If there is any doubt that keeping promising tech startups in Canada is difficult, consider the recent experience of Calgary entrepreneurs Kenneth Bond and Pieter Boekhoff.
In March, the former software developers launched POSH View Media, a company they hope will power the next phase of touch-screen technology. Reminiscent of the interactive screens in the futuristic thriller Minority Report, the high-definition, multi-touch platforms POSH View has developed are completely customizable, and have the ability to conform and adapt to multiple users at the same time.
Their interactive surfaces, which can communicate with smartphones and tablets, vary in size and function, ranging from mirrors stocked with local traffic maps and weather to glass walls that can support up to 120 users.
From the outset, Bond said the intention has been to keep this innovation — and the jobs and revenue it could create — in Canada.
“We’re proud to be Canadian. It means something to both of us,” he said. “We both have very solid roots in the community, and we want to give it to Calgary.”
But it has already been a challenge to stay true to that ambition. On the hunt for investors, Bond said POSH View has so far been approached by more than 30 interested parties in the U.S, including the tech giants Apple and Microsoft. By comparison, the company has met with just a handful of potential investors in Calgary.
“The money being thrown at us right now is American money,” he said. “Ultimately, we’ve got to make sure the company survives or else we’re not showing anybody anything. We may have to go where the money is, and go to the States.”
It’s a familiar lament, and not just of entrepreneurs. For decades, policymakers and business leaders have been looking for solutions to Canada’s innovation problem — our sub-par ability to develop, incubate and bring to market the kind of technologies that create jobs and power economies. Compared to 16 of its peer countries, Canada received a grade of “D” for its capacity to innovate from the Conference Board of Canada in 2010, an indication of how big the gap is.
But while a multitude of roundtables and committees have endeavoured to find high-level solutions to our innovation conundrum, the fundamental dilemma is the one playing out in the ground floor office on 4th Street SW, where POSH View Media recently set up shop. The question is simple: What does it take to keep a promising startup in Canada?
More often than not, as Bond’s comments suggest, the decision to relocate internationally or sell to a foreign buyer comes down to dollars and cents. In the early stages of a company’s lifespan, initial investment generally comes from angel investors or venture capitalists, individuals or companies that trade funds for an ownership stake. Venture capital tends to invest in multiple rounds, especially for earlier stage companies, who develop an increasing appetite for capital as they grow.
But while Canada has about one-tenth the population of the U.S., our venture capital industry is only one-twentieth — or five per cent — of the one south of the border, according to Richard Remillard, executive director of the Canadian Venture Capital Association.
“The amount of time it takes for funds to raise capital has extended. The amount they’re raising has gone down. And the amount that they’ve invested has gone down,” he said.
Meanwhile, when all the funding rounds are taken into account, Remillard said the Canadian venture capital industry puts “anywhere from one-third to 40 per cent of the capital into portfolio companies that our American friends are putting into their portfolio companies.”
“You can’t invest what you don’t raise yourself,” he said. “So getting more capital into venture capital funds is one of the ways of providing adequate capital for the really high growth companies.”
One of the best ways to do that, said Raphael Hofstein, President and CEO of Toronto-based MaRS Innovation, is to increase government investment, a lesson he learned while helping to create a life sciences early-stage fund in Israel several years ago.
“Everybody told us — institutions, industry — that they will not participate unless government has a piece of the pie. So governments have to participate, certainly in the early stage,” he said.
Canada offers a relatively generous federal tax incentive program for businesses to conduct research and development, dubbed the Scientific Research and Experimental Development program (SR&ED). But according to Bruce Good, executive director of the Conference Board of Canada, accessing it requires expertise that most startups don’t possess.
“You probably need a bunch of lawyers and certainly consultants to even fill out the application form. It’s very complex,” he said.
Bond said POSH View has yet to retrieve a government grant or claim SR&D dollars “because of the amount of time and effort that goes into doing all of that -- it truly doesn’t make it worth it.”
“It’s smarter for me to go out and get a customer and do some hard work that’s going to pay off,” he said.
Another way for the public sector to ground early-stage companies in Canada is through government procurement. A pertinent example of this is Research In Motion, whose previous success has often been attributed to the early government adoption of the BlackBerry.
While policymakers in some countries, such as the U.K., are taking a more active and planned approach to early-stage procurement, Good said governments in Canada have recently steered clear of risk, a hindrance to the commercialization of Canadian innovations.
“Government procurement would be absolutely huge,” said Bond, who is currently working on a possible deal with the Calgary Board of Education (CBE).
“I always look at it as, ‘What does the city stand behind?’ And often it’s not new innovations or new technologies. It’s proven factors, and that doesn’t help us as a city or as a province to go to the next level.”
Without these more fundamental supports in place, experts say it’s more difficult for Canadian companies to evolve into major firms capable of acquiring — or fostering the growth of — new innovations. So when a tech startup shows promise, it’s not unusual for a foreign company like Microsoft or Apple to come knocking.
But despite these shortcomings, Hofstein said he can see “the budding of the seedlings” of positive change on the horizon for innovation in Canada.
The latest federal budget set aside $400 million to boost private sector investments and prop up venture capital funds. Meanwhile, Hofstein said several provinces are spearheading their own efforts to increase venture capital in specific sectors.
Becoming a hotbed of innovation “can happen in a relatively short time,” he said. “It’s just a matter of a collective decision to go about it, and to believe that everything that happened to Boston and San Francisco can happen [to a Canadian city]. There’s no reason why not.”
As far as POSH View is concerned, it’s too early to predict whether the company will take off — and how much of that growth will occur on this side of the border.
In June, Bond inked his first contract — a $100,000 deal with the Calgary-based Dilawri Automotive Group to install POSH View technology in the firm’s BMW gallery. The technology, to be unveiled this fall, will allow customers to digitally build their own vehicles on a tablet-sized screen. Then, with a simple swipe, they’ll be able to “throw” the finished product at a 15X10 foot glass wall and watch it drive before transferring all that information to their personal smartphones or tablets.
“This is just brilliant for the car business, because right now, everything is on paper. This is like a virtual brochure,” said Tony Dilawri, who is hoping to expand the technology to his other dealerships across Canada.
For Bond, it’s a deal that has enabled him to debut his innovation in Canada — which he said he hopes will be the first step to staying here.