Justin Trudeau Should Do Nothing for Startups

Prime Minister Justin Trudeau

Amid the long list of things that newly-elected Prime Minister Justin Trudeau needs to “fix”, there has been a flurry of pleas and suggestions from the startup community.

The commentary includes the need to build a small business strategy, reshaping the incubator ecosystem, and pivoting the economy toward the Internet (aka the “new oil”). Meanwhile, Jim Balsillie says technology firms need to step up their lobbying activities while John Ruffolo says the startup community needs to speak with a single voice.

Here’s what I think Justin Trudeau should do: nothing, nada, zip.

Instead, the startup community needs to lead the way forward. It needs to work together to create a vibrant and healthy ecosystem that allows entrepreneurs to flourish and succeed. To support and accelerate growth, the investment community has to get more involved in terms of money, support, mentorship and leadership.

So what’s the role for the federal government?

For one, it should continue to support and promote the SR&ED tax credit program, which has been amazingly effective in rewarding startups that do research. The federal government should support innovation by supporting Canadian entrepreneurs and make sure the country’s education system is graduating people with New Economy skills.

Things the federal government should avoid:

It should not provide financial support to the venture capital sector.

Yes, there is a lack of capital for startups, particularly when it comes to growth capital, but it is not the federal government’s job to fill the gap. Does it make sense for tax dollars to be poured into a high-risk sector? No. Should the federal government be in the business of picking winners? No.

Capital should come from the private sector, which will be drawn to startups if it becomes an attractive asset class. Given the success of startups, it is time for institutional investors to get back in the game after a decade-long absence. At the same time, it would be a major boost if Corporate Canada supported startups – something happening in the U.S., but not Canada.

I’m not a big fan of Trudeau’s plan to pour money into incubators.

There is a growing abundance of incubators being created (it’s a strange high-growth industry) with little or no financial support from the government. As well, it is not clear about much value that incubators are actually delivering. Are incubators effectively nurturing entrepreneurs, or stringing along wanna-be entrepreneurs?

I think Canada needs to embrace a different mindset to drive entrepreneurialism and startups. We need our entrepreneurs to become repeat offenders.

More than anything, I think Canada needs to embrace a different mindset to drive entrepreneurialism and startups.

As a nation, we need to embrace the risk that goes along with launching new businesses. By nature, we are a small “c” conservative country with a modest appetite for risk. In today’s global economy, that no longer works.

We need to stop looking at failure as a negative. In the U.S., failure is a rite of passage. It’s more than alright to fail. In fact, it’s healthy because failure is how entrepreneurs do better the next time around.

And we need to become more courageous by aiming to become global leaders, rather than just being the best in Canada. We need more entrepreneurs to build large, globally competitive companies, rather than settling for a modest payout when they have enough traction to attract a takeover offer.

As important, we need our entrepreneurs to become repeat offenders. They need to see their initial successful as a launch pad for the next business. We need serial entrepreneurs who are hungry to start and operate businesses, rather than becoming advisors, angels and mentors (not that there is anything wrong with these responsibilities).

Startup Genome

If Justin Trudeau wants to have a positive impact on the startup community, he should enthusiastically wave the flag globally for all the positive things that have happened – may he can embrace “sunny ways” as the tagline for his efforts.

Canada is one of the best places in the world for startups. It features top-notch universities, universal health care, loads of talent, a stable economy and a generous tax credit system. Trudeau could do yeoman’s work if he simply helped to put the spotlight on the startup ecosystem.

As important, he could help the startup community’s global reputation. Based on research done by the Startup Genome Project 2.0, Canadian cities are nowhere to be found as startup communities. This has to be fixed.

This editorial was syndicated with permission from Mark Evans, the author of Storytelling for Startups. You can read the first chapter here.

Mark Evans

Mark Evans

I help entrepreneurs tell better stories (aka marketing), hockey player, author - Storytelling for Startups.

  • http://ericbrooke.wordpress.com/ Eric Brooke

    I utterly disagree with the title and so do you.

