Report: New federal agency needed to support scaleups and deploy digital technologies

Canada must offer much stronger support for tech scaleup firms and needs a new national innovation agency to help bring disruptive technologies to market, says the author of a new report on a digital strategy for the country.

The nation is lagging in the global digital economy and also needs better policy and programs to deploy state-of-the-art digital technologies across all sectors of the economy, says Dr. David A. Wolfe, author of “A Digital Strategy for Canada: The Current Challenge,” published by the Institute for Research on Public Policy, based in Montreal.

“Clearly, no single one of those initiatives is a single bullet. All of them are going to be necessary to increase the effectiveness of the digital economy in Canada,” Wolfe told RE$EARCH MONEY.

Wolfe is a professor of political science at the University of Toronto Mississauga and co-director of the Innovation Policy Lab at the Munk School of Global Affairs & Public Policy. He is currently leading a five-year partnership grant, funded by the Social Sciences and Humanities Research Council of Canada, for the project “Creating Digital Opportunity for Canada.”

“We need a whole new government approach to support scaleups,” Wolfe says. “There should be a branch with responsibility for looking at how all existing government programs are working to support digitally enabled scaleups.”

A new agency, staffed by technology experts and focused on disruptive technologies and industrial sectors with potential to generate higher-than-average social and economic returns, should be at the periphery of federal bureaucracy to ensure its autonomy, Wolfe says. The agency could be modelled on the U.S. Defense Advanced Research Projects agency, the Israel Innovation Authority, Sitra in Finland or A*Star in Singapore, whose involvement has been crucial for successful digital strategies in those countries, he says.

Structure policy to support scaleups 

[rs_quote credit="Dr. David A. Wolfe" source="Co-director, Innovation Policy Lab at the Munk School of Global Affairs & Public Policy"]We need a serious adult discussion in Canada on the most effective way to mobilize existing pools of capital and direct them to investing in tech companies that are scaling up.[/rs_quote]

Canada needs to structure policy to support scale-up of firms with $10 million in sales and an annual growth rate of 20% for three years, and that want to get to $100 million, Wolfe says. He also recommends a follow-on policy that would channel Canadian capital into companies that want to grow from $100 million to $1 billion or more.

The number of billion-dollar Canadian tech companies declined further in February, with Morgan Stanley’s purchase for $1.1 billion of web-based software firm Solium Capital Inc. in Calgary. That followed the sales last year of Vancouver-based Avigilon Corp. to Motorola Solutions, and Ottawa’s Mitel Networks Corp. to an investor group led by Searchlight Capital Partners. Most recently, Montreal's Clementia Pharmaceuticals Inc. sold to Paris-based Ipsen for US$1.04 billion on Feb. 25.

“We’re not generating a sufficient number of companies of that scale in this country, and we’re not replacing the ones that we lose at a rapid-enough rate,” Wolfe says. “If we don’t have enough of these companies in Canadian hands, then we’re not providing training opportunities for Canadians who want to take smaller companies and grow them to global scale.”

There is plenty of investment capital in Canada, but policy is needed to direct more of it to digitally enabled scaleups rather than to buying airports and harbours in other countries, Wolfe says. “We need a serious adult discussion in Canada on the most effective way to mobilize existing pools of capital and direct them to investing in tech companies that are scaling up.”

Since the 1980s, there has been no federal equivalent to the Caisse de dépôt et placement du Québec, which for decades has operated a venture arm designed to support and grow Quebec technology firms, he notes. Some funding in the federal Scientific Research and Experimental Development tax credit program needs to be redirected from supporting basic research to programs targeting more development activity, he says.

[rs_related_article slug="qa-hockeystick-founder-raymond-luk-on-fostering-scaleup-ecosystems-in-canada"]Refocus programs to deploy digital technology

Wolfe’s report argues for taking other existing federal programs and rolling them into a new major effort to support the adoption and diffusion of digital technology in firms across every sector of the economy. Studies by the Ottawa-based Centre for Study of Living Standards show the nominal investment in ICT per job in Canada fell from 68.4% in 2008 to 56.3% in 2014, compared with the U.S. level, his report notes. Canada’s productivity also lags behind that of the U.S., where that ICT sector has been one of the biggest sources of productivity gains, Wolfe says. “We are much slower at adopting and using digital technology, particularly software, across the board in Canadian companies.”

The role of universities in supporting a digital economy and innovation system is to train and provide high-quality graduates who’ve worked with world-leading academics on cutting-edge research, Wolfe says. However, both the federal and the provincial governments need to ensure the talent supply meets the demand, he adds.

“We’ve done such an excellent job of training people that there’s a gold rush on to hire Canadian tech talent and it’s getting ahead of what the universities can produce. The big multinationals are starting to outbid the Canadian startups and scaleups for this talent, which is becoming another challenge for the scaleup firms.”

[rs_related_article slug="federal-departments-and-agencies-have-till-september-to-implement-data-management-plan"]Other recommendations in Wolfe’s report:

• establish a sales and marketing consortium to help give Canadian digital firms the breadth needed to penetrate emerging markets, especially in East Asia;
• support scaleups with foreign-exchange risk insurance and targeted foreign intelligence on international sales opportunities;
• create a national data strategy, with secure data storage facilities and clear property rights to data and rules for future usage, and link this strategy to the proposed national Intellectual Property Strategy;
• form a national collaborative network of existing regional innovation clusters, through the regional development agencies, to share best practices; also align research by universities and other research institutes to meet the needs of local digital clusters;
• create a new urban policy agenda, coordinated by all levels of government, to address how data gathered for smart cities and intelligent mobility — such as connected and autonomous vehicles — will be controlled and managed.

Wolfe’s report acknowledges the federal government has done much in the last three years to strengthen Canada’s innovation ecosystem, with new programs, increased funding and the streamlining and rationalization of business innovation programs. Also, the Canadian Council of Innovators now is an effective voice in representing the tech firms and scaleups, he says. “There is a confluence of things coming together in this country to give the federal government a greater sense of urgency.”

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