July 18, 2020

Questions submitted to Hon Mona Fortier 8 May 2020

 

CATA members held a teleconference with Hon Mona Fortier in May 2020 and there have been two follow on meetings. At the request of finance staffers CATA  submitted three questions and CATA has requested a written reply.

 Could you and your colleagues please take a close look at this digital-first, data driven and accountable proposal and advise how we can get tech SMEs the support needed for the sector to survive.  The RR Fund or a close alternative is needed to look after SMEs, not just the large firms and avoid a fire sale of our investments and keep our hand in the Future Economy.

The questions follow: 

First Question

The wage subsidies that have been released are exceedingly helpful for current cash flow.  However, there seems to be an instance of the “law of unexpected consequences” at play here.  Companies are very concerned and even shocked to hear that Government Assistance from the Canada Emergency Wage Subsidy (CEWS) seems to directly decrease their entitlement to SR&ED, including claims for this period.  This will severely hinder their ability to support investments in advancing their technologies in the future.

 Would the Minister consider proposing that the legislation that enacted CEWS be amended to classify CEWS differently and exempt from the standard government assistance provisions, such that it will not reduce the SR&ED qualified expenditure pool? CATA is calling for a similar exemption for the Resilience and Rebound Fund (RR Fund). 

Second Question

Canada has a long history of creating excellent advanced science and technology based firms, including aerospace, health, and Information Technology oriented ventures, only to see them repeatedly sold off for the highest bidder to benefit financially, offshore. 

Over the years, this represents a huge loss of Canadian taxpayers’ investments in developing the talent and the technologies that underlie these firms. There are lessons to be learned from previous downturns when this trend grows exponentially. 

Today, we hear that both Apple and Microsoft have ceased investment are actively looking for valuation bargains.  (As of 8 May) Microsoft has purchased 5 companies total since the start of the pandemic; and Apple has purchased 4 companies this year, 3 since the start of the Covid-19 crisis. 

The companies are reportedly taking advantage of compressed valuations due to the pandemic.  So will others as our history has shown. 

We have the opportunity to do better. How will the Government support tech SMEs so we don’t have a repeat of the 2008 crisis and the sector getting bought out? What actions are you planning to protect our annual multi-billion dollar investment in innovation, intellectual property and the teams that create it?

 Third Question

We are advocating for the full spectrum of Canadian tech-centric small and medium businesses with our proposed Resilience and Rebound Fund (RR Fund). 

We recognize that this is not a narrow proposal but one aimed at helping to protect Canadian investment in commercialization and the education of company development teams. 

Our recent survey indicated that only 18% of tech owners and leaders who responded (63) were confident that existing and proposed funding would help them survive the economic impact of COVID over the next 12-18 months.  Twenty-seven percent (27%) indicated the CATA RR Fund would prevent them from shuttering.  Sixty percent (60%) answered that the fund would help companies compete, pivot and keep revenues flowing.

CATA’s proposed Resilience and Rebound Fund (RR Fund) is an alternative to the larger emergency BDC and EDC equity/capital programs that are not accessible, or practical for many.  Almost 13,000 thousand  small, medium and 3 large tech businesses that participate in the SR&ED program employ 760,000 people across Canada, pay $34 Billion in payroll, and earn revenues of $188 Billion annually  (new Stats Can data). 

They represent one of Canada’s best opportunities to lead a faster recovery post COVID-19, and have been supported by Canada’s biggest innovation program, SR&ED. 

Yet, these firms are fragile.  If 40-60% of them fall, Canada will largely be left out of the future economy as has happened repeatedly in the past.  CATA believes that our proposal to help the Government reach the full, broader spectrum of tech firms left behind with the current emergency funding has not yet been seriously reviewed by Cabinet.

 Could you and your colleagues please take a close look at this digital-first, data driven and accountable proposal and advise how we can get tech SMEs the support needed for the sector to survive.  The RR Fund or a close alternative is needed to look after SMEs, not just the large firms and avoid a fire sale of our investments and keep our hand in the Future Economy.