THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, March 8, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:03 p.m. [ET] to study matters relating to banking, trade and commerce generally.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Good evening, everyone here and joining us online. This is a meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin, and I am the chair of this committee.
We’ll have many senators joining us this evening: Senator Deacon from Nova Scotia, Senator Marshall, Senator Gignac, Senator Bellemare, Senator Loffreda, Senator Ringuette; Senator Smith, Senator Woo and Senator Yussuff will be here shortly.
Today we will continue our study on business investment in Canada, the lack of it and ways to attract it. We’ll speak with start-ups and upstarts and look at the question of the importance of tech to all of this.
For our first panel today, representing Communitech, we have the pleasure of welcoming virtually Chris Albinson, CEO, and Prateek Sureka, Head of Public Policy and Government Relations at Communitech.
Welcome, gentlemen, to you both. Thanks for joining us. We’ll begin with your opening statement, Mr. Albinson.
Chris Albinson, Chief Executive Officer, Communitech: Honourable chair, members of the Standing Senate Committee on Banking, Commerce and the Economy, thank you for inviting me to testify on this important topic. I’m honoured to be invited to speak with you today on a critical issue on institutional investment in Canada.
I’m particularly grateful to Senator Deacon, who has been such is a champion of Canada’s innovation economy. Senator, we appreciate your leadership in making the innovation economy world class.
Communitech is Canada’s tech supercharger. We support a community of 1,400 start-ups and scale-ups and global players from across Canada. We help them grow and succeed by supporting them with access to three things: talent, capital and markets. This three-legged stool is the foundation of an innovation economy that’s vibrant and that can support the Canadian way of life. As CEO of Communitech, I’ve had the privileged of working with hundreds of tech start-ups around the world. These businesses are the lifeblood of innovation and the economy, creating new products and services that transform industries and improve lives.
Yet, despite their potential, many of these businesses in Canada struggle to have access to capital they need to compete globally. The reality is Canada’s institutional investment landscape is falling short. According to the C.D. Howe Institute, Canada badly lags behind the U.S. and other advanced economies in business investment. This is a serious problem for an innovation economy which relies on consistent risk capital to fuel our competitiveness and growth. Business investment in Canada is about half that of the United States and lower than most OECD nations. According to the report on investment in Canada, Canada ranks 22nd out of 36 OECD countries in terms of venture capital investment as a percentage of GDP. This shortfall in investment is not just a challenge for individual businesses; it’s a challenge for the entire economy. The innovation economy is a key driver for economic growth, job creation and competitiveness in a global marketplace, and without adequate investment, we risk falling further behind countries and losing the next generation of Canadian innovators to jurisdictions with more supportive investment environments.
On the positive side, Canada’s global skills immigration policy is the best in the OECD. It’s allowed Canada to build and scale our high-quality skilled talent so much so that Canada is now the second-largest innovation cluster in the world.
I don’t believe Senator Plett is with us today, but I joined him last week in Israel, which is known as a start-up nation. Israel has a tech workforce of 362,000 workers. This compares to Canada’s 659,000 workers. However, the number of tech workers is really the only category where Canada outperforms Israel. A recent Silicon Valley Bank data report showed that Canadian start-ups have better growth and venture returns than both U.S. and Israeli peers. Despite this, Canadian start-ups were only able to raise $17 billion last year in venture capital in 2021 compared to $37 billion for the Israeli companies and $455 billion for the U.S. companies. On a per tech worker basis, this means only $25,000 was invested per Canadian tech worker compared to $82,000, three times as much, for a U.S. tech worker and $102,000, almost four times as much, for each Israeli tech worker. The results of this sustained investment advantage are clear for Israel. Despite having a tech workforce half the size of Canada, Israel had 54% of its exports as high tech in 2021 compared to just 15% for Canada. Even more concerning, of the $17 billion that was invested in Canadian start-ups in 2021, 74% of that investment came from outside Canada.
So what can we be doing to address the challenge? One critical element is the need for a consistent culture of investment in Canadian innovation to scale and keep the majority of the value of that innovation in Canada. The source of this investment, just like in the U.S. and Israel, needs to be our pensions. On a risk-adjusted basis, the returns in Canada are better than China, the U.S. and Europe for the first time in a generation. Canada has an asset base in our pensions of over $4 trillion. We have the capital. We have a model. Caisse de dépôt, CDPQ, has led our pensions in returns by investing in Canadian innovation consistently over the last 30 years. There’s also been some meaningful progress in building programs over the last couple of years at OMERS, Teachers and CPIB. However, the slow pace of acceleration has left 74% of the ownership of our best companies in non-Canadian hands, largely now owned by U.S. pensions and endowments.
On the public investment side, Innovation, Science and Economic Development Canada, ISED, has done a great job in laying a foundation for an innovation economy. By making Budget 2022 the innovation budget, the federal government has shown determination to keep pace of public investment in the innovation economy. A couple of things worthy of highlight: the $1 billion a year going through CIC, the billions of dollars invested through SIF and at Net Zero Accelerator Initiative, the $360 million in the new National Quantum Strategy and $443 million in the Pan-Canadian Artificial Intelligence Strategy. If we’re to have a world-class innovation economy, Canadian institutional investors need to step up to the plate as well and buy Canadian technology and invest in Canadian companies.
Despite these challenges, there is hope for Canada’s future. We have a wealth of entrepreneurial talent that has outgrown its U.S. peers for the last five quarters in a row. We have the right policies and initiatives. Canada can balance the investment of the accelerating amount of U.S. capital coming into Canada to get to 50% Canadian-owned. It is strategically critical for the country to do that. We have one of the three-legged stools to compete globally — best-in-class talent. If we don’t fix capital and procurement, we risk the vibrancy of the Canadian economy and our ability to support our way of life.
In closing, I would like to commend the Standing Senate Committee on Banking, Commerce and the Economy for its efforts to identify actionable recommendations for the federal government on how to catalyze business investment in Canada. I look forward to discussing this further with the committee. Thank you for the time.
The Chair: Thank you, Mr. Albinson. Just before we begin our questioning and drilling down — I know Senator Deacon is chomping at the bit here — but with some of the budget and the rhetoric aside that we’ve heard over the years on this whole question of culture of investment, what’s the difference? What’s going on in Israel that is not going on here?
Mr. Albinson: Chair, I would say two things. We have lots to be proud of. Again, we have the second-largest innovation hub in the world, almost two times the size of Israel, but Israel has two times the amount of investment. I think what it really is, if you look back, we’re about the same size of an innovation economy as Israel back in 1993-94. They’ve accelerated past us, largely by having consistent institutional investment through venture capital as a strategic part of the economic plan. Our pensions, with some notable exceptions, as I mentioned with Caisse de dépôt and a few others, have largely not been in the asset class or have been in and out of the asset class. We’ve not consistently invested in Canadian innovation.
The Chair: We’ll get into whether you can or cannot legislate investment or this culture of investment you’re talking about.
Senator C. Deacon: Thank you, Mr. Albinson and Mr. Sureka, for being here today. It’s wonderful to have you presenting to this committee.
The Prospectors & Developers Association of Canada’s Mineral Exploration & Mining Convention is just ending today. It is the world’s premier conference in raising money and doing deals in metals and minerals and mining. Yet, we are a premier country in terms of our tech talent, and we have some great examples of it, but we simply haven’t ever leaned in the same way and become that global leader. One of the biggest changes is that we’re now dealing with intangibles versus tangibles. I think that there’s a challenge around managing and feeling comfortable with risk around intangibles.
Can you help me a bit about the culture change that needs to happen in the role of government to really show leadership? Are there some examples from Israel that we could really lean on in that regard? One of them, you just said, is investing in yourself and having your own institutions, so Canadians investing in Canadian talent to create exports from Canada. What’s the culture change that is needed?
Mr. Albinson: Senator, it’s an interesting question. I appreciate it.
I do sense an opportunity. The centre of global innovation is moving for the first time since it left Boston in 1993 to move to Silicon Valley. There’s a very good chance that the next global hub for innovation will be Canada. We have a lot of the right policies, but we haven’t been as assertive, as you point out, about taking that leadership and really establishing all of the elements that we need to have success.
If you look at Israel’s success, really led by a woman named Orna Berry, who was chief scientist of Israel in 1996, what they did uniquely was align their procurement, their innovation ecosystem and their capital investment. They basically determined that having a world-class innovation economy was key to their way of life.
We’ve done some of those things on talent. We have the best immigration policy for talent on the planet right now, but we have not aligned procurement. Speaking frankly, senator, we do a terrible job of buying our own stuff compared to any other innovation economy, and we actually don’t do a great job of investing in our own stuff.
If you look again at the $17 billion that was invested in the last 12 months, 74% of that largely came from the best venture capital investors in the world, from the United States investing in Canadian companies. On the one hand, we should feel really good about the fact that the Americans realize the best place to invest in a risk capital is Canadian start-ups. On the other hand, we should be very concerned about the fact that 74% of the ownership of our best companies is no longer in Canadian hands.
Senator C. Deacon: Getting us to the point where we are harnessing our collective efforts, procurement keeps on being raised as the biggest issue. Are there models on procurement elsewhere in the world that we could start to implement in key areas to demonstrate a different path? The cheapest money for any company is sales. It’s not actually equity investment.
