September 21, 2017 dan@danherman.ca

Memo to a New Government: Priority Areas to Support Canadian Startups

The election of Justin Trudeau’s Liberal Government in Canada means a significant window has opened up to revisit and restructure how we support innovation and economic growth in Canada. As this blog has covered in an ongoing fashion, the past decade hasn’t been kind to our performance on a variety of innovation-related metrics. That said, we have the world’s second largest ecosystem of entrepreneurs (per capita) and a network of over 140 support organizations for them.

So, where do we go from here?

Over the past 8 months, we’ve worked with a series of government partners on a major research initiative examining Canada’s business acceleration and incubation system. It, along with other work we’ve recently completed alongside the Waterloo Innovation Summit, points to a series of actionable and priority areas that must be addressed in order to move the dial on Canada’s innovation performance.

And when I say performance, I don’t just mean in the invention of new ideas and the creation of new startup companies. Rather, we need to orient how we measure success to the creation of sustainable, high-growth companies. These companies are the holy grail of contemporary economic development as while they represent less than 5% of firms, they contribute to nearly 50% of all employment growth. These growth firms, however, are largely neglected in our policy. We’ve spent the better part of a decade focusing on startups and the development of a plethora of support organizations to help them. But on aggregate startups are about churn. As Kirill finds in our March scorecard, even in ICT, Canada sees a decline in the number of net new companies (entries minus exits). Better supporting those who show traction is ultimately key to our long-run performance.

This is one of several key themes that emerge consistently across our research on Canada’s innovation system as requiring attention. This research project is a rather voluminous five part series that examines Canada’s domestic business accelerator and business incubator ecosystem (BABI), the international benchmarks, how we support startups who want foreign market access, and how we measure and define these organizations. The full library will be released shortly.

In the meantime, here’s a sneak peak at the key recommendations that we highlight in our capstone report:

“Existing data points to considerable benefits stemming from the current activities of Canadian BABIs, most notably the attraction of over $1.7 billion in follow-on funding and creation of over 10,000 jobs. At the same time, assessing the overall performance of Canada’s innovation support ecosystem remains difficult, owing largely to significant gaps in data collection and performance measurement.

More broadly, Canada’s continued underperformance on the creation of high-growth firms and limited transactional activity within its start-up community speaks to real weaknesses in the entrepreneurial support ecosystem. On the basis of our analysis of the Canadian domestic accelerator and incubator landscape, as well as leading international comparators, this report highlights six areas of BABI activity that require immediate attention. Responsibility for these changes does not fall on any one actor. Rather, they encompass actions that must be taken by BABI leadership and the public decision makers who fund them, as well as the corporate and private investors who engage with them.

The six areas for improvement highlighted in this report are certainly not the only issues that need to be addressed. Others concerns relate to a short supply of credible mentors and the coordination of goals and funding across funding agencies. In both of these latter cases, however, the route to solving them is more long term in nature. In the short term, a focus on scaling up high-potential firms, performance management, engaging incumbent large firms, a stronger focus on internationalization, and a more structured engagement of investors are key to buttressing the foundations of Canada’s innovation and entrepreneurship ecosystem.

Each actionable area is interrelated. More transparent data will lead to more refined capacity to target high-growth firms; more international exposure will help build the management talent that is required to scale start-ups into globally competitive firms; and better engagement with corporate Canada and both VC and angel investors will unleash the capital and transaction activity required to help those firms scale.

Managing these interdependencies to help firms scale will be key: without a focus on these remaining challenges, the Canadian start-up ecosystem will be unable to exploit the tremendous entrepreneurial activity that accelerators and incubators have helped to create. While entrepreneurship in and of itself is a valuable activity—especially so, given prevailing labour market trends—it remains an intermediate step towards the ultimate goal of creating sustainable high-growth firms that can drive economic and employment growth. For Canada to become a leading tech nation, and for Canadians to enjoy the prosperity that can accompany it, accelerators and incubators must transition away from just starting companies and focus on helping high growth potential companies to grow, scale, and become the significant employers of tomorrow.

 

Overall, our research highlights six priority areas for immediate action that will be critical to better serve Canada’s start-up community:

1. Focus on high-potential firms and scaling up.
2. Improve performance measurement and data collection.
3. Better engage corporate Canada.
4. Create an executive mentorship network for high-potential firms.
5. Upgrade internationalization programming.
6. Develop a formalized investor engagement model.

We go into more detail on each in the report.

And to be sure, there are other issues facing Canada’s innovation ecosystem. We detail 7 overlapping priorities for the further development of Canada’s innovation ecosystem in a complementary piece produced with the Waterloo Innovation Summit. We’ll post this very shortly.

Ultimately, this is a really exciting time for Canada’s policy makers and for folks like us who want to help them. We’ve got a great opportunity to move to move beyond complaints and poking holes. Our research on Canada’s innovation ecosystem will hopefully help push concrete actions forward.

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