Canada’s innovation sector secures new federal emergency support for startups

The federal government is committing more than $1.2 billion to two new programs to support startups and rural businesses during the COVID-19 crisis.

Prime Minister Justin Trudeau announced the funding Friday, April 17, a day after participants in Canada’s innovation sector told Economic Development Minister Mélanie Joly that the crucial tech startup component of the country’s innovation ecosystem was on the verge of collapse.

“This sector and these companies represent Canada’s best opportunity to lead the recovery and to create jobs in the new global economy post-COVID,” Yung Wu, CEO of the Toronto-based MaRS innovation hub, told Joly in an April 16 online roundtable organized by the National Angels Capital Organization (NACO). “It’s unthinkable to me that we might have to press the restart button in 60 days on a sector that’s essentially taken us 15 years to build and invest into together.”

Wu said that in a research paper to be published this week, MaRS found that the innovation sector and associated investment drive 12% of Canada’s economic output and contribute 10% of the country’s employment.

“Time is not our friend. I believe we have days, not weeks or months, in order to preserve the value in this sector for Canada’s future,” Wu said.

“Startups need rent relief. They need access to working capital and investment incentives, as well as access to Canada’s emergency program. And they need it now,” Michelle Simms, president and CEO of the Genesis innovation hub in St. John’s, Nfld., told Joly.

Claudio Rojas, CEO of NACO, said Canada is at an “inflection point” in the evolution of its innovation ecosystem. “Our economy is on the precipice. We’re on the precipice of falling behind or, with bold action, emerging through the wreckage of COVID-19.”

New funding for IRAP, Regional Development Agencies

Trudeau announced an additional $250 million available through the National Research Council of Canada’s Industrial Research Assistance Program, to support early-stage and high-growth startups. Another 20.1 million will be provided to Futurpreneur Canada, a non-profit supporting aspiring business owners aged 18-39.

The prime minister also announced $675 million for the six Regional Development Agencies (RDAs), administered by Innovation, Science and Economic Development Canada, to support SMEs unable to access existing COVID-19 support measures. An additional $287 million will go to the Community Futures Network of Canada, to support rural businesses that may not have existing relationships with financial institutions.

Canada’s innovation sector has been complaining that startups and their angel investors don’t qualify for the government’s existing COVID-19 support programs, such as the emergency wage subsidy and liquidity loans.

In fact, startups globally are struggling. This week, Startup Genome in San Francisco released the results of a global survey on COVID-19’s impact on startups. The survey, which had 1070 respondents from more than 50 countries, found that:

• 38% of startups aren’t helped and do not expect to be helped by current policy relief measures;
• 41% of startups have three months or less of cash “runway” remaining;
• Nearly 20% of startups have had Series A, B or later funding rounds cancelled, and 53% have seen the process significantly slow down;
• 74% of startups have had to terminate full-time employees, and 26% have eliminated 60% or more of employees;
• Three out of every four startups saw revenues decline since the beginning of the COVID-19 crisis.

While NACO’s Rojas welcomed the new federal funding, many participants in NACO’s roundtable said government could be doing much more to support startups, their founders, the incubators and accelerators that nurture these businesses, and the angel investors who kick start them.

Income tax incentives, matching government funding needed

Government should offer an income tax deduction to angels investing in a startup that has been accepted into a recognized incubator or accelerator, as well as to angels investing in pre-seed investment funds put together by incubators and accelerators, said Anthony Lacavera, founder and chairman of Globalive, a multi-stage investment firm headquartered in Toronto.

“There’s a whole lot of Canadians that are really excited about supporting Canadian innovation. So we need to create the very simple tax framework to incentivize that,” he said.

Government also should provide immediate matching funding for companies recognized as winners in competitions organized by incubators and accelerators, Lacavera said. “It’s really about starting to pick winners and fuel winners from the very early stage in the innovation life cycle.”

Judy Fairburn, co-founder of The51, a Calgary-based financial platform supporting female-led businesses, said angel investors play a critical role, especially in western Canada, in providing the prime source of funding for startups. But angel investors in the West are being hit hard by both the COVID-19 crisis and the oil price collapse, she said.

The federal government should engage a group of “super-angels” to quickly design a program, similar to the BDC Capital Bridge Financing Program that matches venture capital investment, to provide matching funds for angel investment and help the most promising early-stage startups survive, Fairburn said. “They’re our engine for future economic recovery.”

Dr. Alexandra Greenhill, CEO and chief medical officer at Vancouver-based  Careteam, a virtual healthcare collaboration platform, said: “We need to back investors who are on the fence right now to help them invest more confidently in their current clients.”

Dr. Sam Elfassy, physician and co-founder of the Toronto-based HaloHealth angel network of Canadian physicians, recommended that government implement a program similar to the Canada Emergency Business Account to provide interest-free loans, with a forgivable portion, to angels investing in healthcare startups.

Genesis chief executive Simms warned that “In five years, when we are looking for next-generation technologies to advance our education, healthcare and financial systems, they won’t be there if we don’t step up to support these startups now.”

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