I’ve been thinking that we need to create a local incubator, and I’ve started to wonder where this fits in Jevon’s vision of saving VCs in Canada. And it’s an easily understood way to go about deploying small amounts of capital and managing the risks associated with the investments. There are folks beginning to do this in Vancouver, and Montreal. They provide entrepreneurs with capital, education, mentorship, promotion mechanism, market development, among other offerings. They are angels, VCs, and others hustling to find deals, to help their portfolio grow and be successful. Most of all we need to lead by example. We need to build real companies like Well.ca, FreshBooks, DayForce, Rypple, PlentyOfFish, ElasticPath, Idee, and others. The focus needs to be, not on raising money, but on finding customers and solving problems for the marketplace. There is money is available to help companies once they’ve found a customer, when they need to do marketing, additional product development, etc.
The gap that is identified is at the very earliest stage of the investment pipeline. There are less entrepreneurs starting fundable companies. This is because there have been less successful startups that spinout human capital, culture and ideas. The lack of Fairchildren means there are less successful individuals that have earned their pedigree and training at a successful startup. Basically, there is a bunch of stuff that can be best learned by doing it for another startup (success or failure). It’s not only about technology, it’s about finding customers, raising money, building products, doing business development, developing personal and professional networks, learning how to do sales, etc.
But we’ve had a dearth of these startups? Maybe not, but there has definitely been a dearth of Fairchildren from these companies. Definitely not enough to create a viable, self-sustaining ecosystem of entrepreneurs and angel investors in the technology space. And this has left a gap in the very early-stage entrepreneurs and funding creating early-stage technology ventures. This gap may have longer term repercussions, the most easily identifiable is in the declining number of early stage investment in Ontario.
Who is motivated to create an environment with early stage deals, educated entrepreneurs and culture of educated risk taking? Who is going to do the hustling to make these ventures happen?
David,
This is a subject dear to my heart but I come at it from a slightly different direction. I’ll be interested in your reaction.
We have two sacred cows that are regularly trotted out in the media. One is that jobs are only lost, never created, and two, that the only worthwhile ventures are science and technology based. Let’s look at them in order:
1. Canada starts approximately 140,000 and closes 130,000 new businesses each year. Of the net 10,000, those that survive five years (approximately 2,000) will employ an average of 16 people or 32,000, or a small fraction of the workforce.
2. We have a firm belief in Canada (as in most of the developed world) that new successful companies come from investments in science and technology. So much so that the belief is embedded in the SR&ED tax credits. But the reality is somewhat different. Only 6% of new businesses are based on a new technology. Another 6% will use some new technology. But a whopping 88% use no new technology (not counting off-the-shelf computers etc.).
What can we conclude from these realities?
My belief is that we need to stop trying to pick winners and simply encourage the start-up of more businesses. The market will pick the winners. Anyone who has been through an SR&ED or IRAP application will attest to the faintly veiled attempt to ensure that bureaucrats can determine which will succeed or fail. In today’s fiercely competitive marketplace, process and business model innovations are just as likely to succeed as new products.
I have suggested elsewhere that we change the SR&ED tax credits to INNOVATION tax credits. This would have the effect of raising the number of new ventures attempted, and yes, to your point, let’s work on incubators and courses in entrepreneurship to improve the success rate of those started.
John Arnott.
David,
This is a subject dear to my heart but I come at it from a slightly different direction. I'll be interested in your reaction.
We have two sacred cows that are regularly trotted out in the media. One is that jobs are only lost, never created, and two, that the only worthwhile ventures are science and technology based. Let's look at them in order:
1. Canada starts approximately 140,000 and closes 130,000 new businesses each year. Of the net 10,000, those that survive five years (approximately 2,000) will employ an average of 16 people or 32,000, or a small fraction of the workforce.
2. We have a firm belief in Canada (as in most of the developed world) that new successful companies come from investments in science and technology. So much so that the belief is embedded in the SR&ED tax credits. But the reality is somewhat different. Only 6% of new businesses are based on a new technology. Another 6% will use some new technology. But a whopping 88% use no new technology (not counting off-the-shelf computers etc.).
