April 28, 2020

START UP Canada: David Lowe – Canada Needs To Invest In Its Small And Medium Technology Firms Right Now

Start Up Canada original article

 Opinion: Canada Needs To Invest In Its Small And Medium Technology Firms Right Now

 ENTREPRENEUR VOICES: DAVID LOWE

 Three weeks ago, the CEO of a to-date low profile, but large impact organization, called the Canadian Advanced Technology Alliance (CATA) wrote to the Prime Minister recommending that the COVID-19 pandemic demands the government to urgently invest in the technology sector.

The initiatives announced so far are good but do not go far enough to save important companies.

This proposal offered the government a fast, simple, and accountable way to move money quickly to 12,000 of Canada’s most innovative business. In the process, likely saving many of the 85,000 jobs in this group.

Of course, the COVID-19 crisis has radically changed our day-to-day behaviour in almost every way. Old challenges such as traffic jams are suddenly forgotten. New challenges emerge. New alliances emerge.

Up until COVID-19 Canada has carefully built a thriving technology sector and its most innovative part is driven by small and medium businesses.

Some of the needs have been addressed in recent days with the loosening of the revenue restrictions on the 75% wage subsidy (which will not be available for another 6 weeks and, significantly, will be far too late for many firms).

Also, the funding for 1000 companies in the Industrial Research Assistance Program (IRAP) was a good step but a much bigger group needs direct help and needs it fast.

Data flowing in from an ongoing CATA survey is reflecting that over 85% of owners and executives of small business tech companies say the programs announced to date, from the government, are not enough.

We are hearing of layoffs, companies already closing and, I am told that at least one out-of-country firm asked CATA about buying up Canadian firms and hiring Canadian talent.

The jobs at stake are skewed to Science, Technology, Engineering, and Mathematics—collectively known as the STEM industries. STEM careers are often considered the most recommended and sought after ‘good’ jobs among young graduates. The government announced $9 Billion in assistance for students.

Will there be companies and jobs for them upon graduation?

Once these teams of workers disperse, unlike many small businesses, finding new workers for a technology team is very difficult. There is a global demand for this kind of tech talent and one study predicts a shortfall this year of more than a million workers.

Programs that treat this as a short-term emergency simply stimulate the movement of these teams and their technologies offshore.

Canada has a highly regarded program called the Scientific Research and Experimental Development (SR&ED) that encourages businesses to conduct research and development (R&D) that will lead to new, improved products, devices, and materials.

Our company, for example, has a 12-year record of successful SR&ED projects.  At Southpaw we can safely say that our world-class technology would not be what it is without the SR&ED program and we are deeply grateful for that.

This tax incentive is the government’s largest single support program for R&D and is one of the most generous programs among OECD countries.

In fact, it is one of the key reasons Canada has such a large R&D sector. The government’s own studies reveal that for each dollar spent through SR&ED it generates another 30% in private investment plus a net spillover of another 11%. So basically, each dollar invested by our government is a moneymaking machine for the government and taxpayers!

The small- and medium-sized businesses in this program:

  • Number 12,000
  • Keep 85,000 people employed
  • Generate $6.5 billion per year – just in salaries.

CATA has proposed a simple and accountable program that delivers funds fast and directly to these companies through a mechanism similar to the one used for Canadian Emergency Response Benefit (CERB).

It is called the Resilience and Rebound Emergency Fund (R&R) of $3.6 Billion for zero interest, partially forgivable loans to those firms that maintain payroll targets.

Each one of these companies has a proven record with the Canadian Revenue Agency (CRA) through a good history of SR&ED participation. All of the data and infrastructure exists to move the funds and fast.

With COVID-19, otherwise stable contracts are disappearing or wobbling. Investor funding is drying up. Canada’s next Shopify or Research in Motion may well vanish.

Yet, payroll continues, rent continues. Plus large, deep-pocketed, US and global “vulture-capitalists” circle above looking for carcasses—they buy up and then break up a company so they can feast on precious technology, human talent, and tangible Intellectual Property. These predators are often in disguise and promise help. However, as a country, Canada has much to lose if we let these firms slip away.

Companies such as Southpaw Technology strongly support CATA’s call to the Prime Minister and Finance Minister to urgently fund and protect this most innovative sector of the economy.

We urge anyone, especially those who work for a small or medium-size technology company, to contact their MPs and to sign the CATA e-petition: https://bit.ly/34YmloN

It is my belief that these companies, as a group, are the country’s future and if we decide to support them they will be there to lead our economy from the COVID-19 crash to a post-COVID-19 boom.

We have days not weeks.

David Lowe is the CEO of Southpaw Technology Inc. in Toronto. He has over 25 years of experience in business development, sales, strategy, operations, and management in the media and technology sectors.

David is a graduate of the University of Toronto and the UCLA, Anderson School of Management Executive Management Program.

Micah Rakoff Bellman
MICAH RAKOFF BELLMAN

micah.rakoff.bellman@startupcan.ca