Mr. Albinson: Senator, you point out a great area where I think it’s relatively easy — believe it or not — for us to execute. We just have to look at what’s worked well for the United States for the last 40 years with the Small Business Administration, SBA, and the Small Business Innovation Research, SBIR. If 3.2% of every dollar we spend goes to a Canadian-controlled private corporation, CCPC, with a legislated requirement for a 5% improvement in either price or productivity, we could match the United States on procurement, do it relatively quickly, and align and start turning that handle. Right now, we’re less than 1% of the dollars spent by all levels of government going to Canadian companies.
Senator Gignac: Welcome to our witnesses.
In my previous life, I had the opportunity to be Minister of Economic Development. I have worked with the Caisse de dépôt and with the financial angels in Quebec and with Investissement Québec and some people that you know, Chris, such as Michel Brûlé. My point is that we have a culture there and something put in place in terms of an ecosystem. I’m less familiar with the rest of Canada. You point out that procurement is something that we have to develop more in Canada compared to the U.S. Could you elaborate a little bit more about that, and do you have any opinion regarding some things that exist in Quebec that maybe the rest of Canada or the federal government could be inspired to put in place?
Mr. Albinson: Senator, congratulations on your work in your former role, and I do think it’s worth highlighting.
This idea that you can’t invest in your own companies and have a world-class return to support your pension obligations is just false on its face. Caisse de dépôt has the highest returns by investing in Canada. They have a compounded — since 2015 — 35% return on investing in innovation in Canada. They took less risk and got better returns by investing at home, and the Israelis do the same, as do the Americans.
In terms of your question on procurement, unfortunately, we’ve taught our best companies for 40 years to not bother selling in Canada. It takes too long. You go through pilots. You don’t actually ever get to production. It’s shorter, faster and easier to spend sales and marketing resources and sell into the United States. If we don’t change that culture fundamentally, we’ll have two big problems: One is 74% of our companies now have U.S. ownership, majority-controlled U.S. ownership, and if 90% plus of their revenue also comes from the United States, it becomes very hard to keep these companies here.
I’ll give you one quick example. Instacart and Shopify were both very disruptive Canadian-founded companies. There’s nothing left in Instacart that’s Canadian — not the board, not the ownership, not the management, nothing. If it was not for Tobi Lütke really pushing hard and saying that he wanted to build his business in Canada because he believed that it was a better place to build it for quality of life for him and his family, Shopify would also not be Canadian, if you look at the ownership and where their sales come from.
If we don’t address the procurement problem and make sure that at least 3.2% of the dollars that we spend every day go to Canadian-controlled private corporations, I think it’s going to be hard to keep these companies in Canada long term.
Senator Gignac: A quick follow-up: Is it because the federal government, with their free trade, Canada-U.S., finds that it could be vulnerable to some protestation from Washington? If you compare with Israel, why does the federal government seem to be pretty shy to go ahead with a more solid procurement policy to help the start-ups?
Mr. Albinson: I think the one thing we’re missing that exists in U.S. legislation is that there’s a 5% improvement in productivity or price in the Small Business Administration, or SBA, and that just ensures that there is a market force. It’s one thing to say, “Buy Canadian.” It’s another thing to buy the best Canadian product. It’s yet another thing to make sure that Canadian product is competitive and drives at least a 5% improvement in either productivity or price for the Canadian taxpayers. We lack that legislative framework that exists in the United States under the SBA and the Small Business Innovation Research, or SBIR. I don’t believe there’s any limiter from us from a trade agreement perspective. We would be aligning fully with what the U.S. does already now in practice — so no issue on that front.
I do think there’s some risk aversion generally in Canada — from both the public and private sectors — to buy Canadian innovative solutions. Unfortunately, it’s kind of fed back on itself. Our best companies don’t bother selling here anymore. If you’re brave enough to buy a Canadian solution, the ones you’re left to look at generally aren’t the best ones. The best ones are selling to Homeland Security, NHS down in the U.S. or the U.S. hospital systems. We have to break 40 years of bad cultural dynamics. It will really take some leadership by the federal government, I believe, to prime the pump and say we’re going to implement identical legislation that exists in the United States. I think 3.2% of procurement with at least a 5% improvement in productivity or price would go a long way to changing the culture.
The Chair: That’s a very specific suggestion. Thank you. It’s helpful for when we’re doing our report.
Senator Loffreda: Thank you to our panellists for being here.
Although it is believed that there has been enough domestic business investment in the Canadian economy over the past few decades, do you believe we have fared well in Canada at investing into research but have had a greater time in monetizing that research — turning that research into money? If you do believe that, why is that? How do you feel we can reverse that trend?
Mr. Albinson: That’s a thoughtful question, senator.
I would say we’re trending in the right direction. Let me say that directly. Again, we have the second-largest and fastest-growing innovation hub in the world. If you look at the three companies that crossed $1 billion in revenue in the last five years, they were founded by Tobi Lütke, an immigrant to Canada from Germany, Marcel Cortez, an immigrant to Canada from Brazil, and Martin Basiri, an immigrant to Canada from Iran. That’s the same thing we saw in Silicon Valley. Half of the most innovative companies were founded by immigrants to the U.S. Let me say directly that we’re lucky the U.S. government has decided, for whatever combination of reasons, to shoot themselves in the foot for the last six years in a row and that we’ve had such a great immigration policy. That’s driven an acceleration of commercialization and investment.
However, we’re still much further behind both Israel and the United States in terms of the pace of investment per tech worker, and that’s the thing that concerns me. The thing that mostly concerns me is that when we do have successful, world-class companies that are accelerating — and we do have a critical mass of them now — 74% of their shares are now held by American pensions and endowments because they’ve recognized the potential of those companies and have accelerated their investment into Canada.
Senator Loffreda: You discussed Israel and your trip to Israel. When I visited Israel, I visited some post-secondary institutions. They are so keen on research and investment into research. They get donations from the community at large and from the corporate community at large into research. Do you feel our post-secondary institutions should play a larger part in developing technology and research and monetizing that research? According to you, how are they performing at this point in time?
Mr. Albinson: That’s a thoughtful question, senator.
We’re really blessed with world-class institutions. In particular, if you look from a Silicon Valley perspective, the number one institution that Nasdaq-100 companies recruit from is the University of Waterloo. That’s because of the co-op-based education and the productivity of those individuals when they come in.
As relates to your question on research and comparison to Israel, there are two things for you to think about. I was struck meeting the president of Tel Aviv University last week and his entire staff, from faculty leaders down to individual faculty through to technology licensing. The number one metric for Tel Aviv University is company formation. It’s not research papers or the number of graduate students. He was very direct about it. He said that research is great, but if it doesn’t have impact on humanity and if it doesn’t get commercialized, what’s the point? I thought this idea of company formation as a critical metric for educational institutions was thought-provoking coming out of that visit last week.
Senator Marshall: I was quite taken by your comment about the Americans investing in Canada but Canadians aren’t investing in their own country. Then you talked about how we have to change the culture. Exactly why won’t Canadians invest in their own country? You talked about how maybe government could legislate in the area of procurement, but I always see government as being intrusive in business. They aren’t there as a helping and willing partner. Is there something government can do to get out of the way? Maybe that might be the impetus that Canadians need to invest in their own country.
Mr. Albinson: It’s an interesting question, senator.
My observation on this is that where you do have an impetus to invest in the country and align that — we used to think industrial policy didn’t make any sense and that those times were over. I think we’re living in a different time now. If you look at what’s happened in Quebec with Caisse de dépôt, there is a double bottom-line requirement for the Caisse. They need to invest in innovation in Canada but also have a high return for the pensioners they represent. It’s interesting that as Canada moved away from its other pensions having that requirement and saying that it’s going to be a free market and pensions are allowed to invest anywhere they want, we lost sight of the opportunity that was right in front of us. But the Americans didn’t. They’ve invested at a highly accelerated basis. Again, we were getting about $4 billion a year invested in our companies until about two years ago. Last year, it went up to $17 billion, and again, 74% of that was the Americans recognizing that there were better returns investing in Canadian companies than there were investing in Israeli, U.S. or Chinese companies.
Part of it is being empathetic to our pensions. They’re big entities. It’s tough for them to change quickly. But if we don’t put a bit of pressure on them — I’m not suggesting we should necessarily go down the legislation path, but if we don’t tell our pensions that it’s time to be investing at home, and if we have another year like we had last year where 74% of the shares in our best companies were sold to U.S. pensions and endowments, I worry that, long term, when these companies ultimately create the value that they’re on the path to do, that value will leave the country and we’ll never have a stand-alone innovation economy that can compete globally.
Senator Marshall: Canadians have become used to the idea that government puts billions of dollars into innovation and clusters, et cetera, and it doesn’t seem to be working. Do you think Canadians have come to the realization that the government is going to put the money in so they don’t need to and they can put their money in the American economy? Do you think that will be an issue?
Mr. Albinson: I don’t know if I see the facts that way, senator. As I look at it, and as I highlighted in my remarks, I think there is good and sufficient public investment in innovation — to your point. It has allowed us to have the second-largest innovation hub in the world. In point of fact, when I was in Israel last week, they were quite concerned that Israel was disinvesting out of AI and were pointing to Canada’s investment in AI as a fundamental technology as being world-leading policy.