What can we conclude from these realities?
My belief is that we need to stop trying to pick winners and simply encourage the start-up of more businesses. The market will pick the winners. Anyone who has been through an SR&ED or IRAP application will attest to the faintly veiled attempt to ensure that bureaucrats can determine which will succeed or fail. In today's fiercely competitive marketplace, process and business model innovations are just as likely to succeed as new products.
I have suggested elsewhere that we change the SR&ED tax credits to INNOVATION tax credits. This would have the effect of raising the number of new ventures attempted, and yes, to your point, let's work on incubators and courses in entrepreneurship to improve the success rate of those started.
John Arnott.
Dave we have discussed this several times. My feeling is that if the government could easily create a rich startup environment by simply giving the tax credits to companies that purchased from new ventures instead of giving the SREDs to the new companies. This would help startups get customer references as well as cash flow.
Dave we have discussed this several times. My feeling is that if the government could easily create a rich startup environment by simply giving the tax credits to companies that purchased from new ventures instead of giving the SREDs to the new companies. This would help startups get customer references as well as cash flow.
John,
Another example of the failure of SR&ED is the emergence of consultants with a specialization on SR&ED filings. It is an incredibly enterprising consulting specification that doesn’t add to the overall value of Canadian startups. It really creates a false ecosystem of government handouts, with a significant portion going to specialized consultants.
Encouraging more startups is definitely one solution. One interesting question might be how we define startup. Many public policy studies define entrepreneurship in terms of self employment (see http://martinprosperity.org/media/pdfs/Opportunity_for_Entrepreneurship-S_Pennington.pdf ). While breaking down the different types of work (routine-resource; routine-physical; routine-service; creativity-oriented), they focus on self-employment. I wonder if this leads to more self-employed professional services individuals, and less creating companies that employ others.
John,
Another example of the failure of SR&ED is the emergence of consultants with a specialization on SR&ED filings. It is an incredibly enterprising consulting specification that doesn't add to the overall value of Canadian startups. It really creates a false ecosystem of government handouts, with a significant portion going to specialized consultants.
Encouraging more startups is definitely one solution. One interesting question might be how we define startup. Many public policy studies define entrepreneurship in terms of self employment (see http://martinprosperity.org/media/pdfs/Opportun… ). While breaking down the different types of work (routine-resource; routine-physical; routine-service; creativity-oriented), they focus on self-employment. I wonder if this leads to more self-employed professional services individuals, and less creating companies that employ others.
Dave,
Your opinions are definitely shaping my thoughts here. My concern is that a “Buy Canadian” is steering toward economic protectionism. But I love the idea of changing tax credits for companies that support startups (open questions include how do you define a startup?). There is a huge need to change public and private procurement to reduce the paperwork, excessive financial requirements and bidding process.
Dave,
Your opinions are definitely shaping my thoughts here. My concern is that a “Buy Canadian” is steering toward economic protectionism. But I love the idea of changing tax credits for companies that support startups (open questions include how do you define a startup?). There is a huge need to change public and private procurement to reduce the paperwork, excessive financial requirements and bidding process.
Economic protectionism would be handing large government contracts to established Canadian corporations. I doubt that tax credits of less than $100,000 would fall into this category.
I would define a startup as a Canadian Controlled Corporation incorporated in the last three years with revenues of less than $1,000,000.
To me – nothing is more important than helping startups get reference accounts as this helps to attract financing and to win additional accounts.
Economic protectionism would be handing large government contracts to established Canadian corporations. I doubt that tax credits of less than $100,000 would fall into this category.
I would define a startup as a Canadian Controlled Corporation incorporated in the last three years with revenues of less than $1,000,000.
To me – nothing is more important than helping startups get reference accounts as this helps to attract financing and to win additional accounts.
