TORONTO—Canada could be missing out on the “new economy” based on innovation and technology by focusing too much on the “old economy” warns Canada’s Venture Capital and Private Equity Association (CVCA).
Investment in the technology sector, where research and development decreased 35 percent in 2008, is at a 14-year low in Canada and looks set to fall a similar amount this year, said Gregory Smith, CVCA’s president.
Smith predicts investment in the tech sector will fall to under $1 billion for all of Canada this year, less than half the $2.1 billion invested in 2007.
“That is for all innovation and science, green technology, information technology and advanced manufacturing,” he said.
“We a see a declining trend of investment in the sector and a need to stay competitive on a global scale. We are not putting our time and investment into the new economy—we are too focused on the old economy.”
Smith described the need for Canada to maintain an “innovation ecosystem,” whereby innovation and technology-related industries have all the necessary elements to prosper.
Those elements include investment, infrastructure, relationships with universities and centers of excellence, entrepreneurs, and large innovation-based companies that provide a snowball effect that grows the entire ecosystem.
In recent years Nortel was the single most important technology company in Canada. It accounted for 12 percent of total research and development spending in technology, said Smith. The success of large companies like Nortel creates conditions for other companies to emerge, he said.
"These major firms play an important role in increasing the talent pool, in spinning off new companies, and in providing smaller firms with strong partners and markets for their innovative products.”
While Canada’s investment has fallen, the United States’ has seen a rise in such investment. Smith noted that most innovation and tech companies are backed by venture capital, pointing to Research in Motion as a current example. Such investment accounts for nine percent of the domestic workforce in the United States and only 1.3 percent in Canada.
The decline of Nortel and shrinking investment in the tech sector reveal Canada’s need for a national technology strategy, he said.
The CVCA has called on the federal government to form a “blue chip, limited life panel” of company executives, university presidents and venture capitalists to develop a road map for Canada’s technology industries.
Such a panel, said Smith, could be tasked with taking a “holistic approach” to growing Canada’s high technology resources—everything from identifying and removing obstacles to commercialization to fostering angel capital and revamping the Scientific Research & Experimental Development tax credit program.
“This is about making sure we have the proper resources for entrepreneurs, and researchers ... so that entrepreneurs and ideas want to stay in Canada. Everything should be looked at in order to make sure we have a vibrant presence in the new economy.”
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