Really, the problem is not about the public investment or the quantum of it but the private investment. If our source of that investment is largely from outside of Canada, ultimately the proceeds of all of the hard work we’ve done in creating this great research will leave the country.
The Chair: Thank you. I want to pause to see if Mr. Sureka has anything to add to the discussion so far before we carry on.
Prateek Sureka, Head of Public Policy and Government Relations, Communitech: Thank you, Madam Chair. I am grateful for that, but I think Chris is doing a great job.
[Translation]
Senator Bellemare: Sorry, I missed the beginning of your presentation. Here’s my question. You talked about Israel and the U.S. Israel is a small country, and Canada is a big country made up of large provinces, similar to the U.S. However, Israel and the U.S. have a similar approach to defence. What impact do you think public spending on national defence has on technological investment in the two countries?
[English]
Mr. Albinson: Senator, that’s a very thoughtful question.
I think it’s one of the areas specifically around procurement where we could align the spending that we’re doing. As a percentage of GDP and from a dollars perspective, the dollars are actually not that dissimilar to what Israel is spending. Obviously, the U.S. is on a different quantum. Investing and procuring Canadian technology to solve Canadian problems, whether that’s in health care or defence, no question is a cornerstone of a vibrant innovation economy.
I am encouraged — and I should make mention — that the RCAF is embedded at Communitech, and it has been for the last four years. I have had the privilege throughout COVID of being able to talk to base commanders in Shearwater out on the East Coast all the way to Nanoose on the West Coast. As we talk about sending them into harm’s way in places like the South China Sea, we’re sending them there without the things they need to complete their mission. The technology change in defence is immense. You just have to look at the news to see what is happening in Ukraine every day — technologies like AI, cyber and autonomous systems. For the CAF to have what they need to defend the country, it is critical that our defence industry align closely with this great asset we have built, which is the second-largest innovation hub in the world, and take full advantage of that technology and make sure that those folks wearing the uniform have what they need.
Senator Bellemare: Do you see the free trade agreements that we have with the U.S. and other countries as impediments for an increase in procurement?
Mr. Albinson: No, I actually see it the other way, senator. Canada sits as the only country with free trade agreements with all other G7 countries. It was interesting conversation with the Israeli founders last week. For 25-plus years, there was a connection between Tel Aviv and Silicon Valley, where the second natural headquarters for Israeli founders was to go open offices in the valley. Because of U.S. immigration, they cannot do that. There was a lot of conversation about Israeli founders coming to Canada to build their global businesses and that was the natural place for them to build from. Part of their logic was the free trade agreements that Canada has been able to secure with all other G7 countries.
Senator Bellemare: Thank you.
Senator Smith: Mr. Albinson, you noted that Canada could be best positioned to succeed Silicon Valley because of “openness to immigration and talent.” I would agree with you that Canada is a very welcoming country for immigrants. I would also argue that we are not so welcoming when it comes to foreign credentials and education recognition. I am sure we have all heard of engineers who drive taxis or scientists who work in restaurants. Do you think that is an issue that has negative consequences for our tech industries in Canada? Are there solutions that could bridge this gap in the tech sector?
Mr. Albinson: Senator, that is a thoughtful question.
I agree with you completely. We have gone to all this effort to bring about 500,000 new Canadians to Canada every 12 months, half of them with STEM degrees. How do we get them integrated into our innovation economy with the least amount of friction possible? Unfortunately — and it is not necessarily a government issue — some professional associations are basically prohibiting that from happening as fast as it should. I can tell you specifically that we have 8,000 job openings across Canadian start-ups coast to coast today, so it is not like we don’t have the need. Getting them the accreditations they need and getting them integrated into the economy faster are huge impetuses and needs.
Frankly, the single biggest opportunity for Canada since the handover of Hong Kong in 1997 is the 105,000 tech workers who have been laid off in the United States on H1Bs. They went to U.S. schools, they are U.S.-trained, they have a U.S. visas and they have worked in the U.S. tech, in some cases, for 5 to 10 years. They have been told they have 30 to 90 days to find another job or be forced back to their home countries. If Canada were to go after that talent that is educated, capable and has high capacity, it could be the single biggest economic opportunity in the country since the handover of Hong Kong in 1997.
Senator Smith: If there were a magic wand and you could initiate some form of an action plan, what would it be?
Mr. Albinson: The tools are in front of us. I will give a shoutout to another great Canadian company, Open Text in Waterloo, is now the seventh-largest software company on the planet. Open Text is the data link for all of U.S. immigration. It is also the data link for all Canadian immigration. There are already protocols between the two countries that allow us to understand credentials as people are passing north to south and south to north. The simple thing to do is say that if you have an H1B, you have a fast pass to permanent residency in Canada. We could single-handedly change the economic vector of the country.
Senator Smith: Thank you so much.
The Chair: That is an interesting point.
Senator Yussuff: Thank you, witnesses, for being here today.
I want to go back to the question of pension investment in Canadian start-ups. Clearly, there is a lot of money in pension assets, but you were indicating that not enough of that has been invested in start-up companies in Canada. I guess the bigger question is the level of conversation with many of those pension-holders of those assets — and more importantly, of course, the most important part of those pension funds is the workers whose money is being held in those pensions by those companies.
Talking to the CEO of a pension asset company is one thing, but if you’re not talking to the workers, you won’t make much progress if they don’t have any confidence in regard to building capacity and what is happening with their investment — because, ultimately, it is about their retirement. Workers are very patriotic in this country. They live here and work here. They want to ensure they have a retirement and that their grandkids will have jobs here, so they understand the importance of that. What part of that conversation is happening or not to try to bridge the gap that you have identified as a problem right now?
Mr. Albinson: Senator, it is a thoughtful question. I would say that all of us being Canada Pension Plan-holders, we are all potential pensioners in this room.
I would say “not enough” is the short answer. A decision was made a couple of decades ago to allow the pensions to be unencumbered by any geographic restrictions on their investment. As a neutral observer, looking at that through my eyes as a potential pensioner, how do I feel about hundreds of millions of dollars being lost on cryptocurrency deals in the United States? Those dollars could have been invested with less risk and a higher return in Canada.
There was this notion from the pensions that you couldn’t have a geographic restriction and meet the return requirements to make sure that pensioners had as good a pension as they deserved and worked hard to earn. I think the data is actually pretty clear that that’s a false choice. Caisse de dépôt has the highest return of all Canadian pensions at 35% per year in their investments, and they are doing so by investing at home. They are taking less risk, also, by investing closer instead of investing in China or other places around the world. So I would say it’s a false choice, first of all, that investing in Canada is a bad economic decision. The data is clear that the opposite is true.
I fully agree with the initial premise of your question. Of the $16.4 billion invested in venture capital by Canadians pensions last year, why was only 2% of it invested here? What kinds of risks are being taken by investing elsewhere?
Senator Yussuff: It is also critical in the context of the CPPIB structure. I was skeptical when this new structure was created, but I’ve come to recognize that they do deliver a significant return for those who are relying on their benefit being paid. That being said, there is nothing stopping us from re-evaluating a policy decision that could be better aligned with our own domestic needs and challenges in terms of investment in this country. I would simply encourage you. It was a policy decision by government, and it could also be a policy decision that could alter that in a small way that would lead to significant venture capital assets being available for the kind of work you and others are doing in helping to build Canadian companies in this country.
Mr. Albinson: I appreciate that, senator.
Senator Woo: Thank you to our witnesses.
You made a reference to the Canadian Innovation Corporation. Perhaps you had a chance to look at their recently released blueprint. Would you comment on the blueprint and what you think they are doing right and what would you like to see them do that’s not currently in the blueprint? What are your hopes for the CIC?
Mr. Albinson: As I alluded to earlier, I do think the public investment, the quantum of it, feels about appropriate if you benchmark that against the U.S. or the Israel models. That being said, there is always room for improvement. Inherent in the movement to the CIC is some recognition of the need to improve the efficiency and focus.
Number one, I would say, is a reference to a Canadian in whom we should all take great pride, and that’s Cathy Priestner. For those who don’t know, she is the architect of Own the Podium. Back in 2006, when she started Own the Podium, Cathy was told that it was a little bit unCanadian and a little bit ambitious of her to do so. There needed to be a fundamental change in the end point that we were shooting for. To be the best in the world, for those of us old enough to remember — and I won’t do her work justice — she said, “You can’t do ParticipACTION. You have to use objective data to focus resources on those that have the probability of success, not the possibility of success.” We look back now 13-plus years with a great amount of pride in Own the Podium, not only the success in Vancouver but ongoing in the games.
The same challenge exists for the innovation economy in Canada. We can’t be everything to everyone. As Cathy said, “You can’t have a world-class skating oval in every town across the country. You need to bring our best together; use high-performance centres; have the best coaches in the world, not the best Canadian coaches; have the best facilities in the world, not the best Canadian facilities, if we are to be the best in the world.”
My hope for CIC is that there is a focus on a merit-based approach to concentrate resources where we have the probability of success. I think that’s the only way the country will ultimately be able to compete with countries like Israel, China and the United States in innovation.
Senator Woo: I don’t think you referred to what is commonly raised in this whole discussion on innovation, which is lower taxes, lower taxes, lower taxes. There are some who feel that that is the magic bullet. Do you have a comment on whether this is a magic bullet? Where does it rank in the portfolio of initiatives that you would recommend to promote innovation in Canada?
