WAGE SUBSIDY LEAVES STARTUPS AND FAST-GROWING COMPANIES IN THE LURCH.

Many won’t qualify for 30% loss in year’s revenue

TORONTO • Businesses are warning that the Liberal government’s COVID-19 wage subsidy program is unfairly leaving startups and highgrowth companies out in the cold, an oversight that could stunt the development of some the country’s most innovative firms.

As details of the 75-per-cent wage subsidy rolled out this week, companies across the innovation economy quickly realized that one of the qualifying criteria — that a business has suffered a 30-per-cent decline in revenue since last March — might not apply to them.

“Any company that had a good year within the last three months or six months is facing a really tough issue with this subsidy rollout, the way that it’s been presented, because there’s no way for them to qualify for that without firing all the new staff that they have (hired) in the last year,” said Jason Young, the president of Toronto-based Advantage Forensics, an eight-year-old firm that provides expert engineering services to lawyers and insurance companies.

Young said his company had a good year last year, and expanded its staff from seven to 12, but now that growth is creating hard decisions. He said even if revenue is flat, it will be impossible to make ends meet.

“We’ve doubled in expenses and we’ve doubled in revenue. So when our revenue drops this month from last month by 50 per cent, we’re still going to end up the same as 12 months ago, if you’re looking at March to March.”

In the startup community, there is similar consternation.

For technology companies getting off the ground, it’s not uncommon for management to plan on triple-digit revenue growth, scaling dramatically to keep up with increases in expenses. Other firms have little to no revenue and are relying on venture capital investment, which has almost completely dried up.

Abdullah Snobar, executive-director of the Ryerson DMZ startup incubator, said the COVID-19 economic turmoil could kill a lot of companies that are just getting off the ground.

“There are companies that would have been incredibly high-potential businesses that need more time and need more support,” Snobar said.

“To let it die today is such an unfortunate thing for Canada.”

On a Zoom call organized by the Council of Canadian Innovators with around 1,500 people Wednesday afternoon, Innovation Minister Navdeep Bains acknowledged the issue, but said many startups just won’t qualify.

“The bottom line is that this issue was raised with the Minister of Finance today as well. I’ve raised this issue. He fully understands this, and we as a government recognize this. And we’re working out the details on this and were going to do our best to see what we can (do) to address this concern,” Bains said.

Bains was also asked about companies that pay workers partially in stock options — a common practice for technology startups — but he equated those options with dividends, and said Ottawa wouldn’t subsidize those.

“We are going to be subsidizing salary, so if they withdraw salary, then they’re absolutely eligible for this, but if they are subsidizing their income through dividends, we’re not going to be subsidizing this,” he said.

Snobar said that if the government won’t give startups access to the wage subsidy, it must move quickly with something else.

In the meantime, startups such as Montreal-based Nimbus Learning are adjusting the new reality.

The small education technology company designed a platform to connect students with mentors and tutors on university campuses, but universities are largely closed due to social distancing rules, and institutions are holding off on decisions like implementing new software systems.

This year, 2020, was supposed to be a year of explosive growth, but all that is on hold. With no revenue, it will have no access to the wage subsidy.

Chief operating officer Ben Attal said that the COVID-19 pandemic may stall the growth of the company, but they’re fortunate enough that they’re still small, and can control costs to ride out the pandemic without a wage subsidy.

“It would’ve helped, but it’s not a killer blow,” Attal said.

“The company that had, you know, 10 people on the sales team and has 10 developers on the product team, when compared to last year, potentially, they had two of each — and we have friends in companies like that — those are the companies that are getting absolutely killed.”