Liberals Move to Stop Billion-Dollar Start-Ups from Fleeing South

From the moment the Liberal government took office last fall, it left no doubt that innovation was going to be a top priority. Gone was Industry Canada, replaced by the Ministry of Innovation, Science, and Economic Development, with Navdeep Bains, a close confidant of Prime Minister Justin Trudeau, installed as the responsible minister.

Last week's budget continued the emphasis on innovation, promising $150 million in 2017-2018 for an innovation agenda. The full details have yet to be revealed, but the budget also added tax reforms to create investment incentives (and quietly dropped a tax change that would have hurt start-up companies), support for innovation clusters, and increased dollars for scientific research.

The government says its goal is to make Canada a "centre of global innovation," a significant challenge given that studies persistently point to Canada's innovation gap. Last year, the Science, Technology and Innovation Council (STIC), a government-backed group, concluded that Canada "was not globally competitive" and that "it is falling further behind global competitors and facing a widening gap with the world's top five performing countries."

The STIC data shows that Canadian businesses lag behind their global counterparts in investing in research and development and do a poor job of integrating advanced research talent into the workplace.

Reversing these trends will take a concerted policy effort to establish incentives to encourage Canadian businesses to innovate at home. Indeed, a recent U.S. study shows that Canadians are behind a significant number of new start-up companies with billion-dollar valuations. The problem? The Canadians no longer live in Canada, having moved to the U.S. to find their business success.

Uber loss?

The National Foundation for American Policy study reveals that more than half of the 87 U.S. start-ups with valuations of more than US$1 billion that have yet to go public were started by immigrants. Canada ranks as the second largest talent source behind only India.

The Canadian-created companies include some of the biggest names in technology today including:

Uber (co-founded by Garrett Camp, who went to school at the University of Calgary and hit earlier with StumbleUpon)
Slack (co-founded by Stewart Butterfield, who earlier co-founded Flickr)
CloudFlare (co-founded by Michelle Zatlyn, who graduated from McGill University before moving to the U.S. for business school)
SpaceX (founder Elon Musk has a Canadian citizenship and attended Queen's University).

Other companies with Canadian ties include AppDirect, ContextLogic (maker of the Wish shopping app), and Moderna Therapeutics.

There is nothing new about Canadians moving to the U.S. to pursue their technology dreams. Companies such as eBay and Flickr have strong Canadian connections (Toronto native Jeff Skoll co-founded eBay) and estimates suggest that there are thousands of Canadians in the Silicon Valley alone. In fact, the C100 group is a Silicon Valley organization specifically designed to assist Canadians in California find financial backing and commercial success.

There obviously are some Canadian success stories, but domestic tech stars such as Shopify are notable in part because they decided against moving to the U.S. With the U.S.'s robust venture capital community, more competitive telecommunications market, laws that support innovative internet companies through copyright fair use and liability safe harbours, and a well-developed entrepreneurial culture, Canada is a long way from replicating its innovation environment.

Bains' innovation agenda may be a centrepiece of the government's economic strategy, but success will ultimately be defined by the ability to create business, legal, and finance policies that entice the next generation of billion-dollar companies to stay at home.