Mr. Albinson: Senator, from my comments, you will probably recognize that it is not in the top three. If you compare the Canadian tax jurisdiction to northern California or New York or even with Israel, we’re pretty comparable across many of the metrics.
I do think that there are some issues in terms of our ability to attract global talent in terms of the five-year threshold, where we are basically incenting the most talented who are building companies in Canada to leave after five years. There is some part of the Israeli tax regime to incentivize investment in venture capital that may be marginally better than what we have, but I don’t think it is a magic bullet. That’s the short answer. It’s not the area where we have the biggest challenge. If you compare that to procurement or institutional investment, those two are much more front and centre.
The Chair: I want to come back to a phrase you used. Many of us in this room have been sitting on this committee for quite a while, and we have revisited these topics time and again, especially in the context of what you’ve just said about the Own the Podium idea: no trophy just for showing up. We actually have to go for the best, not just the best Canadian or the best woman or whatever the case may be.
When you talk about risk aversion, define that, if you could, and how you think we’re going to target that.
Mr. Albinson: There is risk aversion in three different areas.
On the talent side, we’re doing a good job. Just objectively, if you look at it through the OECD, we’re going after, on a pretty aggressive basis, the best talent in the world and bringing them here at a pretty accelerated pace. We have the highest net immigration into Canada, in my understanding, since 1914. We’re taking real risk there to go after the best minds in the world. That’s going to be a big advantage for us because the United States has shut the door on talent now for six years. So that’s to be applauded.
On capital, for some reason we have this idea in our head — maybe it is, as my grandmother would say, the cobbler’s children — that we can’t invest at home and have good returns, that we have to get on a plane and go to China or other places around the world and invest. If we use objective data — and we have that data — we need to shout it from the rooftops. Canada now has better venture capital returns than the United States. Unfortunately, the Americans have already figured this out. We just haven’t figured it out at home.
The Chair: That’s what I’m trying to get at, if you don’t mind. Who should be shouting from the rooftops? It is not that we don’t know this.
Mr. Albinson: Actually, senator, I would say it is not well known. As I talk to the Canadian banks, as I talk to the Canadian pensions — I had lunch with one of them today — they are unaware of the fact that Canadian start-ups have outgrown their U.S. peers for five quarters in a row. That’s Silicon Valley Bank data. For our pensions, because they are so large and because they have diversified assets, this is not necessarily the asset that they are well versed on or focused on. I do think there is some education that needs to be done about both the importance of the asset class and the importance that it be at least 50% Canadian owned.
The Chair: I know you had a third point.
Mr. Albinson: The last one was on procurement. I alluded to it earlier in the conversation, senator.
The Chair: Thank you.
Senator C. Deacon: Thank you to the witnesses. It is really phenomenal to hear these different data points. If you have reference documents and references to the data points, please provide those to the clerk. They would be useful to us.
I want to drill in a bit more on procurement, Mr. Albinson, because it seems that our procurement processes, at least in Ottawa, try to reduce risk in ways that end up creating new risks. Tech is not a joy in this city. It isn’t seen to be a source of success. How do we start to turn our social problems, public problems and challenges into big global technology opportunities? That’s what I see them as. We are not the only country in the world struggling with these issues, but we do not have an innovative government. We are not dealing with our challenges in an innovative manner. So drill in a bit more about how we could be strong on our recommendations in that regard, please.
Mr. Albinson: I will tackle it from two approaches, if I may, senator.
The first is from a policy framework. There is a proven model that the U.S. has had in legislation for 40 years with the SBA and SBIR, where you have a set-aside specific amount of procurement that goes to small- and medium-sized enterprises. In our case, it is critical to be clear that at CCPC, those dollars are set aside for only Canadian-controlled private corporations. Also critically important is that the bid, in terms of those dollars spent, has to have a 5% improvement in either productivity or price. That’s in U.S. legislation. That gets away from issues of potential dollars being moved into somebody’s friends or not having fair competitive bids. The U.S. legislation is a good clear framework. It allows us to align from a free trade point of view.
The second problem is one we are working on, and it is a tough one. For 40 years, we taught our best companies not to sell here, and for 40 years, for the people making decisions to buy things, to your point, we told them better to buy from a multinational like IBM than to buy from a Canadian company, that that’s a less-risk decision. To change that, I think we need to figure out a way to prime the pump. Look at Israel in greater market motion or the U.S. in greater market motion. It is the idea of let’s figure out what the big problems are, figure out if we have a Canadian solution and advantage them getting into production — not pilots, but into production.
We’ve worked very closely in health care and identified 27 hospitals coast to coast that spend about $40 billion per year and that are committed to putting innovation into the health system, not pilots but into production, to drive better health outcomes for Canadians. On our side, we basically sourced the 9,900 start-ups, find the ones that not only meet the need but are ready to go into production. Twelve months ago, I sat in front of our building with the president of Grand River Hospital and he told me all the reasons why he couldn’t buy Canadian innovation. I was the most annoying three-year-old he ever met because I said, “Why? Why? Why? Why? Why?” Senators, I am pleased to report to you that KA Imaging is installed at Grand River Hospital, Signal 1 is installed at Grand River Hospital, Axonify is installed at Grand River Hospital, PointClickCare is now installed and Voice is now installed. We can do it.
But going back to the senator’s earlier point, it needs to be an Own the Podium approach. We have to identify our best and get behind them from an investment point of view, from a procurement point of view and an access-to-talent perspective.
Senator Gignac: I want to thank again our guests. We learned a lot today. The core of our mandate is to understand why Canada underperforms on capital investments and innovation.
I have dealt with Caisse de dépôt and I have dealt with politics as well as a former minister. We have to choose our fight here. Of course, we can push that CPP investment and change the mandate and be like Caisse de dépôt with a dual mandate. Some could be restrained by that. I know Caisse de dépôt invests a lot in Canada, but we have a lot of other Canadian public pension funds who invest more in China than in Canada. I am fed up with that, because people talk about carbon footprint but never democratic footprint. I think this is now a topic that we have to raise. Do you agree, as a Canadian worker, with sending your money to stimulate or support Chinese economic development, or in other non-democratic countries?
My question is whether you are satisfied with the disclosure of the public pension funds and investment? When I check the report, they mention that they have X percentage of their assets in Asia. If you invest in India, it is a democratic country. If you invest in China, that’s not the case. I heard statistics today, and this is the first time I heard about that. It is not normal. As an economist, I think I follow statistics quite closely statistics, but this is the first I’ve heard these kinds of statistics. Do you suggest asking for more disclosure about public pension funds when they have their annual reports?
Mr. Albinson: Senator, I will react first to your first point.
I do believe, based on an objective look at the data, that a dual mandate approach is actually fundamental to having a world-class innovation economy. Even if you look in one of the most competitive markets in the world, and I worked in Silicon Valley for 20 years, the California pensions have dual mandates to invest in and start venture capital firms to invest in California. That’s also the case in New Jersey and in New York. Again, if you look at our own situation with Caisse de dépôt data, the Caisse has a better rate of return with a dual mandate than the pensions that ostensibly had free access to global investment. I would say probably most of our pensions are trying to re-evaluate the investments they made in China for the last 20 years, thinking they probably weren’t the best decisions on an investment basis.
I think disclosure for public and private pensions is critical. I think post February 24, a year ago, we all understand the world has changed. Investing in our friends, in safe democratic places where the rule of law matters, also reduces risk, frankly, from an investment point of view. Understanding that not only from an ethos perspective in terms of investing in democracies but also reducing risk in investing in countries where the rule of law and democracies matter makes sense.
The Chair: We have about a minute and a half, Senator Yussuff, for your question and the answer.
Senator Yussuff: Thank you very much for sharing the breadth of knowledge that you are providing to the committee. It seems like we are rediscovering that an industrial policy is a desirable thing given the outcome we want for Canada in the future. Of course, much of what has been said in the last budget, what is happening in the United States and what is likely to happen in the upcoming budgets will drive this in a fundamental way, recognizing the jobs and, of course, the tax base it will provide. Given this new fondness for industrial strategy, what would you suggest would be precise at this particular moment but equally can be beneficial to the country, recognizing that at least at the national level there is a thinking now that this is a fundamental part of our future?
Mr. Albinson: Senator, I don’t know if I can answer that question in the time frame, but I will do my best. There are three things that are fundamental to an innovation economy. On talent, we are doing a great job on policy and execution. On procurement, we just need to match the United States. It is that simple. The policy worked. Their industrial policy has been in place for 40 years, and we need to match it. On the capital side, we need to have about 50% of the dollars invested be Canadian-domiciled so that when we are investing in innovation on the public side to create this research to get these companies started, ultimately the value of those companies is at least 50% owned by Canada. Right now it is 74% owned by U.S. pensions and endowments, and that concerns me greatly.
The Chair: Thank you very much to our witnesses, Mr. Chris Albinson, CEO of Communitech, and Prateek Sureka, Head of Public Policy and Government Relations at Communitech. We appreciate the data and the insights and some of the suggestions that you laid out for us. As Senator Deacon said, if you have other documents that actually have the statistics in them, please forward them to us. It is helpful for the analysts in putting together the report. Thank you for your time today.
