CANADIAN FIRMS URGED TO OPEN R&D WALLETS
New matchmaking program encourages big companies to connect with innovators
Corporate innovation is often talked about. But when it comes to pushing innovation with the entrepreneur and startup communities, Canadian firms are decidedly lacking, according to the Business Development Bank of Canada (BDC).
While Canada has all the elements to be an innovation nation, including high-quality research and an active national network of incubators, accelerators and startups, corporate R&D spending in Canada is less than half the average rate of other OECD countries, says Michael Denham, BDC president and CEO.
BDC hopes to address the issue with the launch of a new Corporate Innovation and Venturing Program, aimed at connecting large Canadian companies to innovators, raise awareness, increase the number and intensity of Canadian corporates engaging with the innovation ecosystem as partners and coinvestors, and increase international corporate VC interest in Canada.
It is clear that the entrepreneurial community is frustrated with the lack of corporate support, says Neal Hill, BDC Capital vice-president, market development. BDC studies have shown that entrepreneurs feel large corporations are not as available to them as potential customers or partners as are their competitors in other countries, he says. In addition, they believe Canadian corporations tend to be more conservative and hence less engaged with the startup innovation ecosystem generally.
There are two reasons for this, Hill says. “One is a lack of knowledge about available mechanisms corporations can connect to. A company might think the only way to do corporate venturing is to form a $50-million venture fund, which many say is out of their league.
There is also a lack of appreciation of how valuable external innovation systems — such as incubators, accelerators, innovation labs, venture funds or university programs — can be.”
There are a number of models beyond straight VC investment. Some leaders, such as IBM, develop programs that help evangelize their technology through projects such as the IBM Innovation Centres, where startups are given access to their Watson technology. Others, such as Telus and Magna, put money aside for an internal VC fund.
“Over the years, 17 companies that Telus invested in have been acquired or gone public — but not by them,” Hill says. “They are looking to participate in the industry, not groom acquisition targets.”
RBC is among a number of corporations working with such communities as Communitech to establish corporate innovation programs.
“In that way, corporations can work with startups on things of interest to them but remain physically separated; then bring back what they learned and apply it internally,” Hill says.
There is much more than altruism at work. Companies that have engaged with startup communities are inevitably top players in their fields, notes Tawfik Hammoud, senior partner and managing director, Toronto, for Boston Consulting Group, who spoke at this month’s BDC Corporate Innovation Summit in Toronto. “Companies that do the most externally get a richer view of what is possible out there, then come back inside to do something about it. By looking out the window they know better what to focus on internally.”
Hammoud also points to the “very large” discrepancy between Canada and other jurisdictions. “U.S. corporations do four times more than Canada. We have half the amount of VC capital versus Berlin, which is ranked a secondtier city. That’s not right.”
When one considers what is happening in Waterloo, Ont., he says, or the AI advancement in Montreal and Toronto, corporations should really go hard after those places. “But they need to have policies to enable the scalability of all those ideas.”
Corporations can put their money to work in three ways, he says.
They can set up a dedicated VC ■ firm, which is not necessarily the most successful or sustainable approach for many.
They can partner with accelerators and incubators, like MaRS or DMZ or countless others in Canada. “This is becoming the fastest growing because companies can control costs and access the ecosystem for ideas and innovation.”
They can get involved with innovation labs, where activities can range from staging hackathons to building developer teams to partnerships with academia.
Hammoud points out that each industry has its own approach. “Financial services, for example, is typically focused on fintech and mobile. A chemical or manufacturing corporation might approach VC in a completely different way to make industry more efficient through robotics.”
His co-presenter, James Mawson, founder and editor in chief, Global Corporate Venturing, stressed that corporate venturing is easy to start, but not easy to do well. “The starting point is the network. You have to find a way to meet these people and then decide what works. The hope is real. The challenge is equally real.”
Corporations can work with startups on things of interest to them but remain physically separated; then bring back what they learned and apply it internally.