David,
I agree 100% with your comments. What I think needs to be really emphasized is the “safety net” to make sure those entrepreneurs are able to take big risks without feeling like their lives are over if they fail. A properly designed incubating environment will surely aid any start-ups to prevent them from failing but, in the end, most will before they succeed. As Rick Segal told the Globe (I’m not 100% on this, but for the sake of argument, let’s roll with it), we are a country that is afraid of risk. Well, let’s try to minimize that as much as possible so we can bounce back quickly from any sort of failure.
D.
David,
I agree 100% with your comments. What I think needs to be really emphasized is the “safety net” to make sure those entrepreneurs are able to take big risks without feeling like their lives are over if they fail. A properly designed incubating environment will surely aid any start-ups to prevent them from failing but, in the end, most will before they succeed. As Rick Segal told the Globe (I'm not 100% on this, but for the sake of argument, let's roll with it), we are a country that is afraid of risk. Well, let's try to minimize that as much as possible so we can bounce back quickly from any sort of failure.
D.
I have been a participant in the SRE&D experience and have had consulting from a big five firm on the matter. The amount of jousting to get the credit was incredible. Instead of focusing on the risk taken there was prodding at a level that was simply too deep. On the other hand the consulting firm over looked details that I felt were relevant. It all felt like a bit sham where it was the CRA on one side and the consortium of consultants on the other. The experience was very offputting and leaves me unlikely to engage the SRE&D program again.
I have been a participant in the SRE&D experience and have had consulting from a big five firm on the matter. The amount of jousting to get the credit was incredible. Instead of focusing on the risk taken there was prodding at a level that was simply too deep. On the other hand the consulting firm over looked details that I felt were relevant. It all felt like a bit sham where it was the CRA on one side and the consortium of consultants on the other. The experience was very offputting and leaves me unlikely to engage the SRE&D program again.
@dossip,
Works for me, this is just new territory for me on the macroeconomic impact. That said, you’ve hit the key piece, the microeconomic impact. Helping startups attract reference customers by providing incentive through tax credits would help very early-stage startups in 2 ways: necessary revenue and customers to support growth. Real capital for connecting to clients and revenues.
@dossip,
Works for me, this is just new territory for me on the macroeconomic impact. That said, you've hit the key piece, the microeconomic impact. Helping startups attract reference customers by providing incentive through tax credits would help very early-stage startups in 2 ways: necessary revenue and customers to support growth. Real capital for connecting to clients and revenues.
I’d love to see Toronto develop a pervasive culture of startups; I’m not sure that an incubator is the best way to make that happen. ‘Fairchildren’ seem like the right approach, other than the fact that one has to wait for that to happen organically.
It’d be interesting to have a not-for-profit organzation devoted to helping startups succeed — rather than incubating them, just getting actively involved in helping startups to get their feet under them, share resources, help startups find mentors, and so forth.
Anyway; interested to see this evolve.
I'd love to see Toronto develop a pervasive culture of startups; I'm not sure that an incubator is the best way to make that happen. 'Fairchildren' seem like the right approach, other than the fact that one has to wait for that to happen organically.
It'd be interesting to have a not-for-profit organzation devoted to helping startups succeed — rather than incubating them, just getting actively involved in helping startups to get their feet under them, share resources, help startups find mentors, and so forth.
Anyway; interested to see this evolve.
Geoffrey, have you heard of http://www.marsdd.com? They offer a lot of what you are suggesting.
David, you’ve quoted Rick Segal and his comment about Canada being afraid of risk. I totally agree, find a venture investment coming from a Canadian organization of any material substance when compared to similar investments elsewhere. They are few and far between. Also, investments placed by Canadian firms come with huge pricetags!
But, I’ll also submit that Canadians are not only risk adverse, we are also success adverse. We sell out way to early (ususally outside of Canada) and we don’t adaquately fund business development. Even our corporate buyers (customers) tend to buy established products from international sources over early stage Canadian companies.
Geoffrey, have you heard of http://www.marsdd.com? They offer a lot of what you are suggesting.