XXX Joining us now as the second panel for our continuing discussion of the state of business investment in Canada are Benjamin Bergen, President of the Council of Canadian Innovators; and David Helliwell, Co-Founder and Executive Board Chair of Thrive Health and CCI member. We will begin with an opening statement from Mr. Bergen, to be followed by Mr. Helliwell. Please go ahead, Mr. Bergen.
Benjamin Bergen, President, Council of Canadian Innovators: Good evening, chair, deputy chair and members of the Standing Senate Committee on Banking, Commerce and the Economy. Thank you for the opportunity to present today on the study related to business investment in Canada.
CCI is a national business council representing 150 of Canada’s fastest-growing companies. Our members are headquartered here in Canada, employing north of 52,000 employees across the country and are market leaders in the sectors of health, clean energy, semiconductors, financial, cybersecurity, AI and more.
The inconvenient truth is that when it comes to seizing opportunities in the intangible economy for the 21st century, Canada is on the sidelines and has been for decades. In 2020, more than 91% of the value of the S&P 500 came from intangible assets. As the effects of COVID continue to drive a wave of digitization, algorithms, patents, data and other intangible assets will only become more important. As Canada looks toward the post-pandemic economy of tomorrow, Canadian intellectual property and its acceleration will be critical to reversing our declining wealth creation.
In 2010, Canada’s GDP per capita was roughly identical to that of the United States. Today, we’ve seen American GDP per capita increase and our own remain stagnant at best. That is due, in part, to a serious rift that’s developed between Canada’s IP receipts, where we generate wealth, and our IP payments, where we forfeit wealth to other countries. We are witnessing a clear divergence in wealth creation from our closest economic partners, making Canadians less wealthy than we were 10 years ago.
Moreover, since 1976, Canada’s productivity performance has been the worst of all OECD countries, resulting in real wage stagnation. Unfortunately, this trend doesn’t seem to be going away. In fact, the OECD has projected that Canada’s economy will be the worst-performing advanced economy over the next decade. Sadly, this position has made it more difficult to navigate disruptions in supply chains, ongoing record inflation and an increased cost of living for Canadians. I’d like to expand briefly on some of the reasons why.
The rise of new and transformative technologies has created a new knowledge-based economy, an intangible economy, in which the basis of wealth and power stems from the control of data and the ownership of valuable intellectual property. This kind of economy stands in stark contrast to the production-based industrial economy of the tangible asset economy on which Canada’s economic policies were built.
In the global competition for IP, today’s source of perpetual wealth, Canada aims to create but not protect those assets and the benefits they bring to our economy. While we’ve seen some positive development in our own IP regime, such as the creation of the Innovation Asset Collective, other updates are needed, like a dedicated patent box scheme and other imaginative areas in the IP-retention world.
Similarly, Canada needs to re-evaluate its outdated foreign investment approach with an updated foreign portfolio investment scheme to reflect the realities of the intangible economy. Our current approach of using FDI as a branch plant strategy is not properly adapted to a modern innovation-based economy. Our country needs a more strategic FDI policy that protects critical technology developments by Canadian firms and research with taxpayers’ funds. This will ensure the wealth and security benefits of foreign investment are realized for the benefit of the Canadian economy.
Other perennial problems for Canadian businesses come from navigating our impenetrable procurement system. Procurement is the most powerful economic development tool that government has to use. If used strategically, it can not only fulfill public sector needs with unique solutions but also stimulate key sectors and help the country achieve sustainable economic growth. To date, Canada has approached digital infrastructure procurement in the same way as traditional infrastructure, by packaging digital transformation in terms of large omnibus projects presented as a single contract. Unfortunately, this approach fails to understand how modern software is built and results in Canada’s most innovative firms selling their products and services in other jurisdictions where they face fewer barriers.
Likewise, our lack of a national data strategy is yet another impediment to Canadian technology firms. Data underpins all aspects of our lives and impacts our economy, national security, health, democracy and privacy. The impacts and effects of data are complex and interconnected. Canada needs to catch up with its peers to develop a comprehensive data strategy to ensure that Canadians own and control their own data so that it can become an engine of prosperity for the country.
If we hope to leave a stronger economy than the one we have inherited to pass on to the next generation, we need to chart a new course. If we hope to generate much-needed wealth to pay for the social programs we all want and deserve, we need to create the economic conditions to do so. If we hope to increase productivity and see our most promising firms scale up globally, we need to start doing things differently.
Canada needs to quickly catch up to its global competitors and adopt public policy that acknowledges the intangible economy, encourages investment in business expenditures —
The Chair: I will ask you to please wrap up.
Mr. Bergen: Certainly. To that end, I’d like to ask David to share his experience as an entrepreneur to learn more about the realities of building and growing a technology business in Canada.
David Helliwell, Co-Founder and Executive Board Chair of Thrive Health, as an individual: Thank you, Benjamin. Hello to the chair, deputy chair and members of the standing committee. Thank you so much for hearing what we have to say.
I’m from B.C., and I’ve lived and worked abroad for about 10 years. I’ve started two high-growth tech companies, both in Vancouver, both mission-driven. The first one was clean tech, and this one is health tech. Thrive Health was recognized as the number one company to watch by the Deloitte Technology Fast 500 for being the fastest-growing tech company in Canada in the three years up to 2021. The last company was sold to a Nasdaq company where I was an executive for a year after the transition.
Before being a tech entrepreneur, I was a geophysicist. I worked in the oil and gas industry and mining industry as an exploration geophysicist with anything from big companies like Amoco to very small contracting companies. I had a couple of years as the director of policy with a cabinet minister in Ottawa, so I’ve seen a lot of the angles of where innovation has worked and not worked. I’ve been on the board of IRAP for a couple of years. I currently serve on the board of Life Sciences B.C.
I’ll talk for a few minutes about some experiences involving building tech companies. I’ve worked with IRAP as a client as well — Supercluster, Mitacs and others. In terms of what start-ups can do for the country, it is quite extraordinary. Individually, they contribute a lot to R&D. A typical start-up will invest close to 50% of their total expenditures on R&D. Compare that to under 2% for the Canadian economy as a whole.
Canada has really amazing raw materials, as we heard in the last session, with the people, research and governance of the country as a whole. Having a society where people can trust one another and contracts mean something is really important.
The main thing I’d like to talk about in my opening remarks is around procurement. Obviously, that’s something that’s been talked about quite a lot. I would like to put into perspective just how transformational a $10-million or $20-million contract can be for a fast-growing Canadian tech company compared to the impact it will have on a global multinational that’s bringing in billions of dollars from around the world. It doesn’t take many of those deals to become one of the top-growing tech companies in the country, and there’s a lot of power within government procurement and health care procurement to do more contracts like that.
I’ll give you a short example of Thrive Health during COVID. The B.C. Government asked us to do the B.C. COVID app, and shortly after that, Health Canada asked us to do a Canada COVID app. Those were fast-moving government contracts that allowed us to very quickly have other contracts with a lot of the biggest players in corporate Canada, and, really, the government paved the way for bigger things to come.
We have leaders like CHEO in Ottawa and St. Paul’s Hospital in Vancouver. When you’re talking about innovation in the health care system, there really are some sites around the country — and I’m sure we’ll hear about others — who take those steps to further the innovation to improve their productivity, reduce their costs and support Canadian companies. It’s not like the Canadian companies need a boost; they just need a level playing field to get into the game.
The Chair: Thank you very much. Those are great opening comments. We’ll dive right into questions, starting with our deputy chair.
Senator C. Deacon: Thanks to our witnesses.
I want to direct a question, if I could, to you, Mr. Helliwell, really focusing on procurement and also how we support start-ups. I think there’s a focus and a sprinkling of effort and money around the start-up community versus really leaning in on specific opportunities, especially as it relates to global potential. I think of Dan Breznitz’s book, really defining invention differently than innovation. Canada has a good invention engine, but we don’t convert that. The health care space is a key area where that has been the case. We have some of the best health researchers, health care providers and medical schools, but we’re not converting that into economic benefit. It remains a cost. Provide us some details on the procurement element there, because we’ve got small programs at ISED to try to open the door, but they’re just tiny, and they’re not strategic in the nature that I think we’ve seen is necessary. Provide us guidance in that regard.
Mr. Helliwell: Absolutely. That’s a great question, senator. Thank you.
There are a couple of dimensions of this that are really important, I think. One that was mentioned by Chris Albinson in the last session was around just having those benchmarks of a certain portion of procurement that is going to go to this sort of a deal. I want to really emphasize how important that is. It’s one thing to set the targets, assuming we get to officially setting the targets; it’s another to actually deliver them.
The next thing is what we see on the ground all the time when there’s a nice-sounding objective that’s put up front for procurement, but it doesn’t happen. There’s a very rational explanation for a lot of it. When the actual procurement is done, the people responsible for the procurement have no incentive to do anything that’s more innovative, and they see a big risk in doing anything that’s different from before because then they feel like their job could be on the line.
Really, I think the solution to that is fairly simple in terms of just giving them the safety to say, “Look, we recognize that this is different from how it’s been before, but we authorize you to take these actions to do these deals faster.” Ultimately, it ends up being a lot more productive.
Someone also in the last session made a very insightful comment about how sometimes — I think it was you, actually, who was talking about trying to reduce risk and actually end up piling on more things that it makes it heavier and slower and more likely to fail. The last piece of that would be doing procurement where you’re not trying to boil the ocean and have one gigantic thing that solves everything, but break it into pieces that are much more likely to succeed and are much more digestible for innovative companies.
