RE$EARCH MONEY Conference explores strategies for tech firms going global

Complicated by lack of venture capital

The deepening recession offers a rare window for establishing global, Canadian-based technology companies. But the difficulty of raising financing presents a formidable hurdle that government must be prepared to assist in overcoming. A procession of speakers at the 8th annual RE$EARCH MONEY Conference spoke to the opportunities available to Canada to leverage its rich reserves of research and innovation and create companies that are conceived with the global market top of mind.

The supportive role of government was emphasized in a keynote address from Stockwell Day, minister of international trade at the Department of International Trade and Foreign Affairs (DFAIT). Day says his department has developed a suite of programs to assist businesses seeking a global presence. With programs like Going Global and the $20-million International Science and Technology Partnerships Program, DFAIT hopes to foster the kinds of collaborative R&D and business relationships that will lead to Canadian companies with international sales.

"People think a time like this is not a great time – and it's not economically … We're doing precisely the opposite of what some impulse might be, which is to become internalized. We're going outside and being more aggressive to open up those opportunities," says Day. "When you look at the economic downturn of the 1990s, that's when the Blackberry emerged. There have been all sorts of spin offs that were unimaginable, all from one very successful Canadian product … "So we are aggressively moving in this field of science, technology and innovation and partnerships and free trade agreements, making sure we have the most competitive tax regime, opening up and extending our credit with organizations like EDC (Export Development Canada). (This is) to make sure that in a downturn, innovation, science and universities are still free to do what they do best without being encumbered by government."

crisis in venture capital

The collapse of the Canadian venture capital industry is forcing companies to consider other types of financing from angels to revenue generated from initial sales. In the past several months, Canadian VC has hit a wall, resulting in a virtual meltdown of the industry. Years of mediocre returns and the recession have combined to create a toxic environment where fundraising has plummeted and VC has withdrawn from any investments that could be construed as early-stage.

"A tragedy is in the making," says Sunil Sharma, DFAIT's senior trade commissioner for venture capital and international director of Canada's Venture Capital & Private Equity Association. "What we're seeing happening is that Canadian venture capital funds are starting to close down offices. They have laid off partners and essentially in some cases stopped doing business. And a bad situation may in fact start to get much worse."

VC is only one of the financing options available to emerging and growing tech firms, albeit a critically important one. Many firms are going the self-financing route, developing early services or products to generate a revenue stream while innovative products are in development. Others are increasingly turning to angel investment, which is playing an increasingly important role in the development of new tech companies.

Dan Mothersill, president of the National Angel Organization, says Canada is awash in innovation, but many promising start-ups remain unfunded due to the weak linkages between business and academia.

"Universities have become warehouses for innovation – the technologies and the science that are developed," he says. "There are notable exceptions, but the rule of thumb is, we fund research and innovation very adequately (in Canada) but … we don't have a clue how to commercialize it. The maximum value of a killer technology, a breakthrough science, is zero unless you can turn it into a real business – a profitable, sustainable, growing global business. We don't get it."

Mothersill says government policy makers have not been aggressive enough in developing effective programs and funds to foster commercialization, leading to far too many inventions remaining trapped within academia. He suggests that, rather than bail out aging industries like the automotive sector, those public funds should be used to stimulate innovation.

"Chrysler is holding us to ransom. They want $2.3 billion and if (they don't get it) they're going to close it down, take their 9,000 employees and go somewhere else," he says "Bye. Good. You take that $2.3 billion and begin to invest it in the kind of innovation in medical sciences that we have in this country, it would transform Canada.

canadian success stories

Smart Technologies is among a small group of Canadian tech firms that have established niche dominance in a field where world class technology and a careful, deliberate marketing strategy has led to year after year of impressive double digit growth. Based in Calgary with a large manufacturing operation in Kanata ON, Smart is aiming to move from its current status as Canada's 19th largest technology firm to the third largest within three to five years.

Interactive white boards are a disruptive technology that is changing the way teaching is conducted. The company began with the intent of going global, taking advantage of a slow market and technology evolution to grab a major share of the market. That market share remains a healthy 53% and Smart will realize $1 billion in annual revenue next year.

Smart is also exploiting of the recession to bulk up on technologies for future use. Martin says when the recession ends, he plans to have a suite of new products ready to roll, which could help maintain the firm's heady growth rate of 30-40% annually.

Ocean Nutrition has tackled a remarkably similar set of challenges to those faced by Smart Technologies, taking advantage of gaps in the market to establish a global enterprise using the waste streams from seafood products to develop bioactive compounds. Armed with a global vision and employing S&T as a key differentiator, it established a dominant market share early on and is using S&T to maintain its competitive edge.

The benefits of S&T are delivered via highly skilled workers, however, and Ocean Nutrition president Robert Orr says Canada must improve its policies and programs for education or risk falling behind its competitors.

"We undervalue education so much in this country, it's ridiculous. If education is the underpinning of value, what are we doing at the policy level," he says. "We need to get real about creating smart people … Universities have to get serious about their relationships with business. We need a new mindset."

Alan Barrell, a veteran of the UK tech sector and entrepreneur-in-residence at Cambridge Univ, joined the chorus of conference speakers urging Canadian businesses to use the current recession to build future success. He stressed that Canada should not focus exclusively on forming companies like Smart Technologies as there are major gains to be made creating medium-sized companies that take established technologies and leverage them through superior marketing, branding and tech support.

Spartan Bioscience, an emerging biotech firm, has used DFAIT's Going Global program to make key business contacts in Spain, helping to realize the firm's global perspective from the outset. Spartan has also used R&D tax credits and the Industrial Research Assistance Program from day-one and is building up sales and marketing capability in anticipation of initial product launch.

Mark Kershey, a tech industry veteran of firms such as Gennum Corp, MOSAID Technologies and Nortel Semiconductor, says government assistance combined with about $4.5 million in private equity to date have laid the groundwork for Spartan to be a global entity.

Certicom is another company based in Canada but sustained by international sales. Recently acquired by Research in Motion Ltd, its encryption technology has become a major world standard with adoption by many organizations and firms through the US and internationally. The company's potential in Canada is largely unrealized, however, and Certicom CEO Karna Gutpa says government support is critical to tackling new areas of growth such as health cards, drivers' licences and improve regulations in areas such as visa and labour movement issues. Public support will help companies establish themselves as virtual global companies using Canada as their development and marketing base, he says.

David Fung, CEO of the ACDEG Group of companies and national chair of Canadian Manufacturers and Exporters, ended the conference with a blunt piece of advice.

"We can't afford to stay home. ... Our job is to grab any value we can from any market in the world, not just to commercialize Canadian technology," he says "We ship waste paper to China and they ship it back as paper products and put our pulp and paper companies out of business and use our technology to do it ... Turn knowledge into value. That's the job of everyone in the room."

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