Growing Canadian firms are selling out earlier and at lower valuations than US counterparts

Panel 2 | Emerging Innovators: The Job of Growing New Businesses in Canada

Oct. 12, 2016, Ottawa

Opening remarks:
Michael Denham, President & CEO, BDC

Breanne Everett, CEO, Orpyx. Governor General’s Innovation Award recipient
Raymond Laflamme, Executive Director, Institute for Quantum Computing
Marty Reed, President & CEO Evok Innovations
Ilse Treurnicht, Chief Executive Officer, MaRS Discovery District

Janet Bannister, General Partner, Real Ventures

Session Recap

By Carl Meyer

Canada must confront gaps in talent, funding, culture and migration to make its innovation ecosystem competitive and reduce the number of growing companies that are sold to U.S. interests, industry experts told the Canada Growth Summit on Wednesday.

The Public Policy Forum panel “Emerging Innovators: The Job of Growing New Businesses in Canada” hosted several speakers who offered their own experiences and suggested solutions.

Talent gaps

Raymond Laflamme, executive director of the Institute for Quantum Computing, drew from a metaphor used by Governor General David Johnston earlier in the day of business growth as a conveyor belt, with a defined endpoint and a straightforward way to get there. With a conveyor belt, you have a vision of where you want to go, said Laflamme. But where does it start? The answer, he said, was talent, with the most important element of that being hiring.

One story that drew applause from the crowd came from Marty Reed, president and CEO of Evok Innovations, a partnership between oilpatch players Suncor and Cenovus and British Columbia’s Cleantech CEO Alliance.

Reed gave a frank assessment of Canadian immigration laws. When the American made the move from the United States to Vancouver, he said, he quickly found getting a work permit to be anything but easy. He called his experience immigrating to Canada a “black hole.” Once in the country, he said he’s faced further obstacles trying to get his kids a stable education.

“I’ve been asked on several occasions to call my colleagues in Silicon Valley and encourage them to come up here and join companies,” he said. “Right now, my answer is ‘No. I won’t.’ That’s a real problem.”

While “there is a great wealth of talent in this country,” Reed added,
there is a need for talent in sales, marketing and finance. Canadian experts in finance, he argued, are often well-versed in raising money from
government—a phenomenon common enough to get its own term,
“stacking”—while US firms are often focused on raising money from

Raymond Laflamme, Ilse Treurnicht, Breanne Everett, Marty Reed and Janet Bannister

Funding gaps

Janet Bannister, the panel moderator and general partner at Real Ventures, pointed to research presented in 2013 by the MaRS Discovery District that has shown that over a five-year period, 183 high-tech companies were acquired in Canada, 70 per cent by US companies, at an average valuation of roughly $100 million in US dollars. That’s compared to 2,300 US firms being acquired, but at an average of $384 million.

While the ratio of the acquisition rate between the two countries is within the general boundaries of the 10-to-one ratio that reflects the two populations, the valuation was much higher for US firms. Canadian firms are selling out earlier, said Bannister.

Breanne Everett, a medical doctor at the University of Calgary who founded Orpyx, a technology firm that helps address foot complications in diabetic patients, said it often makes the most business sense to sell out to a US company, especially “if a company that continues to meet milestones” isn’t able to secure proper funding.

Everett said the financing environment in Canada was presenting problems. There is a “huge gap in med tech financing, particularly in this country,” she said. Her firm was told it was “too early” during its first round of venture capital financing, while angel investors were hesitant because they saw their smaller cheques as not doing much.

“What we need to do in the medtech space is create funding across the spectrum,” she said.

MaRS CEO Ilse Treurnicht said acquisitions of young tech companies is “part of the food chain.” It can’t be avoided, she said, but Canada needs to focus on creating the best possible conditions for small companies to grow into global ones.

“This is about an own-the-podium strategy,” she said.

There needs to be a “new conversation” about what innovations are needed, thinking about data and evidence, and the regulator as “not the policeman” but as a way to “accelerate the adoption of the best innovations.”

“Don’t necessarily change the amount of funding
available, just allocate it to the winners.”

Culture gaps

Meanwhile, the pull to Silicon Valley is strong, panelists acknowledged. The Valley is seen as the epicentre of tech, said Everett, and why not move to the centre of the action? Even the motives of businesses not making the jump to the Valley are questioned.

Canada needs to showcase more compelling reasons for companies to stay in the country, she said.

Laflamme said he was surprised at how hands-off the Canadian government has been with innovation. The United States is often talked about as the country of the free market, he said, but the Americans have structures in place like DARPA, a US government agency, that provide for considerable amounts of government involvement in new tech.

There are too many examples of companies that don’t achieve the scale that could be possible for them, said Michael Denham, president and CEO of the Business Development Bank of Canada. The bank is trying to fix the imbalance through the federal government’s Venture Capital Action Plan.

The first set of results were announced late September. Innovation Minister Navdeep Bains recently said the plan, first announced in 2013 under the Harper government, has invested $340 million establishing four “funds-of-funds” and another $50 million into four other existing venture capital funds.

Reed said there is a “fundamental lack of competition” with many R&D
funding programs in Canada. Getting funding is often a result of firms
simply showing up, what he called the “attendance award.” In Silicon
Valley, he said, getting to the second tranche of funding in a program
like Small Business Innovation Research, “you have to hit it out of
the park.”

His prescription: “Don’t necessarily change the amount of funding
available, just allocate it to the winners.”

Back to top