Senator C. Deacon: Just a small follow-up on that, the procurement that I’ve been involved in defines a solution that we want to buy — or the government wants to buy — versus a problem we want to solve and the constraints within which we have to operate. What are your thoughts in that regard?
Mr. Helliwell: Exactly. That’s where things fall apart with procurement so often, because there’s a tendency within not just government but any large organization to over-specify every tiny detail that they need. That’s bad for a number of reasons, including, one, you don’t really know exactly what the details are of what you need until you’ve started. You need to give yourself that flexibility to evolve with it. Another is that it doesn’t take advantage of the expertise of the partner who you’re ultimately going to choose to do it with. The third one, linked to breaking things into bite-sized pieces, is there’s this tendency to put together a whole lot of things that don’t necessarily belong together rather than piecing it into three different things, for example, that can then be coordinated with one another. It really is a win-win, where you can have a higher likelihood of success at lower cost and move much faster, and, by the way, it makes it a lot better for Canadian companies to participate.
The Chair: If you had some magic formula, Mr. Helliwell, to take risk aversion out of the bureaucracy, I think that would be a miracle. Is there any other jurisdiction in the world where you’ve actually seen that work and you say to the bureaucracy, “It’s okay; go ahead; take a chance?”
Mr. Helliwell: It’s a very good question, senator.
I see it a little bit differently. First off, you’ll never get rid of risk aversion in the bureaucracy, and that’s probably a good thing, but you can recast the risk. There are all these risks that are out there that are not accounted for with the way procurement goes. What if this is delayed for four years, because it’s so huge and involves so many other things happening? What’s the cost of having no solution for that whole time? There are so many negatives that should be accounted for as risks that, in my experience, have typically not been included.
And then there’s the other side of it: How much do you value the good for the country? This drove me bananas when I was director of policy and my boss was minister of public works and dealing with the people handling procurement. They were wonderful people but really felt boxed in in that they weren’t able to give weight to those other things. I think giving them parameters so that these things are valued would really help the system to work.
The Chair: Having gone through F-35, I just want to say out loud that I realize how difficult it is.
Senator Bellemare: Hearing you makes me understand some of the problems with doing some public service things with technology. It’s so ancient in the health sector. Some hospitals still function with fax nowadays. You’ve given some insight into why this is so.
Mr. Bergen, in some writing that you did, you talked a lot about the talent shortage, and you said that one of the big problems for the technological sector is the talent shortage. I would like you to elaborate a bit about that.
Mr. Bergen: In terms of talking about the health technologies being used within provinces, really that does come down to a challenge around procurement. That looks more obviously at kind of a provincial lens than it would, let’s say, at a federal lens.
Just to loop in a little bit of what David was saying in his earlier remarks around how procurement is done, the government did launch Innovative Solutions Canada, which was a tool designed to look at actually using a challenge-based approach for looking at a problem and then trying to get industry to solve it. The issue that we found with the program is that companies would begin working through it, and then they would get to the end of the runway and there was no actual procurement mechanism for the actual purchase. A solution would be generated, but then there was no actual purchase of the actual technology that had been created by a firm. I’m thinking about not only just the challenge-based component of it, but how do you actually create the entire runway that’s really required in order to get a company up and lifting. We’ll leave it there on the procurement side.
On your comment around accessing talent, this is a universal challenge that is afflicting all jurisdictions. Talent is the jet fuel in the intangible economy. It is what drives. It is the lumber or the oil. It is really the jet fuel. Canada has some unique challenges in terms of our ability to have highly skilled workers at a certain level because we have struggled to build scaling technology companies.
One of the areas where the government has done a good job is around visa programs and really helping to bring in some highly skilled workers that are meeting that C-Suite level. What we do know is that there’s going to be about 230,000 positions in the tech sector that will not be filled by 2023, and we need to figure out ways of really expediting that process.
Immigration is definitely a tool — so a check mark there — but there is also looking at the upscaling and the retraining that will be required as well, making sure government dollars are really flowing to areas that are leading to companies finding the skilled workers they need. It’s not just in, let’s say, the classic software engineers, but looking at other areas as well. Folks who know how to do sales and marketing as it pertains to the intangible economy is an important piece.
Senator Loffreda: Thank you to our panellists for being here. I have a question for Mr. Helliwell and also one for the Council of Canadian Innovators on talent shortage, if we have time.
Mr. Helliwell, with respect to tech start-ups or start-ups in general, I have seen numerous surveys from reliable sources result in founders having greater interest in selling their companies rather than keep growing them if they have an interesting offer. Do you feel this has been detrimental for the Canadian economy? Do you feel it will continue to be a problem in Canada? If so, how can we incentivize our entrepreneurs otherwise?
Mr. Helliwell: Thank you, Senator Loffreda. That’s a very good question.
My peer group for most of the last 15-plus years has been entrepreneurs, not just from Canada but from around the world, especially Silicon Valley and the U.K., but really all around the world. What you’re talking about — this is my subjective opinion — isn’t any different in Canada than anywhere else. It applies to first-time entrepreneurs where everything is at risk, so they could be wealthy or have nothing and there’s not much in between. Investors see this as well because they often want the founding CEOs to continue. Typically what will happen there is there are ways of giving some liquidity to founders, giving them a certain amount of cash to take the possibility of everything going to completely zero off the table. There are ways to change that mindset. For me, now that I’ve had other exits, that’s off the table personally and it is a different perspective, but I want to emphasize I don’t see that as a specifically Canadian thing that you’re talking about.
Senator Loffreda: So it’s a general global problem?
Mr. Helliwell: Yes. I don’t even know if it’s a problem as much as it’s just a human nature thing. Also, it’s normal around the world that start-ups get acquired. That’s just the way the ecosystem works. I think our biggest problem in Canada is that there aren’t enough of the big companies here that are acquiring other companies from around the world.
My business partner Greg Kerfoot — we’ve been working together since 2006 — his first company was bought by Business Objects, which then called it Crystal Decisions. They were the world’s leading business intelligence software, which is now part of SAP. They were able to get to billions of dollars before their exit, but now there are so many other Canadian start-ups worth hundreds of millions of dollars that have come from that company, which started here.
Senator Loffreda: Do you feel our radar for foreign acquisitions with respect to Canadian companies should be lowered? It is fairly high at this point in time. A lot of our start-ups are successful technology companies that are acquired frequently by foreigners, and then head offices are moved. Just a quick answer on that. What are your thoughts on that issue?
Mr. Helliwell: Sure. The thoughts are really that we need to have more of those companies doing the acquiring based here. Those same big companies are buying start-ups all around the world, and Canada makes great start-ups. There’s a lot of potential to develop that ecosystem in Canada with procurement and financing and people, as we’ve been talking about.
Senator Smith: I have a question for Mr. Helliwell. Discussing Canada’s tax competitiveness, technologies are constantly evolving and new technologies continue to spring up on a frequent basis. With this in mind, countries with flexible and adaptive tax systems have the advantage of attracting these companies and people. I’m wondering whether you feel our tax code, as it currently stands, attracts these types of technology innovators, or are there other jurisdictions that we should learn from?
Mr. Helliwell: That is a good question.
From my personal perspective, Canada is in the band of normal, of okay, so it’s not something that I really think about. For some industries, you could talk about Ireland’s approach to IP and bringing people there. I have certainly known a number of people who have moved their headquarters to Ireland for IP reasons. Someone already mentioned this afternoon that as long as we’re in that band of normal with the other players in this space, I think that’s fine and we can spend more effort worrying about other things.
Senator Gignac: Thank you to our witnesses.
Your organization has close to 100 members, with high-profile CEOs from the most successful technology companies. I checked to see where your members come from, and you have representatives from coast to coast. Do you have any opinion on role models? Is one province better than another, or is there one province that could be a role model, whether it’s on procurement or the ecosystem on innovation? Do you have any thoughts on that?
Mr. Bergen: I think different regions are doing different things well in terms of how they’re approaching it. Overwhelmingly, where we’re seeing continuity is where there are challenges. One of the areas where I would say there’s a real opportunity for us to do better is looking at how we are actually supporting the ecosystem. What I mean by that is where is our attention and focus as a country. There was a comment earlier about the tax component and what that looked like. When we look at how we build innovation policy, the key is that you have to centre it around your domestic companies and figure out the tools required to support them.
Analogies that are similar to the U.S. are a bit of a false equivalency in the sense that they have very different policy structures in order to help advance them. If we want to look at other jurisdictions, say Israel or Korea or Japan, where the real strength comes from is having support from government in all areas. This requires updating not only one or two policies here or there, but actually an entire understanding of the economic framework. We’ll dive into a few quick areas.
When we look at areas like research and development, let’s take a program like SR&ED, which is large in terms of its support. Where are those dollars going in terms of supporting domestic companies? What we see is that roughly 50% of the $1.7 billion in SR&ED is actually flowing to firms that are Canadian in name only and not actually domestic technology companies. We’re seeing huge amounts of resources going into supporting large foreign multinationals here in Canada under the auspices of claiming that it’s creating and stimulating jobs. As we’ve already articulated, there are 230,000 jobs in the tech space that are already filled.
