Letter: Tech leaders appeal for greater support during COVID-19
From CEOs of leading innovation economy enterprises
MaRS Discovery District
101 College St., Toronto, ON, M5G 1L7
Date: March 20, 2020
To: Hon. Bill Morneau, Minister of Finance
Hon. Navdeep Bains, Minister of Innovation, Science and Industry
Hon. Mary Ng, Minister of Small Business, Export Promotion and International Trade
Dear Ministers Morneau, Bains and Ng,
Canada’s technology entrepreneurs have made tremendous progress over the past 15 years thanks to the support of many levels of government. 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 signatories to this letter are CEOs of leading companies working in advanced industries: energy, manufacturing, health, information technology (cloud and AI) and other sectors driven by applied technology. These industries contribute massively to Canada’s GDP, drive 17 percent of GDP and 11 percent of national employment. Canadian technology jobs pay 51 percent more than the average private-sector wage – these jobs should lay the foundation of the Canadian economy for the next decade or more. We simply cannot afford to let this crisis destroy them. They are our country’s future.
We know that this period of disruption will require courageous and tough-minded actions, and that business must prioritize the common good. 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.
Analysts tell us that recovery is not a three-month journey or even a six-month journey – it will take 12 to 18 months. This ecosystem needs both immediate and longer-term measures that will bridge them through the next year.
To that end, we urge governments to coordinate to support these companies in coming months, through swift, targeted measures meant to maintain cash flow, fast-track funding and stimulate procurement.
These measures will not save all ventures or jobs. But they set out a path we believe will allow Canada’s most promising high-growth companies to emerge from this crisis with the resilience and financial capability to lead the recovery and drive Canadian leadership in the economy of the future. Thank you for your time and efforts at a time when you are working tirelessly on Canadians’ behalf.
PROPOSED ASSISTANCE MEASURES FOR CANADA’S INNOVATION ECONOMY
We are already working to preserve as many jobs as possible. This is a challenge for early- and growth-stage companies and their modest balance sheets at the best of times, so it’s critical that the measures below be taken quickly and through existing structures, such as CRA, BDC and EDC.
Swift action will buy time for ventures to evaluate trajectories and make strategic choices about the path forward. Ensuring that companies have adequate cash flow in the immediate term will be critical to sustaining their operations.
Federal agencies (BDC, EDC):
- Companies that have already been through BDC or EDC due diligence should be fast-tracked.
- We must find a way for companies that have not previously engaged with federal agencies to access the funds being deployed quickly. There should be multiple ways to accelerate application processing times to enable timely cash infusions:
- Shared agency and program due diligence;
- Accelerated processing times for venture-backed enterprises;
- And acceptance of endorsements from trusted intermediaries whose programs have detailed evaluation mechanisms.
- Government should quickly make available loans at low to zero interest with deferred payments by working with the private banks, BDC and EDC – a recommendation similar to the one made this week by the Canadian Council of Innovators.
- They should also eliminate personal guarantees and profitability requirements to provide greater access to companies.
Federal programs (IRAP, SDTC, SR&ED, FedDev, SIF, NRCan, NSERC):
- Funding for approved projects (for example, through IRAP and SDTC) should be prepaid instead of the current reimbursement process.
- Companies that have already been approved, and are receiving contributions, should be fast-tracked for additional funding if deemed necessary.
- Greater flexibility should quickly be provided on the use of funds, in particular what expenses can be claimed through these programs.
- Accelerate the ability to claim credits through programs such as SR&ED refunds, IRAP funding, FedDev advances, SIF, SDTC, NSERC and NRCan.
- Offer better flexibility to combine government funding; often referred to as stacking limits.
- On approved projects, flexibility should be ensured by eliminating “spend it or lose it” clauses and “10 percent holdback” provisions.
- Push forward milestone payments to trigger cash flow at an earlier stage.
Retaining current employees:
To ensure that early-stage companies weather the current storm, we must be able to retain our talent. We recommend:
- That the CRA swiftly suspend collection of all Canadian employee income taxes for six months.
- That the government offer wage subsidies to enable ventures to retain highly skilled talent.
- Expansion of IRAP’s employment measures – for example, the youth employment program that reimburses a portion of new youth hires. This needs to be done with appropriate funding and a loosening of restrictions to apply to all new hires.
- Governments should endeavour to procure goods and services from innovation-economy ventures, including enterprise technology, infrastructure projects and health system enhancements.
- A Canada-wide “Buy Canadian” mandate should be encouraged where possible.
- Enterprises that receive stimulus packages should be required to prioritize adoption of Canadian innovation.
Assure flow of strategic capital to future leaders in the global innovation economy:
Flow new capital into trusted organizations and partners that are able to rapidly deploy funds through their existing relationships with high-growth companies. These organizations include venture-class high-growth technology, physical science and medical science entrepreneurs with strong IP. 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.
- We want new capital to flow through trusted capital programs and program managers that already have targeted instruments and existing relationships with innovation economy enterprises. Some examples of trusted funds include Ontario’s Investment Accelerator Fund, Canadian Business Growth Fund, BDC Capital.
- We expect that some of this capital will leverage and unlock matching capital. These sources of capital include:
- Emergency pools of capital already allocated to government-backed funders such as EDC and BDC.
- Venture capital investors and other private equity investors who are interested in supporting their portfolio companies and will match new government funds.
In the short term, for speed of deployment, this capital would be structured in the form of convertible debentures with favorable terms that would bridge to a future equity financing round.
- Use of funds should be inclusive to maintaining the employee base and overall operating costs.
- These new vehicles need to include companies that don’t currently have venture backing but have built revenues through market-based methods (customer and partner relationships).