Alberta tech sector holds its breath as province pauses innovation programs

Calgary, Alberta

A switch-up in leadership within the Government of Alberta has led to the suspension of several programs for the province’s tech and innovation sector, as the incoming party places the province’s budget under review.

BetaKit spoke to a number of individuals from Western Canada’s tech ecosystem, including investors, entrepreneurs, and some of the province’s top tech organizations, to understand what these changes mean for Alberta’s tech community.

According to research from the Alberta Enterprise Corporation, the province’s tech ecosystem is growing at an accelerated rate, with nearly one-third of firms reporting over $1 million in annual revenue. However, entrepreneurs and investors in Alberta are now sounding the alarm after entrepreneurship programs and investor tax incentives have been placed on pause, while a $100 million provincial commitment to Alberta’s AI industry is in flux.

“For emerging sectors, I think you need every advantage and every incentive possible to really gain that critical momentum out of the gate,” Curtis White, president of BC-based Caliber Ventures, told BetaKit. “For Alberta, specifically, if [the government is] serious about committing to the growth of this sector, they should be supporting these sorts of initiatives.”

‘Pending review’

In April, the United Conservative Party (UCP) won a majority mandate in the provincial election, with Jason Kenney, leader of the party, becoming the 18th premier of Alberta. Soon after, Kenney appointed a panel, led by former Saskatchewan finance minister Janice MacKinnon, to evaluate provincial finances before releasing a budget in the fall.

“To pull the rug out at this stage would be concerning for an emerging sector.”

The review was completed last week, but the panel said its report will not be released until September, and thus far no details from the report have been disclosed to the public.
 

“Programs are currently paused and are under review to ensure they reflect government priorities,” said Jessica Lucenko, a spokesperson for Alberta’s Ministry of Economic Development, Trade, and Tourism, the ministry responsible for Alberta’s tech sector. “Decisions will be made later this fall as part of the budget process.

Tech is among the largest sectors in Alberta’s economy, and the University of Alberta ranks third globally in AI. Support is critical for Alberta to continue establishing itself as a high-tech hub, White said, particularly from government.

“In terms of access to capital, I don’t think there’s any shortage of that in Alberta. I do think, though, that the tech sector there is still emerging,” White said. “To pull the rug out at this stage would be concerning for an emerging sector.”

Artificial Intelligence ‘in limbo’

The federal and previous provincial governments have made attempts to advance Alberta’s artificial intelligence reputation. Since 2002, the provincial government has invested approximately $42 million in AI research at both the University of Alberta and Alberta Machine Intelligence Institute (Amii).

The federal government allocated about $2 million in November to create an AI-based supercomputer hub at the University of Alberta. Edmonton is also home to Google’s DeepMind artificial intelligence research hub, the first location outside DeepMind’s headquarters in London, UK. Last year, the Government of Alberta committed $50 million to produce 3,000 tech training seats for students at post-secondary schools. Most notably, in February, the provincial government, then under the leadership of the New Democratic Party (NDP), announced a $100 million investment, over five years, to bring even more AI-based companies into Alberta.

Former Alberta Premier Rachel Notley announcing the $100 million artificial intelligence funding. February 2019.

The $100 million injection was created to support both Alberta Innovates and the Edmonton-based non-profit Amii to encourage partnerships with local research universities. The NDP also said it would initiate a campaign to sell Alberta’s tech talent globally in order to draw in new capital.

Now, it is unclear if, or when, that $100 million pledged capital will be deployed as Alberta’s Minister of Economic Development, Trade, and Tourism, Tanya Fir, said last month she didn’t know when the sector would hear about the results of the government’s funding review.

An initial investment of $27 million of the overall $100 million was expected to go to Amii, which planned to use some of the capital to open a Calgary office. Amii recently told BetaKit it has so far received just $4 million in funding from the Government of Alberta, which was previously earmarked in last year’s budget.

Last month, Kenney told the Edmonton Journal, “there was no intelligence behind the NDP’s economic policy,” when asked about AI funding. He added that his government plans to “make investments that help to create the right environment for Alberta to once again become the job-creation engine of Canada.”

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Amii noted that it has been in ongoing conversations with the current provincial government, attempting to drive home how artificial intelligence has been an enabler of cross-sector business growth, thanks, in large part, to investments made by the Government of Alberta.

“We fully appreciate and understand the need for our government, as stewards of public money, to ensure any publicly-funded programs meet the needs of Albertans,” Spencer Murray, a spokesperson for Amii, told BetaKit, adding that Amii is confident its programs align with the priorities of the Government of Alberta.

Justin Brattinga, the press secretary for Minister Fir, told the Calgary Herald the government is committed to Alberta’s AI ecosystem but needs to examine the NDP’s commitment to see whether or not it is a good use of tax dollars.

Investor tax credit on pause

In July, Alberta’s government also paused the Alberta Investor Tax Credit (AITC), a program intended to increase investment in Alberta’s small businesses. The tax credit grants a 30 percent rebate on the amount of equity capital invested in an eligible Alberta small business working in the research, development, or commercialization of new technology. It was first launched by the former NDP administration in early 2017, with $90 million in credits allocated over two years.

“I’m crushed for what this means for Alberta’s tech scene.”

The Capital Investment Tax Credit, a different government program providing businesses in certain sectors with a tax credit of up to $5 million, also states on its website that it is now closed and that applications are not being accepted.

For decades, the venture capital market in Alberta has lagged behind Ontario and Quebec – where most Canadian VC activity is focused. White called the tax incentives for investors an effective way of generating venture capital into the hands of emerging industries, arguing it reduces investor risk and stimulates investment in tech startups.

