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Canada needs more billion-dollar companies to compete in the digital economy: report

Canada needs more billion-dollar companies to scale its digital economy, 15 industry leaders state in a new report.
Canada needs more billion-dollar companies to scale its digital economy, 15 industry leaders state in a new report. THE CANADIAN PRESS/Graeme Roy

Canada needs more billion-dollar companies.

According to 15 industry leaders, the lack of such companies is an impediment to growing the Canadian information economy, as stated in a new report produced on behalf of the Liberal government.

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“We need to grow companies. We don’t have a lot of big businesses and with that comes so much economic growth,” said Melissa Sariffodeen, founder of the national non-profit, Canada Learning Code.

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Scaling businesses past the start-up stage is a key point of the Digital Industries report, which was compiled by some of the biggest names in Canadian tech, including Shopify founder Tobi Lütke, Canada Learning Code founder Melissa Sariffodeen and Wattpad CEO and co-founder Allen Lau.

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The only problem is that Canadian start-ups often get bought out or sold before they reach that point.

“We don’t have conditions that make it straightforward, given the very difficult journey that any small company takes to become a large company,” said Bryon Holland, CEO of the Canadian Internet Registration Authority (CIRA).

It comes down to the gaps in Canada’s current infrastructure — talent, funding and internet access.

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Too many jobs, not enough talent

In a conversation that’s become the background music to Canada’s tech space, jobs in tech are opening up faster than both Canadian universities and overseas hires combined can fill them.

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Holland notes that while we’ve begun to address the problem, technology jobs in particular require years of training — and they may become obsolete once graduates enter the workforce.

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“There’s a long lead time into developing talent domestically…given the pace of change in our industry, educational institutions re always playing catch-up.” Co-op programs and other ways students can gain on-the job experience can be a useful tool in solving this problem, he explained.

Sean Mullin, executive director of the Brookfield Institute for Innovation and Entrepreneurship, agrees that while the Canadian government and universities have been responding to the shortage, the demand keeps changing and growing.

“What might have been a demand for skills five or 10 years ago, those demands have changed,” he said, emphasizing that we cant rely exclusively on foreign hires. “We want an increasingly larger share of our population to be able to participate in the tech sector.”

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Essentially, developing these skills takes time — something that high-growth tech startups do not have. This is where our immigration policies can help fill in the gaps, the report states.

Furthermore, Sariffodeen adds that Canada’s difficulty with scaling businesses means we don’t possess enough people who know how to build the high-valued companies the report describes.

“Because we don’t have many billion dollar businesses, we don’t have many people who can scale or have scaled successfully to be billion dollar businesses,” she said.

A shortage of “cold hard cash”

Access to venture capital and other forms of venture funding were also highlighted as a key obstacle to building billion-dollar companies in Canada.

“It’s one thing to build the engine, or the company, but you need the fuel to make it go,” Holland explained. “And the fuel is cold, hard cash.”

Often, he said, Canadian companies don’t have a choice but to be financed by American equity firms because these resources are so hard to come by in Canada.

“One of the reasons all of these companies get sold out to American interests is because the American investment community or private equity and venture are so much stronger and willing to take the risk,” he said.

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Lau, founder of the Canadian digital entertainment company Wattpad, adds that Canada runs the risk of losing control of its own economic growth if Canadian firms continue to be financed primarily by American interests.

“Canada as a country doesn’t have a lot of control if the jobs are majorly created by foreign companies,” he explained. “Having more capital for Canadian companies is mission critical.”

Holland explained that this begins at the government level when it comes to tax policy.

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“It’s asking, what kinds of tax policies are in place that not just enable but promote sensible risk taking in terms of investing in new businesses?” Holland said. A current example of these kinds of policies is the Science Research and Experimental Development Tax Incentive Program (SRED), which offers tax breaks to Canadian companies conducting research and development.

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“Secure and competitive internet is key”

The final piece of the puzzle is Canada’s internet infrastructure, which has frequently been lauded as one of the world’s most robust and efficient telecom systems.

However, the report offered several critiques of the steep prices Canadians pay for internet access — some of the highest in the world — and the lack of competition in the space which keeps prices high.

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“We all know mobile is king in terms of accessing the internet. In terms of the price point, it discourages usage,” Lau said. “It’s a policy failure of Canada that we cannot create a more competitive environment, in the way that it’s monopolized by the three big telcos.”

Furthermore, Sariffodeen pointed out that while access to internet services is relatively easy to come by in major cities like Toronto, the same is not true for rural regions.

“There are parts of the country — let’s say in rural Manitoba — where they actually can’t access cloud-based software for their businesses,” Sariffodeen said. “They don’t have the internet speeds that they need to be able to run a proper business.”

Reliable internet access that doesn’t break the bank is something growing digital companies will undoubtedly require to scale in Canada. Rural Canadian communities are still 25 per cent behind urban cities in terms of internet speed, according to a report by CIRA.

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The time is now

Despite the challenges, the report echoes the sentiments of those working in the innovation economy: Canada is on the verge of greatness, but leaders need to act.

“We have to own the podium, rather than getting comfortable being the second-place player,” Lau insists.

“We need to fuel those fires, declare those winners in those categories and help them grow,” Sariffodeen echoes.

“It is our time now.”

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