DEMO-Michelle-Zatlyn-0796 by The DEMO Conference (CC BY-NC-ND 2.0) https://flic.kr/p/rYwugJ

DEMO-Michelle-Zatlyn-0796 by The DEMO Conference (CC BY-NC-ND 2.0) https://flic.kr/p/rYwugJ

Columns

Canada’s Innovation Challenge: Keeping The Billion Dollar Club At Home

From the moment the Liberal government took office last fall, it left no doubt that innovation was going to be a top priority. Gone was Industry Canada, replaced by the Ministry of Innovation, Science, and Economic Development, with Navdeep Bains, a close confidant of Prime Minister Justin Trudeau, installed as the responsible minister.

Last week’s budget continued the emphasis on innovation, promising $150 million in 2017-2018 for an innovation agenda. The full details have yet to be revealed, but the budget also added tax reforms to create investment incentives (and quietly dropped a tax change that would have hurt start-up companies), support for innovation clusters, and increased dollars for scientific research.

My weekly technology law column (Toronto Star version, homepage version) notes that the government says its goal is to make Canada a “centre of global innovation”, a significant challenge given that studies persistently point to Canada’s innovation gap. Last year, the Science, Technology and Innovation Council (STIC), a government-backed group, concluded that Canada “was not globally competitive” and that “it is falling further behind global competitors and facing a widening gap with the world’s top five performing countries.”

The STIC data shows that Canadian businesses lag behind their global counterparts in investing in research and development and do a poor job of integrating advanced research talent into the workplace.

Reversing these trends will take a concerted policy effort to establish incentives to encourage Canadian businesses to innovate at home. Indeed, a recent U.S. study shows that Canadians are behind a significant number of new start-up companies with billion dollar valuations. The problem? The Canadians no longer live in Canada, having moved to the U.S. to find their business success.

The National Foundation for American Policy study reveals that more than half of the 87 U.S. start-ups with valuations of more than US$1 billion that have yet to go public were started by immigrants. Canada ranks as the second largest talent source behind only India.

The Canadian-created companies include some of the biggest names in technology today including:

•    Uber (co-founded by Garrett Camp, who went to school at the University of Calgary and hit earlier with StumbleUpon)
•    Slack (co-founded by Stewart Butterfield, who earlier co-founded Flickr)
•    CloudFlare (co-founded by Michelle Zatlyn, who graduated from McGill University before moving to the U.S. for business school)
•    SpaceX (founder Elon Musk has a Canadian citizenship and attended Queen’s University).

Other companies with Canadian ties include AppDirect, ContextLogic (maker of the Wish shopping app), and Moderna Therapeutics.

There is nothing new about Canadians moving to the U.S. to pursue their technology dreams. Companies such as eBay and Flickr have strong Canadian connections (Toronto native Jeff Skoll co-founded eBay) and estimates suggest that there are thousands of Canadians in the Silicon Valley alone. In fact, the C100 group is a Silicon Valley organization specifically designed to assist Canadians in California find financial backing and commercial success.

There obviously are some Canadian success stories, but domestic tech stars such as Shopify are notable in part because they decided against moving to the U.S. With a robust venture capital community, more competitive telecommunications market, laws that support innovative Internet companies through copyright fair use and liability safe harbours, and a well-developed entrepreneurial culture, Canada is a long way from replicating the U.S. innovation environment.

Bains’ innovation agenda may be a centerpiece of the government’s economic strategy, but success will ultimately be defined by the ability to create business, legal, and finance policies that entice the next generation of billion dollar companies to stay at home.

4 Comments

  1. It seems like internet based business tends to move from here to the US. Since this kind of industry has to do more with economic environment than resources, what’s the reason? Is it really that Canada discourages internet development? One might think so.

  2. Ire Levant says:

    Gee, and here I was thinking this was about putting all them billionaires under house arrest.

  3. The education system here in Vancouver has responsibility for supporting future entrepreneurs to flourish and express their creativity. A lot of the innovation sector is technology based, and dependent on iterations on top of previous creations. What is needed is more innovation that breaks open new markets. A recent report proposed an unfavorable outlook on innovation in Canada compared to the States, stating that we need more grit in order to compete in the innovation sectors. It is my impression where a truly free market economy has yet to flourish, and inefficient public monopolies (ICBC, Translink, etc) are allowed to flourish, its difficult to introduce the vectors necessary to create grit (and competition). Focusing exclusively on the tech sector also ignores the services sector (which is not uncommon among startups and entrepreneurs), which passes by opportunities to innovate in sectors that heavily influence the Canadian economic landscape.

    Travis Barker
    Innovate Vancouver

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