Jeff McCann, founder and CEO of Apollo Insurance, a Vancouver-based insurtech, told BetaKit that if it weren’t for the investor tax incentives in BC, his company would not exist today.

“This was a massive selling feature we leveraged during our latest financial raise,” McCann said. “I’m crushed for what this means for Alberta’s tech scene, and want to make sure that the same doesn’t happen in BC.”

White added that after a career of making use of tax credits as both an investor and an entrepreneur in a startup, he’s seen the benefit of such programs for both sides. He called the tax incentives “absolutely critical to getting financing.”

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But not everyone in Alberta agrees on the AITC’s value. Werner Biegler, president of the Alberta Council of Technologies, an advocacy organization for the commercialization of disruptive technologies, said the incentive did not do enough to make a significant impact on capital flowing into Alberta tech companies.

“[The tax incentives] didn’t draw the much-needed hundreds of millions of dollars from non-investors becoming investors,” Biegler told BetaKit. “So in that sense, it didn’t move the needle considerably at all.”

Biegler noted that he met with Kenny’s government last month to discuss the tax program, and expressed to BetaKit that he is “hopeful” the government will put in place the means for more startups to receive funding.

“Government has already taken measures to ensure that Alberta is the best place in Canada to invest or start a business,” Lucenko told BetaKit. She noted that the Ministry of Economic Development, Trade, and Tourism has introduced the Job Creation Tax Cut, which she stated “gives Alberta the lowest tax rate on job creators in Canada and will eventually give Alberta a lower corporate tax rate than forty-four US states.”

However, Alberta Federation of Labour has found evidence that the tax cut is not working as the provincial government had hoped, with companies not using the tax cuts to create jobs.

Alberta Innovates holds entrepreneurship programs

Alberta Innovates, a research and development organization with locations in Calgary and Edmonton, has also been feeling the squeeze due to the budget review, as the organization was forced to pause some programs last month. Those entrepreneur funding programs give grants to entrepreneurs in the form of vouchers, aimed at helping businesses prepare for export.

“Since the UCP party came to power in Alberta, many of the plans and commitments by the previous government are under review and on hold at the moment,” Dwayne Brunner, a spokesperson for Alberta Innovates, told BetaKit.

Alberta Innovates is a provincially-funded organization and as Alberta’s largest research and innovation agency, the organization’s mandate is to support and accelerate research, innovation, and entrepreneurship in the province. It is responsible for providing various programs, funding, and insights into the province’s tech industry.

The paused funding programs include:

Since speaking with BetaKit, Alberta Innovates has re-opened three of the previously paused programs. This announcement came last week, around the same time that the finance minister’s review was revealed to have been completed. The two paused programs are “fully subscribed” and are still not taking in applications, Alberta Innovates states online.

Alberta Innovates did not mention whether or not any programs would be permanently cut or phased out, but its website recommends that entrepreneur applicants check the agency’s social media for updates on the programs.

Brunner noted that Alberta Innovates expects to know more moving into the fall, as the UCP releases its first budget.

“We definitely are in a holding pattern until the budget is delivered in October,” Carmelle Boston, another spokesperson for Alberta Innovates, added. “Many of our programs that were funded through the carbon tax have been put on pause now that the carbon tax has been rescinded, so I’m sure that there [are] downstream impacts.”

As Boston noted, the Kenney government’s decision to repeal the carbon tax has also affected Alberta Innovates programming. Abolishing the carbon tax was a central part of Kenney’s campaign, which claimed a spending freeze would lead to a $714-million surplus by 2023. Legislature members successfully voted to repeal the tax in June.

Alberta Premier Jason Kenney speaking to the Legislative Assembly on the day the carbon tax was repealed. May 2019.

A great deal of the funds collected from greenhouse gas emitters through Alberta’s carbon tax was funnelled back into the tech industry through grants for innovation projects aimed at reducing greenhouse gas emissions through technology.

An investigation by the Edmonton Journal found that revenues from the carbon tax were distributed across more than a dozen government ministries, and at least 55 programs and projects. A total of $14.9 million went to the Ministry of Economic Development and Trade, which represents only 0.8 percent of the $1.8 billion expended money collected by the carbon tax between 2016 and 2019, according to the Journal.

The UCP’s proposed replacement for the carbon tax is the “Technology Innovation and Emissions Reduction” (TIER) system, which aims to make it more manageable for the carbon-intensive producers of oil and other products to meet emission guidelines.

Unanswered questions

Despite deciding to pause funding pending a review, part of the UCP’s “Strong and Free” platform vows to “make Alberta a magnet for investment in new technologies including artificial intelligence, health sciences, geothermal energy, and information technology.” Kenney has said he plans to table a budget in the fall, after the review of the province’s spending.

With opposition leader and former premier Rachel Notley vocally calling for the panel’s review to be released immediately, it is unclear whether or not Alberta Innovates and the rest of the province’s tech sector will have their answers before the budget is tabled.

“Our understanding is that the report was delivered as promised and we respect the government’s need to review the panel’s findings and recommendations prior to releasing it to the public,” Margaret Glover-Campbell, a spokesperson for Amii, told BetaKit. “We’re pleased to see that these conversations are moving forward, and we look forward to learning more about the panel’s recommendations.”

“When we were elected, we made a point of consulting with Albertans,” Notley said during a press conference last week. “There is no good reason to delay the release of that report. Albertans deserve to see it.”

Feature image source Unsplash. Photo by Kyler Nixon

Isabelle Kirkwood

Isabelle Kirkwood

Writer, globetrotter, drone pilot & David Attenborough enthusiast