One interesting example that just came out about a week ago in a study in Quebec looks at the video game tax credit they have. They determined that of the $340 million that was allocated towards the gaming space, 75% of it was actually consumed by 18 companies that were ultimately foreign multinationals within Quebec. When we look at how we’re allocating dollars, making sure those are going towards Canadian firms is critical.
I would say a lot of Canadian jurisdictions and the provinces really struggle with this notion of understanding some of the negative spillovers of foreign direct investment. As provinces are spending, whether it be through video game tax credits or other mechanisms, ultimately what they’re doing is undermining domestic companies’ ability to hire talent and be able to actually generate and build businesses in the country.
Senator Woo: Thank you to Mr. Bergen and Mr. Helliwell for appearing.
Congratulations to Mr. Helliwell for your success on Thrive Health, but I want to ask you about your previous company, Pulse Energy. You told us briefly about how you exited that company. I wanted to hear from you about what you felt were the types of government interventions that helped Pulse Energy to be successful. You are welcome to say that none of them did. Also, please tell us your reflections on the fact that you had to exit in favour of an American company — you sold to a Boston-based acquirer — and the thinking around how and why the company could not retain Canadian status and ownership.
Mr. Helliwell: Thank you, Senator Woo. That’s lots of stuff to go through.
First off, there are some nice stories with Pulse Energy and government support, starting when it was just an idea. IRAP helped us with a $20,000 market assessment, and that continued over the next nine years with a number of different IRAP projects up to several hundred thousand dollars. Sustainable Development Technology Canada also supported us, and that enabled some provincial support as well. That was really important. We actually had no foreign investment. It was just the founders who were investing in the company.
Probably the most important thing that the Canadian government did to help us was on business development. It was a trade commissioner in northern England who was on a chat room. He saw something that seemed like a good opportunity for Thrive Health with British Gas, which was the biggest utility in the U.K., and sent it along to us. It seemed a little out of left field, but it ended up being not only our biggest deal, but it was the biggest deal that had ever happened in our industry. We would never have known about it if it were not for FirstThought. At the time, Gordon Campbell was the high commissioner to the U.K., and he and his team, because he had known us when he was the B.C. premier, really helped us to make the deal happen with British Gas. It was really a team Canada approach. We felt very much supported, and it had a meaningful impact on how the company evolved. Definitely thank you for the government help there.
In terms of the second part of your question, I take exception to the wording “had to exit.” We didn’t have to exit. It was a choice when we decided to and the things that happened there. It was not an uncommon situation where we’d seen a lot of success. As for why a U.S. company, the companies that were actively interested in us, of all three of the others who were there, there were two giant firms out of Germany and one giant firm out of the U.S., and then the Nasdaq company who ended up buying us. Those were the only ones really in the space at that scale. This goes to my earlier comments that we need more acquirers in Canada.
To the question about why chose an exit at that point — and it was a decision — we would have had to put in probably another $100 million to take the next jump to a lot of uncertainty. It was also quite clear in the market that we were in that consolidation was coming. We thought that we wanted to be well positioned in that timing. Of our 10 peer companies at that time, there is one left. They’ve all been acquired in a little bit of pulling together. I hope that answers your question.
Senator Woo: I retract my earlier phrasing. That was a great story. I also appreciate your point that there just wasn’t an option to stay in Canada because there wasn’t an acquirer with the size and scale to take over and keep it in the country.
The Chair: Yes. Support to sell companies to the Americans — we will revisit that.
Senator Marshall: Mr. Helliwell, I’m interested in your experience in Canada as opposed to your experience with the Americans. Can you compare the two? I’m interested in knowing whether the Americans are truly more supportive of entrepreneurs. What was your experience there? About Thrive Health — in Canada we have a public system, whereas in the U.S. they have both public and private. Do you find there is a difference with regard to the public sector perhaps being more risk-averse than those in the private? Can you compare the two? I’m trying to get handle on why everybody thinks that the Americans are better than the Canadians. You operate in both countries, so could you compare those two? You can throw in the U.K., too, because I know you mentioned that in your opening remarks, but mostly Canada versus the U.S.
Mr. Helliwell: I could go on for half an hour on all of that, but I will keep it to a couple of minutes, if I can.
One thing that was really interesting when I first started my first company in Canada and started telling people — and they didn’t know that I was going to be doing anything — is that the reaction from people was overwhelmingly positive — not government, just people from all walks of life saying, “You are starting a company. That’s awesome. That’s great.” This was back in 2006. There was just this support for taking that step and doing something entrepreneurial. It is so easy to incorporate a company and get things going. You didn’t ask me about France, but in France, it is so hard to do everything, to get started. It might be easier now. In the U.S., it is also celebrated, but no more than in Canada. In terms of the government support, my peer networks of CEOs of companies of anything from a couple million to a hundred million in revenues, typically, there are some very good support programs in the U.S., but nothing quite like IRAP, certainly that my peers had come across. When they heard about IRAP, they said, “That sounds great. I wish we had that.”
Where the U.S. really runs circles around Canada is the guaranteed procurement of domestic technologies and really having a secure team. I’m sure Jim Balsillie will speak tomorrow about that really strong intellectual property position globally to make sure that their firms are holding the IP in the country. That’s where they have their elbows out. There is so much more litigation in the U.S. than in Canada, which is obviously demoralizing, but it is also such a waste of time, money and goodwill. To me, that should be a competitive advantage for us to have a more trusting community. Maybe I am influenced by my father’s research on happiness and how it really does make the world go better, but I think that could be an advantage for Canada.
In terms of health care, it is way faster to do things in the U.S. private health care system. Even groups that are trying to innovate in Canada have a really hard time getting out of their own way. We could have a conversation, if you’d like, around the false discussion about public and private in Canada. In Canada today, about 30% of our health care spending is private, whether it’s dental or mental health or whatever. That’s normal for OECD countries that have a split in public and private health care. We could still have a publicly funded health care system with some private delivery. If you want to talk about that another time, I definitely have some ideas. We wouldn’t have to change the big pieces, and it could work a lot better.
Senator Yussuff: Thank you, witnesses, for the very rich information that is helping us on the committee.
My question is for Mr. Bergen. One of the issues you talked about and highlighted is the question of skilled talent, which is an ongoing issue that we are struggling with. Some argue that the way to deal with this is through immigration, but there is a huge talent pool in this country of young people who want to get into and remain in the tech sector, but at the same time, the industry has to invest if we are to train them, retrain them, keep them and innovate with their skills and ability here. Yet OECD data consistently shows that Canadian companies do not put enough domestic investment into training their own workers. We can’t simply rely on immigration. That is one part, and we are doing that to a large extent very successfully. How do we get Canadian companies to spend more of their own resources to recognize their own talent pool and their own success at the end of the day?
Mr. Bergen: That’s a great question.
We’ve begun to see interesting partnerships that the government has created. One is Palette, where $250 million is being allocated towards working with companies that are doing upscaling and retraining. What you are actually seeing is companies that are, let’s say, SME, actually collaborate with the government to do training. A company like AltaML, which is based in Edmonton, is doing fantastic work in terms of upscaling and retraining.
To pull back to your earlier part, in the tech space, you often have these smaller scaling technology companies. They invest to bring people up to speed in terms of skill sets, and often what happens, especially in the last number of years, is once those skill sets have been achieved, they often get hoovered up by larger firms. What you are ultimately seeing is a lot of smaller companies that are aren’t using and spending resources, but ultimately seeing that talent flow out of other companies because they can’t compete from a wage perspective. The large firms that are already here, the four multinationals, their need to upscale and retrain is not necessary, because the reason that they are here is to access the existing talent that they are using.
When we look at how to upscale people within companies, really focusing on scaling tech firms, figuring out the tools required to help them will be critical. On something like, let’s says, AltaML based in Edmonton, which is really using and leveraging government funding, they are able to train about 60 people a year in the AI space. That’s ultimately leading to not only an increase in talent for that company but also for the broader ecosystem in Edmonton.
I would say the government needs to actually build collaborative approaches with industry to help them upscale and train within their own corporations. A lot of the funding has traditionally gone towards universities. Obviously, universities are a critical part of this, but a collaborative approach between SMEs and the government from a funding model perspective will be critical. As I mentioned, it does look like there is some progress occurring under a new program that the government has implemented. Time will tell as to how effective that is, but that’s really the way I would look at it, as a much more collaborative piece to get industry, especially those scaling tech companies, to be involved.
Senator Bellemare: My question is to both of you. I have one of your reports in French here.
[Translation]
In English, it’s called the Council of Canadian Innovators Talent and Skills Strategy.
[English]
You produced that report in 2022. I think it is very interesting. I want to push you a little further with my question.
Mr. Bergen, you talk about an ecosystem that sometimes is very encouraging for enterprises to invest. Maybe you are aware that, in Europe and even the United States, the private sector has developed skills frameworks, like IBM and big companies. In the European countries, it is more the governments that have developed a national skills framework that allows people to identify their own skills, what skills they lack, to have training that is more a short run and then to finance upskilling. What do you think about that for Canada?
Mr. Bergen: Part of the challenge that we have as a federation is that education falls in the provincial level, so mass standardization is a bit more of a challenge in terms of a European approach. In terms of the Americans, they do have large multinationals. They do have very large firms that are able to do what some states are able to do in terms of their ability to educate and train. We just don’t have that capacity here in Canada because we really struggle to scale and grow businesses.
