BC's tech sector continues to grow despite concerns over the lack of a "middle class"

British Columbia's technology sector is working to overcome a paucity of mid-sized companies with the ability to grow and become globally competitive, says the head of the province's tech industry association. Despite impressive job growth and income levels, the industry is struggling to grow companies with sufficient size and scope to successfully compete in the global arena. The vast majority of BC's 9,000-plus technology firms employ less than 50 people and - like tech firms across the country — they are challenged by access to capital, talent and markets.

"The one area that continues to plague us is the industry structure that we have here in BC. What we've identified and continues to be the challenge over the past 10 years is the absence of a middle-class," says Bill Tam, president and CEO of the British Columbia Technology Industry Association (BCTIA). "The proportion we have which are mid-sized companies is only about 3.5% … If you look at perhaps healthier jurisdictions in other locations around the world, you will see numbers that are closer to 8% to 10%. Clearly we've got our work cut out ahead of us to try and achieve that level."

Despite the concerns, the BC tech sector has some impressive data behind it and policies geared towards further aggressive growth. With a novel angel tax credit, R&D funding in support of targeted industries and technology commercialization in support of the booming resources sector, the BC industry is one of seven lead sectors identified by the provincial government in its recently released BC Jobs Plan.

The sector's five main clusters are information and communication technology, life science (including biotechnology), wireless, digital media and clean tech —the fastest growing of the group. The province's largest firms are MacDonald Dettwiler & Associates, PMC Sierra, Sierra Wireless, Electronic Arts and QLT, which is essentially a large patent exploitation play.

The province's burgeoning resource sector is also a major stimulus for the tech industry, with many companies providing products and services to boost more productive.

"One of the things we insist on indicating is that the tech sector is the thing that makes the resource sector possible," says Tam. "A lot of drilling and exploration is enabled by the technology that's built right here — everything from the satellite services at MDA to the software that underlies many of the mining operations which is done by GenCom."

Perhaps the most effective tool for establishing new tech firms in BC is the province's unique angel tax credit. While venture capital investment is hovering around the $200-million range (down from more than $400 million a decade ago), angel investing is soaring. While the exact amount of difficult to substantiate, it's estimated that $1 billion to $2 billion is being invested annually in the province.

"Venture capital is only the tip of the iceberg. For every dollar of institutional venture capital, ten dollars of private equity is going into companies, although it's mostly unreported," says Mike Volker, director of Simon Fraser Univ's Innovation Office (formerly university-industry liaison office) and a veteran angel investor and technology innovator. "What I see in the province's angel networks is a huge amount of capital available but it's hard to find. It's widely distributed with thousands of investors."

Volker wears many angel financing hats in the province including head of VANTEC, the Vancouver Angel Network. He has also established two angel funds — one in 2004 which has invested in about 60 companies and his most recent venture, Green Angel Energy Network (GAEN), Canada's first publicly traded angel fund. GAEN is still relatively small but has plans to grow over time by bootstrapping as it exits from early investments.

Volker is currently lobbying government to make it easier for companies to attract financing. On the capital side, Volker is pursuing an offering memorandum exemption to allow financing mechanisms like cloud funding (raising funds outside of a designated stock exchange). At the federal level, changes are being sought to change the regulations governing stock options to make it easier for growing firms to bring in the necessary management talent.

As for the absence of a tech "middle class", Volker says concerns are likely exaggerated. When he arrived in BC 20 years ago, there were virtually no mid-sized tech firms. Today there are at least a dozen with the prospect of more to come as angel investment spurs a host of new start-ups.

"I wouldn't say it's a serious issue. The situation is changing and the quality of start-ups is improving," he says. "Turnover is good, It creates momentum. With the purchase of CREO by Kodak, a lot of rich people were created and have provided a huge level of support to new companies through funding, mentoring and directorships."

Volker adds that if government leaves investment incentives in place and continues to work on removing barriers, the tech sector "will be well on its way".

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