David, you've quoted Rick Segal and his comment about Canada being afraid of risk. I totally agree, find a venture investment coming from a Canadian organization of any material substance when compared to similar investments elsewhere. They are few and far between. Also, investments placed by Canadian firms come with huge pricetags!
But, I'll also submit that Canadians are not only risk adverse, we are also success adverse. We sell out way to early (ususally outside of Canada) and we don't adaquately fund business development. Even our corporate buyers (customers) tend to buy established products from international sources over early stage Canadian companies.
I know I personally face a few problems in my geographical location, perhaps not applicable to all locations in Canada but I will write about them anyway.
I am located in rural New Brunswick with the closest Urban location being Fredericton, New Brunswick located about 100KM away – in my geographical location I face the task of finding like-minded individuals to develop a company with. You will notice that a lot of successful start ups are collaborations of multiple people.
I think that I am not the only one sitting in this boat, and if I am not do you think that development in this area MAY help with start up development overall. Perhaps we can create a means of connecting people faced with my problem. I have thought about this before.
Cheers,
Matthew
You can follow me on twitter @mattwdelong
Secondly, I cannot get any REAL experience in an applicable environment which would help me in building a successful start up. The reason being is the lack of start up companies in the area, the lack of technology companies – the closest technology company would be a mid-sized ISP at they won’t even give me the time of day. They are looking for sysadmins with 10+ years experience and on the business side, people with degrees. Perhaps this is my fault for not conveying my qualifications, but instead drawing attention to my lack of experience..I suppose this is something I can work on for my personal development.
Finally, this leaves me with a few options:
A. Start a company on my own, do all the development and face some pretty insurmountable odds.
B. Move to a location in which I could join a start up environment and possibly meet like-minded individuals.
However, if B is chosen this just contributes to another problem. No diversification of business development across Canada, instead all the start ups are concentrated in a few locations across Canada and are susceptible to the same problems if one should arise in that particular geographical location.
I know I personally face a few problems in my geographical location, perhaps not applicable to all locations in Canada but I will write about them anyway.
I am located in rural New Brunswick with the closest Urban location being Fredericton, New Brunswick located about 100KM away – in my geographical location I face the task of finding like-minded individuals to develop a company with. You will notice that a lot of successful start ups are collaborations of multiple people.
I think that I am not the only one sitting in this boat, and if I am not do you think that development in this area MAY help with start up development overall. Perhaps we can create a means of connecting people faced with my problem. I have thought about this before.
Cheers,
Matthew
You can follow me on twitter @mattwdelong
Secondly, I cannot get any REAL experience in an applicable environment which would help me in building a successful start up. The reason being is the lack of start up companies in the area, the lack of technology companies – the closest technology company would be a mid-sized ISP at they won't even give me the time of day. They are looking for sysadmins with 10+ years experience and on the business side, people with degrees. Perhaps this is my fault for not conveying my qualifications, but instead drawing attention to my lack of experience..I suppose this is something I can work on for my personal development.
Finally, this leaves me with a few options:
A. Start a company on my own, do all the development and face some pretty insurmountable odds.
B. Move to a location in which I could join a start up environment and possibly meet like-minded individuals.
However, if B is chosen this just contributes to another problem. No diversification of business development across Canada, instead all the start ups are concentrated in a few locations across Canada and are susceptible to the same problems if one should arise in that particular geographical location.
Odd.
It appears as if my closing is displayed halfway through my post.
Maybe a preview button would be nice, anyway you can just ignore that and pretend it’s at the end of the post.
Cheers,
Matt
Odd.
It appears as if my closing is displayed halfway through my post.
Maybe a preview button would be nice, anyway you can just ignore that and pretend it's at the end of the post.
