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Why Canada Can’t Afford to Let Start-Ups Crash During COVID-19

working on a laptop

When my father Darsell and I started Absolute Combustion almost 15 years ago, we imagined that one day, we’d be a world-leading cleantech firm with thousands of employees, a strong international market and good prospects for growing even bigger. And so we poured everything we had into making our dream a reality – every penny in the bank, every possible hour in the day, and made every sacrifice we could on a risky bet that maybe one day, it would pay off.

If you don’t have a story like mine, you probably know someone who does. It’s the tale of almost every start-up – one of struggling, striving and giving it all, constantly living on the financial razor’s edge while maintaining faith that the next big opportunity is right around the corner. But what came next has been an unprecedented black swan that has shaken our lives and economy to the core, and across the country, thousands of small technology companies had similar big dreams that they’re seeing turn to vapour.

“Startup economics don’t leave much room for safety nets. Product development is expensive, fundraising is continuous and actual profit is often sacrificed in the name of customer acquisition and growth.”

Yung Wu, CEO of MaRS Discovery District

The economics of start-ups are tough. I already weathered one major economic downturn in 2014 when the oil and gas prices crashed right as we were launching our first product innovation in the oil and gas space. Even though we watch years of hard work and our much-anticipated market turn to vapour we didn’t give up hope. We got an amazing opportunity in aviation and we jumped on it. After years of designing and testing our new product line in aviation we literally just launched it into aviation and AGAIN the market turns to vapour. With aviation now at a critical stage where airports and airlines face an equally uncertain future, my own company is in danger of joining the ranks of tens of thousands of SMEs facing shutting their doors nationwide. You might be there, too – this is one crisis where we’re truly all in it together.

What do stories like mine – and maybe yours – mean for Canada? If my company goes under, it means my patented clean combustion technology, which cuts fuel usage and greenhouse gas emissions by more than 50%, goes with it. And the same applies to all the other innovative, game-changing technology firms. We’re not just losing employment and GDP growth by letting our tech sector falter – we’re losing inventions that can help give Canada the future it needs.

There is an alternative. Many of the world’s largest and most successful companies, including IBM, General Electric, Microsoft and General Motors started during times of economic upheaval like our World Wars, the Great Depression and the 1970’s energy crisis. Uncertain times mean huge changes, and virtually all changes bring some kind of opportunity, however hidden.

This time, it’s not so hidden – we can see all around us how technologies are facilitating remote working, online medical care, digital payments and keeping us connected while social distancing. We know technology is the future and it’s the wave we’ve got to catch if we’re going to have a strong recovery from the crisis. And in our tech sector – just like in all other facets of the economy – small to mid-sized companies employ 70% or more of the sector workforce. Multinationals are not going to save Canada or help us find opportunity in the crisis. It’s companies like mine – and probably yours.

“In all industries, at least 70% of the Canadian workforce is employed by small- and medium-sized businesses.”

Business Development Bank of Canada

However, we’ve got a steep hill to climb in accessing much or any of the promised support from our government, as I’ve already personally experienced. In a brilliant article recently published in the Globe & Mail, the CEO of Toronto’s innovation hub MaRs drove home just how critical it is that we support our technology start-ups throughout this crisis, and how many ways we’re currently failing them.

Why are they so important? Beyond just being a major employer of Canadians and one of the few high-growth areas in our national economy, our small tech firms generate the innovation that helps our major economic sectors – energy, natural resources, financial services, and manufacturing – optimize, cut costs and compete in a challenging international landscape.

His recommendations are spot-on. We need less bureaucracy, faster support application processes and, maybe most importantly, for the government to treat the R&D spending behind our innovation and growth as just an important factor in deciding whether we get support as our revenue.

“Let’s be clear about what’s at stake: Canada is in a global innovation race. We are competing with countries around the world for the most talented people, the newest technologies, and the fastest-growing companies.”

Innovation, Science and Economic Development Canada

Canada is known as a cautious place when it comes to early stage funding, which is part of what holds us back in scaling up our tech companies – in many areas around the world, the path to start-up success is viewed losing money while pouring everything into innovation for the first 5 years. Generating early positive revenue means risking too little, a path that leads to stagnation and technologies that are quickly surpassed by newcomers.

Of course, I understand that the government is trying to keep unscrupulous people from taking advantage of the crisis and getting unwarranted support. However – the government had enough trust in me to hep me grow through Alberta Innovates, will (hopefully) rebate my SR&ED credits like it has in the past, and accepts my honest tax returns every year.

At Absolute Combustion, I’ve applied for multiple relief programs, including those offered by the BDC, and like so many other people I’ve spoken to, found the criteria impossible to meet and the timeline too long to make much of a difference, even if I was approved. When it’s the difference between survival and mass start-up death, shouldn’t companies with at least a few years of good track records get access to urgently needed help?

We all start with big dreams, and none of us could have anticipated the human and economic tragedy we’re now facing. But we can’t give up on our future, and our start-ups are the thousands of small engines we need to drive us forward. Our technology SMEs take the risks that lead to innovation and growth – and during this crisis, for the sake of all of Canada, we need our leaders to take a risk on us.

Reprinted with permission from EnergyNow Media.

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