From a federal perspective, we really need a strategy that looks at how to use all the different tools that we have. Maybe that requires a national summit on talent. The University of Waterloo, from my understanding, has actually partially created that. Realizing that there was a lack of engineering capacity, coming out of that came the university.
We need governments across the federation to work collaboratively together on addressing gaps in skills and to work with domestic companies to help fuel what those roles are. There are some bright lights that I mentioned that are beginning to come online. You’ve seen where something like the skills initiative that the federal government has implemented will hopefully collaborate with industry.
I would say that, sadly, we can’t do the straight-up European approach, which is centralized through specific governments, because we are a federation. We just don’t have that capacity that the Americans have, like Alphabet or Meta, in terms of company size. Our approach will have to be different.
Senator Bellemare: One that comes from your council, for instance? Why not put together all enterprises interested in that issue, along with labour, some private sector, some public sector and educational sector, and bring them together to talk about those issues? That may be the Canadian way of doing things that the Constitution doesn’t enable us to do.
[Translation]
Mr. Helliwell: That’s a very good idea. Perhaps we can discuss it afterwards with Benjamin to see what can be done.
I would add to that the perspective of Canadian start-ups. It’s not really the traditional skills matrix they’re looking for. It’s really people who are innovators, who can learn and apply things very quickly, people who can pivot to a new objective pretty quickly. What they’re looking for is a bit different. Today’s technology will be irrelevant in five years, so there’s no point in having a huge operation of 100,000 people who can operate a specific technology. We have to pave the way for people who are thinkers. Benjamin, perhaps we can talk later.
Senator Bellemare: It’s about taking a sector-based initiative countrywide. Thank you.
[English]
Senator Loffreda: Thank you once again to our panellists.
I want to continue on the talent shortage. This is so crucial to our economy. This is a question for both, but I can start with the Council of Canadian Innovators. You raised an interesting point in one of your recent studies. I will just state the point and then see where I am going with the question. Instead of chasing foreign investment and measuring success in terms of job creation, our governments must focus on growing the available supply of skilled talent — so to continue on that aspect — and talent creation, not job creation, must be the guiding goal for leaders who want to build a Canadian innovation economy.
To continue the discussion you were having with Senator Bellemare, I want you to elaborate on that point. We have close to a million job vacancies in Canada and close to a million Canadians out of work at this point in time. Is it because there wasn’t enough focus on talent creation? How can we resolve that issue? You can look at the scarce resources in the service industry, in the trade industry and in construction. Despite the fact that there are a million Canadians not working, we still have scarce resources in many sectors. Will focusing on talent creation solve that issue?
Mr. Bergen: That’s a great question. I will be candid. I am not actually a labour economist in terms of understanding how those things match in terms of unemployment and skills.
What you are asking, what we are trying to articulate, is that governments increasing support the branch plant economy or branch plant businesses opening in this country. They love to go to ribbon cuttings and say, “Look, we brought 500 jobs to Toronto,” or “We brought 250 jobs to downtown Vancouver by opening Amazon’s new office here.” What we are really actually saying in that piece that you are underscoring is that there is already a labour shortage in this space. It is not job creation that’s actually occurring. What’s actually happening is job reshuffling. Companies are getting their talent poached from these large foreign firms that can pay more.
Here is a really good example for everyone on the committee. Under the Strategic Innovation Fund, the government issued $49 million to support Mastercard opening an office in Vancouver. All the local fintech companies in Vancouver frantically messaged me, freaking out, saying that this had now just put a target on their backs. They were noticing that recruiters were coming around and trying to basically poach their top talent to come and work at this firm. Our argument here is that this approach is maybe at best a job strategy, but it’s not even really a good job strategy. What it ultimately does is fund the research and development of foreign firms that have set up office here through Canadian taxpayer funding, but it has actually hurt and hindered the ability of domestic companies to keep and retain the talent they have.
If governments really want to be positive in this space, saying that they are opening branch plant X or branch plant Y is not actually doing a service to the Canadian domestic tech ecosystem. What they should be doing instead — and this is maybe to your point — is focusing on looking at how to increase the supply of labour in the innovation economy in order for it to be successful. Sure, maybe that means upskilling and retraining or taking people from the retail sector or immigration. What you need is a myriad of different public policies in order to achieve the outcomes.
We are warning the government that claiming to create jobs in the space is not an actual reality. There is already negative unemployment. To support the domestic economy, they need to increase the supply. I hope that answers a bit more of your question.
The Chair: The other issue I want to touch on is that we see things like the so-called “just transition” as we talk about the oil and gas sector. When we don’t know when we are transitioning or to what, it is hard to say that’s a transition program. It has similar problems to what you are describing there in that we may not be creating jobs but rather shuffling jobs.
I will go to Senator Deacon. We are running out of time. He has been waiting patiently.
Senator C. Deacon: As we all have. I appreciate the great questions from colleagues.
I want to build off the “lions versus lambs” ratio — acquirers versus acquirees — the discussion we had earlier, Mr. Helliwell, and whether or not we got that right. I want to focus on the IP element of it to help us understand it from an entrepreneur standpoint. I do think the ecosystem of selling at certain points and reinvesting the money — and you gave a great example of that — is really important. We have the Strategic Innovation Fund that allows investment in foreign companies, and they can move their IP — IP that the federal government is investing in — out of the country. I think that’s still true for the Industrial Research Assistance Program, or IRAP, and the Scientific Research and Experimental Development, or SR&ED. If we place restrictions on Canadian companies in that regard, but we don’t place it on foreign companies, I see a challenge in our “lions and lambs” ratio problem. I want you to give us some insights there from a founder’s perspective and as somebody involved in that a couple of times.
Mr. Helliwell: You brought up a couple of important things.
You mentioned the Canadian Trade and Investment Facility for Development, or CTIF, SR&ED and IRAP — even boiling it down to SR&ED and IRAP for starters. IRAP really does have quite clear rules. It has to be a Canadian company. From the work we’ve done with them, we know it’s quite focused. On the other hand, as Benjamin was mentioning, about half of all the SR&ED money goes to foreign-owned companies that don’t keep their IP in Canada. When we sold our last company, we found that there was a conversation with IRAP. They quite responsibly look at the IP and where it is going and whether the jobs are staying in Canada. We were able to show that enough activity was staying in Canada that it made it worthwhile.
I think what you are getting at is this: Why should a Canadian start-up have a penalty if they get sold to a foreign company and the IP leaves, but the foreign companies can just get the funding and take the IP elsewhere? That seems like a fundamental inequity that doesn’t sit right as a Canadian entrepreneur. At best, you’d think it would be equal, but why would it be tilted against us? Maybe someone here has some insight on that.
Senator C. Deacon: At least it should be strategic.
Mr. Helliwell: Strategic, balanced and not with the scales tilted against the domestic innovators.
Senator Yussuff: Let me thank the two witnesses again for telling us some of the things we are doing well and what we need to do better. Too often, we have this conversation and everybody says everything is terrible. To a large extent, that’s not the conversation we are having here today.
Mr. Bergen, the Canadian talent pool has always been exactly that: There are those who train and those who don’t train, and people are always poaching. I am much older now, but when I was much younger, in my early 20s, that was the fundamental question of the employers I was working for. Why would I train you when somebody will steal you the minute you are trained? By the way, it is 40 years later and that problem hasn’t gone away. Maybe the fundamental question is that everybody should be training. There should be a requirement to train. If they are all training, we will do better at having a broader talent pool. The country is certainly benefiting from immigration, but equally we could all benefit if we’re all training each other on a consistent basis.
The Chair: Mr. Bergen, do you have a comment on that?
Mr. Bergen: Yes. We need to build successful technology companies that are able to actually absorb the talent we are generating because if we don’t, they will ultimately leave and go to foreign firms and ultimately generate wealth and prosperity for those jurisdictions.
The best example would be the AI strategy that the federal government was working to implement over the last five years. It turned out to be just a talent strategy. A report from The Globe and Mail showed that 80% of the IP that was generated left and went to companies like Uber, Microsoft and other foreign firms. Canada spent hundreds of millions of dollars trying to generate talent, but without firms that are able to catch that talent and pay and nurture it, it will ultimately flood out.
I would say that, yes, Canadian firms do have to figure out ways of training, but we also have to help our domestic companies reach that next scale in terms of being successful. If not, they are not going to be able to keep those highly skilled workers, given what is happening in terms of the ecosystem. We are stuck in a bit of “chicken and egg” kind of talent. We all agree we need more of it. It is a bit like the motherhood and apple pie of public policy. It is needed everywhere. But for us to actually build an innovation economy and support companies that are scaling, we have to look at what other principles are required in order to get there. David touched on a little bit of it, looking at the access capital to get you to that next level, mentioning that $100 million they needed to be successful. But we also now have to look at what some of the public policy tools are, whether that’s rules around IP leakage, rules around creating patent collectives or rules around other areas.
The Chair: Thank you very much, gentlemen, for being here today, Benjamin Bergen, President of the Council of Canadian Innovators and David Helliwell, Co-Founder and Executive Board Chair of Thrive Health. You have raised a lot of issues for us.
We will continue tomorrow with our discussion on business investment in Canada, the impediments and, we hope, some more of the solutions.
(The committee adjourned.)