Startup funding crucial to future innovation
Iain Klugman is the CEO of CDMN node Communitech, a not-for-profit organization that supports technology companies in Waterloo region and promotes it as a technology cluster. The following article was first published in the Financial Post.
Last year, the Jenkins Report on R&D in Canada pointed to our lagging productivity as the greatest risk to our national prosperity. The OECD has long highlighted our poor productivity performance, warning that while we’re a nation rich in natural resources, we need to develop other sectors of our economy if we are to compete globally. Failure to do so will forever fix us in the minds of the world as hewers of wood and drawers of water.
Technology and innovation have long been seen as the magic solution to our productivity challenges. And yet, productivity remains elusive. Why? Because we’ve been coming at it from the wrong direction.
Decades of investment in research at academic institutions have proven disappointing because we insist on viewing them through the wrong lens. While investment in academic research and entrepreneurial education is absolutely essential, the expected return on that investment should be measured in the volume of discovery and human capital.
With a few notable exceptions, universities and colleges are not in the commercialization business, but their expertise can contribute significantly to private enterprise.
As a nation, we should be looking chiefly to our entrepreneurs to commercialize new ideas and innovations. They’re in the business of making money and creating jobs. Investments in R&D and entrepreneurship are where we should seek a return in the form of greater productivity.
Canada is poised to be a world leader in technology innovation. It has the right mix of human capital, enterprising spirit and the opportunity to apply technology to all industries. What’s missing is a laser-sharp focus on entrepreneurship as a key driver of the economy — one that will spur innovation in all sectors, not just information and communications technology.
Research by the Ewing Marian Kauffman Foundation consistently points to high-growth entrepreneurs as a leading source of job creation. In a study, The Importance of Startups in Job Creation and Job Destruction, Kauffman found that between 1997 and 2005, there is clear evidence that existing firms shed jobs, while startups (companies younger than one year old) are significant job creators.
This, in itself, should give Canada reason to focus its investment on early-stage companies and support for entrepreneurs.
But Canada has typically viewed an entrepreneur-driven economy as a nice add-on to traditional industries.
It’s time to make entrepreneurs the core focus of the economy. Startups should be seen as a means of driving productivity in other industries. They can help make healthcare more efficient; make manufacturing more profitable; make forestry and mining cleaner and greener.
The greatest risk to Canadian productivity is that our most promising entrepreneurs leave Canada to seek capital and support in Silicon Valley from incubator programs like YCombinator or TechStars. It’s in the country’s collective interest to support Canadian startups at home, helping them find the talent and capital they need to start, grow and create more jobs.
It’s no secret that entrepreneurs need more risk capital. There are measures in the 2012 federal budget designed to provide more — between new investments in the NRC-IRAP program, the Business Development Bank of Canada and the provision of $400-million in new venture capital.
These are good measures. But they are not enough. Canada needs more private capital at the table — increased levels of angel investment, more institutional capital and a greater tolerance for risking that capital for the chance of a big payoff. It’s the only way we’ll build the next Research In Motion, the next OpenText or the next Google in Canada.
And entrepreneurs also need to maximize the impact of the modest amounts of available capital. In Ontario’s Waterloo region, we work with more than 400 startups each year, coaching them, supporting their pursuit of key talent and helping them connect to sources of capital. Strategically speaking, startup dollars are best spent hiring smart people, doing R&D and getting product out the door.
Prime Minister Stephen Harper declared 2011 to be the Year of the Entrepreneur. Truly, every year should be the Year of the Entrepreneur. Entrepreneurs should be seen as providers of products and services — as central to Canada’s economic strategy.
Entrepreneurs are more than job creators; they’re change agents.
Consider Free the Children founder Craig Kielburger, RIM founder Mike Lazaridis, and Desire2Learn creator John Baker. These are Canadians who are driven to make the world a better place. Yes, they are building businesses and making Canada more productive. But they’re also making global contributions to science and discovery, learning, and social well-being.
Backing the entrepreneur is not just something that’s nice to do; it’s essential to Canada’s productivity, and to its ability to lead on a world stage. Canada is already a startup nation. We just need to believe it.