Even before the 2011 prediction that “software is eating the world,” the proliferation of cloud and Web 2.0 tech led to a generation of unicorns and centaurs scaling through software.
“Those who control semiconductors will control economic futures.” -Melissa Chee, CEO, ventureLAB.
But, now, hardware is cool again. A mix of record-low venture investment for software companies and the economic opportunity of hardware has put renewed importance on building things (literally). And it’s an opportunity Canada can’t afford to miss.
Ahead of the HardTech Conference, Niraj Mathur, co-founder of deeptech startup Blumind, and Melissa Chee, CEO of Markham-based hardware startup incubator ventureLAB, spoke to BetaKit about Canada’s manufacturing roots and what it will take to build globally important hardware companies on Canadian soil yet again.
Back to the future
Over the past 10-15 years, Chee said there’s been a deep focus on building software in Canada. Talking about why this happened, she said the answer was simple: money. Investors saw the potential for quick returns and a more straightforward use of capital in software, which drew more money into the ecosystem.
Chee was quick to note that investment in software is a good thing because most products require software. But she also added that everything we use in our day-to-day lives has an element of hardware, an industry where Canada used to be a global leader.
From a technology manufacturing perspective, Chee said you have to look to Nortel to truly understand Canada’s once-dominant global position in manufacturing. While the company is perhaps best remembered now for its dramatic bankruptcy in 2009, Chee noted that Nortel was a true innovator. The company handled most of the supply chain—including chip design development and manufacturing—domestically, making a global impact from Canada in the telecom space via manufacturing and distribution.
“That’s really important context, I think, for the Canadian ecosystem to understand that Canada has always been a leader in hardware,” said Chee.
But hardware fell out of favour as investors wanted the faster returns of software. However, we can’t ignore hardware any longer, said Mathur. Historically, the focus on software was powered by Moore’s Law, which states that semiconductors will double in power and efficiency roughly every two years. But Mathur explained we are reaching the limits of physics. In short, we really can’t get much more efficient and it’s becoming exponentially more expensive to eke out marginal gains.
“Semiconductor technology is hitting the boundaries of physics,” said Mathur. “So you can’t scale these devices down any further. You’re getting to physical limitations of how small you can make these things.”
As a result, Mathur believes Canada must focus on hardware once again to build the next generation of semiconductors—those capable of handling new forms of computing like augmented reality (AR), virtual reality (VR), artificial intelligence (AI), and machine learning (ML).
“There’s been, over the last half a dozen years, this explosion in new innovation in the hardware space,” said Mathur. “Because now engineers and the industry at large can’t just count on manufacturing to carry us over the line in terms of performance.”
The new wealth of nations
Both Mathur and Chee said it’s critical for Canada to focus on investing in manufacturing capabilities and new hardware or “HardTech,” and not just because it’s a trillion-dollar opportunity.
Beyond pure dollars, there are three things Chee cited as reasons for Canada to act immediately. The first is economic sovereignty. Right now, Canada does not manufacture the majority of goods that Canadians consume. While this may have worked in the past, the COVID-19 pandemic highlighted the fragility of global supply chains and signalled the importance of Canada manufacturing its own items for consumption. Perhaps nowhere was this more prevalent than vaccine manufacturing—another area where Canada used to be a global leader and needs to be again.
Coming second is the ripple effect on Canada’s economy. Chee said that hardware businesses are “stickier” than software, meaning they are harder to copy or move, which ensures more jobs and economic benefit stays in Canada. Further, Chee added that hardware companies create an estimated six ancillary jobs—such as marketing or customer support—for every manufacturing employee, offering significant opportunities beyond core manufacturing talent. Then come the realities of intellectual property and the opportunity for Canada.
“The top ten holders of IP globally are all [semiconductor] companies,” said Chee. “So that’s a really important piece if Canada is serious about being an IP leader.”
The third is Canada’s opportunity for global leadership. The semiconductor market, said Mathur, is one multiple countries—including small nations like Israel and Vietnam—are trying to lead. Because semiconductors and hardware power most of our technology, the country that leads in manufacturing has control over most of the economy. Chee said no example is more clarifying than the US sanctioning chip manufacturers from China, specifically targeting this industry over other sanctions because of its financial and geopolitical importance.
“Those who control semiconductors will control economic futures,” said Chee.
How to manufacture a 21st-century manufacturing industry
To truly build a semiconductor industry in Canada, hardware entrepreneurs need different supports than those in software. In particular, startups need patient capital, a unique talent ecosystem, and some urgency to start. From a patient capital perspective, Chee noted that it takes five to seven years on average for hardware companies to reach the market, compared to weeks or months for software, meaning investors need a longer-term mindset.
Building an ecosystem requires talent and Chee said Canada is one of the only places in the world that teaches the kind of manufacturing skills necessary en masse, making it a prime country for producing the talent this industry requires. But urgency is required because the opportunity window won’t be open long.
“It’s a once-in-a-generational one,” said Chee. “This isn’t going to come around for the next century.”
Canada has all the right elements in place, from a history of manufacturing to modern talent education, and places like ventureLAB are bringing the resources and big players together. Not only does ventureLAB have an incubator program to coach entrepreneurs but they also bring money and people to the table—Chee said the organization has a $7 million lab where startups can build prototypes and they connect companies to more than $50 million in funding and strategic partnerships from over 35 of the world’s largest semiconductor industry players.
With any conversation about HardTech, it’s imperative to think about environmental impact. There’s no denying that manufacturing can be damaging to the natural environment given the minerals necessary to manufacture advanced hardware. However, Mathur said it’s hypocritical to think we shouldn’t manufacture in Canada because of environmental concerns when we are still a major global consumer. Instead, he said we should leverage our environmental protection laws in industry, building what we need in the greenest way possible rather than relying on countries with a worse record of respecting the environment.
“It’s a bit hypocritical to not build manufacturing here and yet consume all the output of that manufacturing here,” said Mathur. “Just because it’s not happening in our backyard. So that makes it okay? No, of course not. We’re all riding on the same planet here. Canada has really strong environmental policies and leadership. I think we should bring that to bear in the manufacturing space.”
Register here today!
Photo courtesy of Unsplash.
