Following the extension of the emergency wage subsidy to December, the Canadian tech sector is hoping to pressure the federal government into a similar extension of the program that has helped startups across the country maintain operations amid the COVID-19 pandemic.
“The continuation of this program would be a strong signal to the Canadian innovation leaders that the government is behind them in keeping up their momentum.”
– Hamid Arabzadeh
Speaking with BetaKit, multiple tech leaders have called the Industrial Research Assistance Program’s (IRAP) Innovation Assistance Program (IAP) “critical” to sustaining their own businesses as well as the broader innovation sector. Overseen by the National Research Council of Canada (NRC), IRAP IAP essentially offered a wage subsidy for Canadian tech companies ineligible for the Canada Emergency Wage Subsidy (CEWS).
“[CEWS and IAP] essentially saved the innovation economy,” said Jane Kearns, VP of growth services at MaRS Discovery District, and senior advisor for the organization’s cleantech practice.
Kearns told BetaKit she saw first-hand how many cleantech companies in her portfolio were affected by the pandemic. “I felt like I had 1,400 companies going broke all at once,” she said, noting that she saw a turn around after federal wage subsidy programs were put in place.
“The Innovation Assistance Program has been critical to sustaining our business during the pandemic,” said Sadira Beekha, the financial director of TransPod, a Toronto-based startup behind the creation of a Hyperloop transit system.
TransPod’s goal is to make the Hyperloop (a high-speed ground transportation concept jointly designed by Tesla and SpaceX) a reality. The company, which announced plans to build a three-kilometre test track in France last year, claims that Hyperloop technology has the potential “to be one of the most disruptive technologies of the 21st century.”
“As a pre-revenue company, we were not eligible for the Canada Emergency Wage Subsidy (CEWS) and are limited in the ways that we sustain our operations,” Beekha explained. She said that the IAP capital offered a way for TransPod to continue to support its staff and keep developing its technology.
Kearns noted that wage subsidies have been “critically important” to helping companies keep their tech talent. “There was a risk of losing people to the big tech giants,” Kearns told BetaKit. “We saw it almost immediately. As soon as this happened, all of our really great tech talent had our neighbours to the south, big tech companies from the States, knocking on their doors, trying to pick off the best talent.”
“If that had happened, that would leave us on our backfoot as we head into trying to stimulate and rebuild the economy,” she added.
In a recent interview with BetaKit for the Black Swan podcast, Minister of Innovation, Science, and Industry, Navdeep Bains, indicated an openness to extending IRAP IAP, saying an extension “would make a lot of sense.”
Prior to Bains’ conversation with BetaKit for the Black Swan podcast, there had been no public indication that the program would see additional capital. IRAP vice president David Lisk told BetaKit in June, just as 97 percent of the $250 million program had already been committed, he was not aware of any plans to expand IRAP IAP or provide additional capital.
More than 4,200 companies from across the country applied to the federal COVID-19 relief program, which launched in April. Seventy percent (2,967) of those companies, Lisk told BetaKit, were qualified to move forward in the funding process. Bains noted to BetaKit that more than 2,200 companies were part of the program.
The program came about after members and organizations in the Canadian business community decried the criteria for CEWS, claiming the program was inaccessible for early-stage and pre-revenue companies. Despite the relaxing of eligibility criteria earlier this year, a survey conducted by the Council of Canadian Innovators (CCI) in June found that 25 percent of respondents remained ineligible for any wage subsidy program, including CEWS and IAP, and had laid off and not re-hired workers during the pandemic.
At the time, national innovation groups, including CCI and the Canadian Digital Media Network, called for the federal government to take specific steps to offer COVID relief support through innovation programs like IRAP.
“CEWS targets a very specific set of companies,” said Kearns, noting the importance of also extending IAP in unison with CEWS because of the difference between tech companies and mainstream businesses.
“Because CEWS requires a drop in revenue, that misses all of the pre-revenue companies, and it’s really easy to dismiss pre-revenue companies as being not important. But, that would be a big mistake. There are lots of pre-revenue companies that are deeply important that employ a lot of people,” she said, noting that high growth companies that saw massive drops in revenue but weren’t able to prove the 30 percent drop were also left out of CEWS.
“There are lots of pre-revenue companies that are deeply important that employ a lot of people.”
The IAP financing was provided to companies in two categories: high-potential startups with less than $1 million in revenues; and high-growth firms that are scaling rapidly and use their sales revenue to hire operational staff, but required investment to sustain innovative activities due to the pandemic.
Ben Bergen, executive director of CCI, which represents the hundreds of companies in Canada’s tech sector, stated that IAP “helped Canada’s most innovative companies preserve their highly-skilled workforces.”
“[It allowed] them to continue investing in R&D and scaling globally as they weathered the pandemic’s effects on the Canadian economy,” Bergen added.
Kearns told BetaKit that she saw one company with a team of 34 lay off 32 of those employees at the onset of the pandemic. However, Kearns claimed, because of IAP, it was able to rehire all 32 employees.
IAP has also helped startups like EnergyX, which develops and commercializes innovative tech in the energy efficiency sector. Michael Commisso, who does operations and strategy at EnergyX, told BetaKit that after receiving IAP the company has not had to lay off any staff due to COVID-19. He added that the pandemic delayed buying cycles for several of EnergyX’s potential clients and IAP helped the company fill its gap in cash flow.
Hamid Arabzadeh, president and CEO of Ranovus, said IRAP IAP was “a significant contributor” in enabling the startup to “stay the course and have a chance to be at the forefront of their sectors when recovery happens.” Ranovus is an Ottawa-based startup that has developed optical interconnect solutions. According to Crunchbase, the company has raised more than $65 million (equity and debt) to date.
Not all early-stage companies have been able to successfully weather the pandemic, however. Kearns told BetaKit that she is aware of at least three startups that went under after not being able to receive CEWS or IAP. “This was the nail in the coffin,” she said. “We really did see companies almost immediately close the doors and say if they didn’t get it, they weren’t going to be able to keep going.”
“The continuation of this program would be a strong signal to the Canadian innovation leaders that the government is behind them in keeping up their momentum,” said Arabzadeh.
For EnergyX, the extension of IAP would provide continued support as new customers and buying cycles continue to be slow. “IAP allowed the company to successfully continue our pursuit of growth and expansion during this challenging time thanks to these supports,” said Commisso. “But the impact on enterprise buying cycles has persisted and is dampening growth for innovative technology startups like ours.”
A follow-up survey conducted by CCI in July of over 140 Canadian tech CEOs showed significant interest in the continuation of IAP. Ninety-eight percent of respondents believe that the IRAP IAP program should be extended, with 74 percent of respondents requesting an extension until at least December 2020. Not surprisingly, 72 percent of those surveyed acknowledged that their companies had received IRAP IAP funding.
“For IAP 2.0, Canadian innovators would like to see the government make more strategic investments into high-potential companies with proven track records of commercialization and growth,” said Bergen. “By empowering market-tested companies to be the leaders of the recovery, the government would be helping to fuel job and public wealth creation, all necessary for Canada in the post-COVID economy.”
The federal government has yet to announce whether IRAP IAP will receive any additional capital. Minister Bains did note to BetaKit in July that he is working closely with Finance Minister Bill Morneau to “advance” the IRAP IAP initiative.
“Clearly, we want to make sure that the wage subsidy and the timeline associated with that also mirrors the timeline associated with the IRAP program as well,” the minister said.
Following a request for comment for this story, a spokesperson for Bains’ office told BetaKit it had nothing further to add to the minister’s previous statements at this time.