Cheers,
Matt
David
I see it differently. I agree Canadians are risk adverse which means it is hard for Canadian startups to get local financing and even harder to find Canadian accounts. However, creating a safe environment for entrepreneurs will not lead to more successful startups. In fact, it may have the reverse affect as it could make it too easy to walk away. Most successful companies are the product of many failures and rejections, and successful entrepreneurs are those who have the persistence to keep going. What we need more than anything are more examples of successful entrepreneurs so that people know that success, while perhaps not immediate, is possible.
David
I see it differently. I agree Canadians are risk adverse which means it is hard for Canadian startups to get local financing and even harder to find Canadian accounts. However, creating a safe environment for entrepreneurs will not lead to more successful startups. In fact, it my have the reverse affect as it could make it too easy to walk away. Most successful companies are the product of many failures and rejections, and successful entrepreneurs are those who have the persistence to keep going. What we need more than anything are more examples of successful entrepreneurs so that people know that success, while perhaps not immediate, is possible.
Interesting perspective.
Add to that all the CRA people assessing them, NRC ITA’s shepherding them,
accountants working the credits into business strategies, lawyers packaging
them for the investors to write off; I must have forgotten someone!
John.
Interesting perspective.
Add to that all the CRA people assessing them, NRC ITA's shepherding them,
accountants working the credits into business strategies, lawyers packaging
them for the investors to write off; I must have forgotten someone!
John.
Matt,rnrnMany including Richard Florida and Paul Graham think that startups will coalesce into local, region or more likely international hubs. Read http://davidcrow.ca/article/7151/the-revolution-will-be-localized We’ve been discussing the regional hubs in Toronto, Waterloo, Montreal, and Vancouver. It poses a different challenge when you are located outside of these regions, which are all trying to replace Silicon Valley, Boston, and Seattle. rnrnHowever, your question about building a strong startup outside of one of these regions is different. Can you build a successful startup outside of a startup hub? YES! But there are business development, funding, talent and other reasons that might attract your startup to a hub. rnrnBuilding a successful startup isn’t an easy proposition. And as Jevon’s How Startups will Save Canadian Venture Capital http://www.slideshare.net/jevon/how-startups-will-save-canadian-venture-capital?type=presentation it is now easier than ever for entrepreneurs to build connections and the tools necessary. This call for entrepreneurs isn’t dependent on location. It’s dependent on information. rn
Matt,
Many including Richard Florida and Paul Graham think that startups will coalesce into local, region or more likely international hubs. Read http://davidcrow.ca/article/7151/the-revolution-will-be-localized We’ve been discussing the regional hubs in Toronto, Waterloo, Montreal, and Vancouver. It poses a different challenge when you are located outside of these regions, which are all trying to replace Silicon Valley, Boston, and Seattle.
However, your question about building a strong startup outside of one of these regions is different. Can you build a successful startup outside of a startup hub? YES! But there are business development, funding, talent and other reasons that might attract your startup to a hub.
Building a successful startup isn’t an easy proposition. And as Jevon’s How Startups will Save Canadian Venture Capital http://www.slideshare.net/jevon/how-startups-will-save-canadian-venture-capital?type=presentation it is now easier than ever for entrepreneurs to build connections and the tools necessary. This call for entrepreneurs isn’t dependent on location. It’s dependent on information.
Matt,
Many including Richard Florida and Paul Graham think that startups will coalesce into local, region or more likely international hubs. Read http://davidcrow.ca/article/7151/the-revolution… We've been discussing the regional hubs in Toronto, Waterloo, Montreal, and Vancouver. It poses a different challenge when you are located outside of these regions, which are all trying to replace Silicon Valley, Boston, and Seattle.
However, your question about building a strong startup outside of one of these regions is different. Can you build a successful startup outside of a startup hub? YES! But there are business development, funding, talent and other reasons that might attract your startup to a hub.
Building a successful startup isn't an easy proposition. And as Jevon's How Startups will Save Canadian Venture Capital http://www.slideshare.net/jevon/how-startups-wi… it is now easier than ever for entrepreneurs to build connections and the tools necessary. This call for entrepreneurs isn't dependent on location. It's dependent on information.