The most recent 2019 Startup Genome report ranked the Toronto-Waterloo corridor as the 13th most valuable and dynamic startup ecosystem in the world. That means that world-class companies are being forged right here on our doorstep. With Montreal and Vancouver not far behind, you would think Canadian corporations would be clamouring to take advantage.
Unfortunately, that is not the case.
With a few notable exceptions, Canadian corporates have a well-earned reputation for being laggards when it comes to corporate innovation. A Business Development Bank Of Canada (BDC) study found that between 2012 and 2016, the largest Canadian corporations contributed approximately 10 times fewer resources (on a size-adjusted basis) to financing and purchasing venture capital-backed companies than their peers south of the border.
This dearth of corporate engagement hurts Canadian startups. It limits access to funding, taking away local customers and reducing potential acquisition partners.
There are signs, however, that corporate interest and investment are the rise.
In the last 10 years, dozens of large companies – including Canadian Tire, Canon, Deloitte, Fairfax, GM, Interac, Johnson & Johnson, Manulife and TD – have established “innovation outposts” with Communitech in Kitchener-Waterloo and the MaRS Discovery District in Toronto.
In 2018, RBC partnered with Highline Beta, a startup co-creation and venture capital company, to launch RBC Reach, a corporate accelerator program to facilitate commercial deals for post-seed to pre-series A startups.
Meanwhile, both BlackBerry and Telus set up corporate accelerators with L-Spark, an Ottawa-based business accelerator that supports enterprise software companies.
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In Canada, corporate venture capital has been ramping up since 2017, much of it driven by foreign multinationals seeking to exploit our thriving startup scene in areas such as artificial intelligence, financial technology and digital health.
In 2018, 34.5 per cent of all venture capitaldeals concluded had at least one corporate investor, up from 28 per cent in 2017 and 16 per cent in 2016. And, while deals with foreign multinationals still outweigh those with Canadian companies by a 60/40 ratio, investments from Canadian corporates were up 10 per cent over 2017.
These are encouraging signs, but there is much more to do. At the Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre), we studied 110 instances of corporate engagement in Canada’s startup ecosystem. We found that many corporate innovation initiatives either lacked a clear direction and mandate or did not articulate them.
It is possible that some corporations don’t want to miss out on networking opportunities or be perceived as falling behind competitors that have aligned themselves with technology innovation hubs. According to one executive, who spoke off the record, “Many companies are relatively early in their journey and unsure about how to engage with an innovation ecosystem. They are seeking to inject more creativity into a staid corporate culture or put a more attractive hue on a corporate brand.”
Based on research at the DEEP Centre, here are six things Canadian corporates should be doing to partner with Canadian startups:
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Make sure there’s leadership from the top. If a company is doing corporate venturing well, it’s because the CEOs provided the mandate and leadership to make it happen. In every successful case we examined, the company leaderset bold innovation goals, removed barriers to achieving the vision and held managers accountable for reaching company targets.
Commit to innovation, not theatre or brand-building. Some companies engage with startup ecosystems for the wrong reasons. They want to show that innovation is happening, but their investments don’t lead to tangible outcomes. Even worse, they buy up promising Canadian technology just to eliminate a potential competitor. Real innovation means scaling new capabilities into the core business and supporting startup companies so they go on to achieve genuine success in the marketplace.
Provide access to valuable corporate assets. Companies help startups grow by providing assets they otherwise could not access including intellectual property, expensive equipment, proprietary data and industrial testbeds. Case in point: companies accepted to JLABS in Toronto – one of several corporate incubators run by Johnson & Johnson – get access to experienced J&J executives and world-class life sciences research facilities, including cutting edge medical equipment.
ƒOffer mentor support through a network of executive talent. The venture capital units inside big corporates like to trumpet the “differentiated advantage” they can bring with their deep understanding of and connections within the sectors in which they operate. Smart companies leverage this advantage byconnecting company founders to experienced business executives who can provide advice at critical pivot points, shape product development, help mould vital management competencies and provide expertise on science, marketing and regulatory issues.
Deliver no-strings-attached support. Corporate venture programs have failed in the past because large corporates have put their strategic interests ahead of the startups they alleged to support. The best companies balance their strategic interests with a no-strings-attached model that provides entrepreneurs with the freedom to follow the path that will maximize growth and success. This means no one-sided partnership agreements, first right of refusal clauses or exclusive rights to the technologies that startups develop. “We’re in a collaboration economy,” said Judy Fairburn, a venture capital investor and founder of the51. “You can’t put entrepreneurs in handcuffs, or you won’t get the best entrepreneurs coming to you.”
Don’t just follow trends, lead them. An ever-growing roster of domestic corporations and foreign multinationals are flocking to Canada’s artificial intelligence (AI) ecosystem, both to absorb its talent and make strategic investments in AI startups. In addition to the usual U.S. tech giants, the list of corporate investors in new AI labs includes Royal Bank of Canada, Toronto-Dominion Bank, Manulife Financial and Thomson Reuters.
Participation in startup ecosystems can provide companies with access to new talent, ideas and technologies. But executives should go in with a clear strategy. For example, are we looking for talent, acquisitions or go-to-market partners? Do we have the expertise and resources to work with startups without quashing the very qualities that make them agile and innovative?
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Executives should also look past what’s obvious and trendy. Beyond AI, there are compelling opportunities for investment and collaboration in biotech, clean technology, industrial automation, smart mobility and other areas that complement the industrial mix here in Canada. These sectors don’t always make the headlines, but they could help reinvigorate a long list of sleepy giants in industries including agriculture, construction, energy, forestry and mining.
Greater engagement from Canada’s traditional industries will benefit Canadian startups that too often find their first customers in other countries. While internationalization is vital, Canadian entrepreneurs will be better positioned in international markets if they can secure financing or their first sale on home turf. Clean technology companies note, for example, that early adopters in Canada can play an important role as “reference customers” and “market makers” by helping demonstrate early traction for Canadian solutions in key export markets.
For Canada as a whole, corporate innovation partnerships represent an opportunity to attract investment, foster innovation and create the jobs and companies of the future. “Now more than ever it is crucial to leverage the pace and creativity of the startup ecosystem,” said Jonas Almeling, director of innovation partnerships with Ericsson ONE. “Innovation is not a private territory, but an open ecosystem that empowers and accelerates the ambitions of all those who meaningfully engage with it.”
Anthony Williams is president of the DEEP Centre and a research director with the Blockchain Research Institute.