    Nothing except provide SR&ED tax credit program… just a few bucks eh?
    I wonder how actually effectively this program is? I think it is aimed at startups that can afford to wait 18 months for cash return, I think the documentation process is so complex that now consultants help lots of companies, or worse startups have to invest a lot of time in it. This program needs to be streamlined.

    “As a nation, we need to embrace the risk”, I agree whole heartily with this and the ability to manage conflict through better communication skills. Both of these could be introduced into school education. We need to become better risk takers and be forgiven for it i.e. better bankruptcy laws?

    “Canadian cities are nowhere to be found as startup communities. This has to be fixed.” How? Yes we know the perfect solution is big startup goes public creates Angels and new startups pop up. So far that does not seemed to have worked well for Canada. We need something different, dare I say an innovative approach.

    So when you say “Do Nothing” that is bollox, we need many things and some are about evolving our culture. Secondly and I suspect we agree on this we need “Smarter involvement in Startups”, maybe many test/pilot projects from different places and see what works..

    • MrTemple

      You’re definitely not wrong that the SR&ED program needs to be streamlined. Cost of compliance for a quality claim, whether doing it yourself, or hiring somebody cost-effective to do it for you, is just way too high.

      Worse, there’s still that uncertainty factor in whether CRA is going to decide to audit you, taking way more time to defend even the most reasonable and accurate claim.

      I like the idea that SR&ED incentivizes experimental development, that it attempts to give money for doing technologically challenging work, but it’s that criteria that makes it so difficult to administer and claim. It’s such a subjective test. I wonder if they couldn’t make it a lot more objective. But then they would probably have to either give out more money or give the real smart dev companies less. Tough call either way.

      Disclosure: I’m a software guy who fell backwards into SR&ED consulting after taking over my company’s claim process for a couple years. I tell my clients all the time, I should not have a job. But I do.

  • Another dumb adviser

    This article illustrates the classic Canadian hypocrisy and in a way resembles all that is wrong with us Canadians. The author talks about how Canadians shall embrace risk but advises the Government against experimenting and taking any new risks. He talks about thinking big and becoming global leaders, but ends up comparing ourselves with US. He says we need to stop looking at failure as a negative, but looks down upon not-yet-successful “wanna-be entrepreneurs”. He talks about the need for institutional investors to invest, but criticizes entrepreneurs for generating timely returns for investors by accepting a takeover offer.

    The author pretty much re-iterates what is mostly common knowledge (embracing risks, changing mindset, thinking big, becoming more courageous), but contradicts his own beliefs and offers no implementable solution.

  • MrTemple

    “So what’s the role for the federal government? For one, it should continue to support and promote the SR&ED tax credit program, which has been amazingly effective in rewarding startups that do research.”

    Just wanted to expand upon this, as I have a lot of experience with the program.

    Many (most?) companies who file for SR&ED (and get 10-30% of their dev salaries back as a refund every year) don’t do any “research”. Instead, most companies are eligible because they do “Experimental Development” (the ED in SR&ED).

    And contrary to what most in various industries would assume, a decent chunk of their ‘day to day’ development work qualifies under the very specific SR&ED criteria as Experimental Development (not required: sciencey-experiments, patentable work, novel work).

    Also, SR&ED doesn’t give any cash to foreign controlled corporations (it does give tax credits, at a much lower rate, but they’re non-refundable). And the credits are capped, so that there is significant diminishing returns once a company has around $3M in dev payroll.

    So by far the greatest benefits of the program are seen by small, medium, and startup businesses that are Canadian Controlled Private Corporations. The cash they’re getting is staying in Canada, and most often goes right back into salaries to hire more staff.

    SR&ED is great at helping small/medium/startup businesses, and it fosters an environment of development and engineering in Canada. Of course it also draws a lot of big/multinational business to set up shop in Canada, as even though they don’t get a cash refund, the SR&ED credits do significantly reduce the overall cost of employing people to work in Canada (which encourages payroll dollars coming into the country).

    Long story short: SR&ED is a terrific program. Better than many companies realize.