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  • Writer's pictureDan Herman

Letter to Minister Champagne, January 28, 2022

January 28 2022

The Honourable François-Philippe Champagne

Minister of Innovation, Science and Industry

C.D. Howe Building, 235 rue Queen

Ottawa (Ontario) K1A 0H5

Email : XXX

Dear Minister Champagne,

I hope this letter finds you and yours well. As we begin 2022 I am writing to share a perspective on our

innovation system and its ongoing need for refinement that comes from the somewhat rare position of

having worked on innovation policy from both the public policy and innovative startups ends of it.

While Canada’s innovation system seems to have its stride, evidenced by a slew of successful IPO’s, the

creation of a half-dozen new unicorns, and a return on invested capital that ranks third most-productive

in the world after Silicon Valley and China, significant gaps and fissures exist in our system that, if

unaddressed, risk undermining a decade of positive growth and foundational investments.

As way of background, in 2016 I was appointed as the Executive Director of Innovation Policy within ISED

as part of an executive interchange from my role as the co-founder of the Waterloo-based Centre for

Digital Entrepreneurship and Economic Performance (DEEP Centre). As part of my role at ISED, I

shepherded the drafting of the Innovation Agenda, and led the development of Innovation Canada and

Innovative Solutions Canada. I left ISED at the conclusion of my two-year term to return to industry

where I have since held executive roles in early-stage startups, as well as remained engaged in policy

work through my appointment as the Government of Ontario’s Special Advisor on the establishment of

an Intellectual Property Support organization (Intellectual Property Ontario).

As we enter 2022, amidst an exceptionally uncertain global economy, three issues in particular require

immediate attention for the sustainability of Canada’s innovation system:

Canada’s early-stage funding gap: Whereas policy efforts for venture capital (VC) formation over the

past decade have focused on deepening the amount of later-stage capital available, and have succeeded

in catalyzing now twenty-year highs in VC funding, these positive results shield a growing early-stage

financing gap that risks significantly weakening Canada’s economic dynamism. As evidenced by Statistics

Canada research, three quarters of firms that scale-up do so within the first five years of being

established. Ensuring that young, pre-seed and seed-stage companies have access to sufficient capital is

a requirement in that scaling process. Yet in Canada angel and seed-stage funding has not kept pace

with the growth of later-stage funding.

While chasing returns is a natural proclivity of any investor, ensuring Canada’s economic dynamism

requires a policy response to incentivize and support a sufficient pool of risk capital for our earliest stage

ventures. As was the case in the design of the original Venture Capital Action Plan, and earlier provincial

programs in Ontario and Quebec, policy is best designed as supportive of private-sector actors. Applying

this approach to angel investors and pre-seed and seed-stage funds is Canada’s best bet to developing a

well-balanced, and well-funded, startup funnel.

Spreading the Peanut Butter: Analysis of Canada’s innovation system has often equated public funding

for innovation as “spreading the peanut butter”: far too many programs, far too many recipients, far too

little impact. The 2018 Horizontal Review of Business Innovation Programs, led by Treasury Board but

for which my office led ISED’s review and input, attempted to rectify this in part by aggregating funding

streams. The original policy intent of the Superclusters program also shared this notion of concentrating

funding on key technology areas. Unfortunately the operationalization of innovation programs over the

past several years has seen a continuation of previous trends vis-à-vis “thin funding” and the continued

creation of new, separate funding streams. Case in point is the proposed creation of the Canadian

Advanced Research Projects Agency (CARPA) and a transfer of $2billion to fund it. While an attractive

concept it does not address a pressing need in our innovation system.

As evidenced by the presence of ground-breaking clean technology companies in fields such as energy

storage, energy generation and energy abatement, Canada doesn’t lack great ideas, that which CARPA

targets. Rather, Canada lacks the funding and procurement tools to properly support the evolution of

those ideas into domestically-held global champions. Doing so effectively would certainly benefit from a

$2billion input, notably to deepen the impact of programs whose effectiveness is proven such as the

NRC-IRAP, Sustainable Development Technologies Canada (SDTC), the Innovative Asset Collective (IAC)

and, where appropriate, the Superclusters, whose funnel of hundreds of small projects is primed to be

used as a selection tool to scale-up clean economy projects who have transformational potential.

I should also add that the proclivity to add new programs to our innovation policy suite stems in large

part from our lack of a true innovation agency enabled (like many of our peers) to systematically analyse

our innovation system and most effectively target the solutions.

The internationalization of our innovation system: The future of the global innovation economy is just

as likely to be written in Nairobi, Dhaka or Bogota as it is in New York, Paris or London. Unfortunately,

Canada’s innovation-related engagement with the markets that will shape the future of the global

economy is nearly invisible. While Israel, France, South Korea and others actively connect their

innovation systems, investors and startup entrepreneurs into emerging markets in Africa, Latin America

and across Asia-Pacific, Canada’s presence is rarely visible. How will we compete for talent, technology

and customers in these fast-growing markets if we are not present in a meaningful manner? How do we

expect Canadian firms to act quickly and strategically in these markets if they have never been exposed

to them? Public policy can and should play a powerful role in helping our entrepreneurs and innovators

get exposed to these new and emerging markets. Given your leadership, past and present, of the two

Department’s most tied to this issue, you are uniquely positioned to lead our innovators and the

stakeholders that help them, into this emerging world.

Ultimately, Minister Champagne, Canada sits at an inflection point. As my current project, “Magnetic

Cities” and its precursor “Their World, Our Future” attest to, the world has caught up with us. The

economic and technology advantages we once had have grown weaker as the democratizing forces of

the Internet has spread educational capacity and now technological-prowess to all but the most far-

flung corners of the earth. To remain competitive in spite of this evolving global dynamic, as well as

given the complexity of Canada’s fiscal position, we must be ruthlessly efficient and analytical in how we

allocate scarce resources and finite effort to our innovation system. I trust you and your team will take

this approach to Budget 2022 and beyond. If ever I can be of assistance, do not hesitate to get in touch.


Dan Herman, PhD.

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