Hundreds of CEOs of leading Canadian innovation and tech companies have signed an open letter to various Government of Canada departments, calling for stronger supports for the sector amid COVID-19.
“The COVID-19 pandemic has changed the landscape – and these same companies need more certainty.”
The letter, developed by MaRS Discovery District, is addressed to Minister of Finance Bill Morneau, Minister of Industry Navdeep Bains, and Minister of Small Business, Export Promotion, and International Trade Mary Ng. It has garnered signatures from CEOs of many of Canada’s largest tech companies including Allen Lau of Wattpad, Carol Leaman from Axonify, and Michael Serbinis of League.
The group is urging governments to coordinate their support of Canadian innovation companies, calling for “swift, targeted measures meant to maintain cash flow, fast-track funding, and stimulate procurement.”
“Canada’s technology entrepreneurs have made tremendous progress over the past 15 years thanks to the support of many levels of government,” the letter reads. “This has helped build a vibrant, world-leading tech ecosystem and Canada’s growth engine for the future. But now, the COVID-19 pandemic has changed the landscape – and these same companies need more certainty.”
The letter outlines predictions from analysts that claim the recovery process for businesses will take between 12 to 18 months. To this end, it calls for both immediate and longer-term measures that will help bridge companies through the next year.
A number of assistance measures specifically targeted for Canada’s tech and innovation economy are outlined in the letter, with an emphasis on the need for an influx of $2 billion in capital.
Recommendations also include further support from federal agencies like the Business Development Bank of Canada (BDC) and Export Development Canada (EDC), as well as federal programs like the Industrial Research Assistance Program (IRAP) and the Scientific Research and Experimental Development (SR&ED). The letter also proposes measures for retaining employees and outlines policy recommendations.
“We know that this period of disruption will require courageous and tough-minded actions, and that business must prioritize the common good,” the letter states. “But we also believe that when the clouds pass, the innovation economy will again lead Canada’s recovery through job and wealth creation. Short-term cuts, deep as they may be, cannot ruin our chances at a speedy recovery.”
Policy recommendations, $2 billion in capital
The Canadian tech CEOs that signed the letter are recommending Canadian-focused policies that would see the government procure goods and services from innovation-economy ventures, including enterprise technology, infrastructure projects, and health system enhancements.
The letter argued that the government should implement a “Buy Canadian” strategy, with companies receiving stimulus packages to support the adoption of Canadian innovation.
The recommendation comes as the federal government and various provincial governments have called on local businesses to help supply goods and services in the fight for COVID-19.
The letter also calls for an injection of $2 billion in new capital to help fund Canadian businesses. It is suggested that the capital be committed to organizations that already deploy funding to Canada’s tech and innovation sector.
“We are asking the government to create new equity instruments of $2 billion that will serve as an equity bridge, as opposed to a loan tied to company or personal assets,” the letter reads.
The CEOs suggest the money is put into “trusted funds,” such as Ontario’s Investment Accelerator Fund, Canadian Business Growth Fund, and BDC Capital, emphasizing that this would likely unlock matching capital in the private sector. MaRS’s letter adds that this capital should be structured in the form of convertible debentures, with favourable terms that would allow for a bridge to future equity financing rounds.
Proposed measures for federal agencies
“Swift action will buy time for ventures to evaluate trajectories and make strategic choices about the path forward,” says the letter. “Ensuring that companies have adequate cash flow in the immediate term will be critical to sustaining their operations.”
The CEOs are calling for measures to be taken through existing structures, such as The Canadian Revenue Agency (CRA), BDC, and EDC.
While the federal government has already announced $10 billion of additional loan support to businesses through BDC and EDC, employee subsidies, and employment insurance strategies, leaders in the community have argued these steps are not beneficial for the tech sector.
In support of a recommendation made last week by the Canadian Council of Innovators, the open letter recommends that the government quickly make available loans at low to zero interest with deferred payments (through BDC and EDC). It also highlighted the need to eliminate personal guarantees and profitability requirements – something others have spoken out against – in order to provide greater access to companies.
MaRS’ open letter also calls for BDC and EDC to fast-track companies that have already been through due diligence with the financial service providers, and for the acceleration of the application processing times.
Proposed measures for federal programs
On March 20, Minister Bains announced that the federal government is refocusing innovation programs like the Strategic Innovation Fund (SIF), National Research Council of Canada, and Innovation Superclusters to help in its fight against COVID-19. On Monday, he revealed $192 million for a new COVID-19 stream of SIF.
Canadian tech CEOs are asking the government to go even further with its programs, highlighting IRAP, SR&ED, FedDev Ontario, SIF, Sustainable Development Technology Canada, Natural Resources Canada (NRCan), and the Natural Sciences and Engineering Research Council (NSERC).
The letter called for companies that have already been approved for and are already receiving funding to be fast-tracked for additional funding if deemed necessary, and asked for flexibility on how funds are used. It also asked for programs to accelerate companies’ ability to claim credits through programs such as SR&ED refunds, IRAP funding, FedDev advances, SIF, SDTC, NSERC and NRCan, and for the government to offer flexibility that would allow companies to receive government funding from various initiatives.
“On approved projects, flexibility should be ensured by eliminating “spend it or lose it” clauses and “10 percent holdback” provisions,” the letter says, adding that funding for approved projects should be prepaid instead of the current reimbursement processes.
The open letter highlighted the contribution Canadian tech and innovation companies make to the country’s GDP, noting that the sector makes up 11 percent of national employment. It also noted that Canadian technology jobs pay 51 percent more than the average private-sector wage.
“To ensure that early-stage companies weather the current storm, we must be able to retain our talent,” the letter states.
To this end, it recommends three measures: the CRA suspend collection of all Canadian employee income taxes for six months; the government offer wage subsidies to enable ventures to retain highly skilled talent; and expansion of IRAP’s employment measures, for example, the youth employment program.
While the federal government has introduced a 10 percent wage subsidy for the next 90 days for eligible small businesses, the subsidy only goes up to a maximum of $1,375 per employee and $25,000 per employer.
Prime Minister Justin Trudeau has been questioned on why the federal government isn’t taking stronger measures, whereas several countries are offering wage subsidies to employers, with the United Kingdom offering to cover 80 percent of workers’ salaries and Denmark supporting 75 percent of workers’ salaries in cases where employers have to either layoff at least 50 employees. Trudeau has stated that steps such as ‘freezing the economy’ have not been ruled out.
Trudeau and ministers including Bains have continually emphasized that nothing is off the table when it comes to measures the government may take to combat COVID-19 and its effects on the Canadian economy. In a press conference on Monday, Trudeau reiterated, “nothing that could help us is off the table,” with Bains emphasizing that the current situation requires all hands on deck, including support and input from the innovation sector.