“Smart capital” still essential to success of BC’s startup and innovation ecosystem
While our pandemic relief measures rightly prioritize vulnerable populations and businesses requiring urgent and immediate support, overlooking the investor community’s role when discussing recovery efforts could have longstanding negative effects on our innovation ecosystem. This in turn could impact Canada’s long-term economic resilience.
Much of leading technology innovation rests on the buried contributions of early-stage and venture capital investors. Almost universally, startups who succeed do so with the aid of some form of “smart capital” – cash backed by the experience, networks and influence of experienced investors. Uncertainty about the post-COVID-19 economic outlook has made these investors wary.
If starved of investment, our region’s entire innovation ecosystem could dry up over time, beginning with the startup ecosystem, and ultimately impacting the entire range of mid-sized and mature companies that generate local IP and revenues. The jobs, services and overall community impacts attached to them could disappear in short order, leaving a weaker, more fragile economy.
Led by investor groups and tech companies and fielded by federal entities such as the Business Development Bank of Canada (BDC) and the National Research Council (NRC), the conversation on how to fund local innovation is taking place at the national level. British Columbia could benefit from more discussion at the local level. Any provincial economic recovery plan that considers how to maximize the impact and deployment of angel and venture capital in BC will therefore have a better chance of securing long-term success for its innovation ecosystem – one that generates and retains Canadian-made IP and revenues.
By providing “smart capital,” angel investors and venture capitalists trigger key stages in a startup’s life cycle
The Metro Vancouver region is home to between 800–1,000 tech startups at any given year, and the contributions of the investment community are crucial to the life cycle of each one. Angel dollars bring ideas to life in garages and basements, long before tech products ever see a boardroom or venture capitalist pitch session.
Angels supply investments of $2,000, $5,000, $10,000 or more – considered modest once you reach the scale of companies closing investment rounds worth tens of millions of dollars. But in the earliest of stages, even those modest cash injections are the difference between an idea going from daydream to proof of concept, and sometimes proof of concept to prototype.
An experienced angel is often the first and most valuable lead investor a fresh entrepreneur will work with, often providing support through network connections, enhancing pitches, and other guidance.
Equally important are venture capitalists and venture capital firms, who often support the scale-up stages of companies, providing bigger injections of cash and broadening professional networks. The larger sums they bring then assist with increased revenue generation, global market access and commercialization.
As governments, institutions and companies consider the conditions necessary for a successful systemic recovery, this is an opportunity to consider enhancing existing programs and initiatives to maximize both investor engagement, and the impact of the capital Canada deploys for innovation.
Vancouver and British Columbia need more tools to engage investors and to keep smart capital flowing into our innovation ecosystem
There are a couple of federal and provincial programs that seek to encourage investment flow, such as BDC’s bridge financing program. High-potential startups who raise financing rounds could see BDC invest alongside these investors.
BC’s Small Business Venture Capital Tax Credit program provides credits to investors to encourage them to make equity capital investments in B.C.-based small businesses. B.C. investors receive a 30 percent tax credit on their investment in a venture capital corporation (VCC) or an eligible business corporation (EBC). Like the bridge financing program, this tax credit incentivizes investments because they go farther.
A careful expansion of the Small Business Venture Capital Tax Credit program to broaden this access to angel investors and cross-border investment could help maintain and expand the engagement of early-stage investors while reducing the provincial government’s burden of investing in local IP.
Tax credits and government incentives are not the only means to engage investors to mitigate long-term impacts to our startup and innovation ecosystem. Startup and investor education programs that proactively engage investor networks are highly effective. Highline Beta, Female Funders and NACO Canada are a few organizations doing great work in this area.
The Vancouver Economic Commission is designing a tech innovation network as a resource to enhance the offerings of existing education and relief programs. Building on VEC’s past capital mentorship programs, the aim of this network is to bridge the investment and innovation ecosystems by tying together the goals of our city and region, and those of the investor community. As always, the mission is to encourage innovation that could build a resilient economy for our region.
If you are an investor or a startup with input or an interest in the development of this initiative, I invite you to reach out.
Shivam Kishore, Manager, Technology & Partnerships
Shivam leads and manages technology sector initiatives at the Vancouver Economic Commission, combining his educational background in biomedical engineering with his passion for seeing tech enable positive and sustainable change in societies. Over more than a decade in the professional services and consulting sector, Shivam’s technical expertise and strong business acumen has benefitted technology-focussed firms ranging from Global 100 enterprises to entrepreneurial startups.
Connect with Shuvam on LinkedIn.
Photo by Aditya Chinchure from Unsplash