global green imperative associated with climate change.” If we want to do better—and we must—then we must focus on scaling up Canadian-owned businesses that can develop, commercialize and grow into the next-generation economy with high-value products. It is through businesses that innovation occurs. And it is through Canadian-owned growth companies that we will derive the befits from our investment in talent and ideas in our universities, research hospitals, and colleges. Focusing simply on recovery from the current economic slowdown is not the end game. The end game has to be the creation of a new Canadian economy with a growing number of high-value domestic businesses that can flourish in the global economy. David Crane can be reached at crane@interlog.com. The Hill Times

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Canada needs to do more to scale-up our top young tech companies

Focusing only on recovery from the current economic slowdown is not the end game: that should be the creation of a new Canadian economy with a growing number of high-value domestic businesses that can flourish in the global economy.

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