How to prevent a global slowdown from stalling Canada’s high-tech engine


The last time inflation peaked this high, China was the world’s 10th largest economy, the New York Islanders were a Stanley Cup dynasty, and Mark Zuckerberg was still three years away from his birth.

Anyone who really remembers those days, and the recession caused by the combination of persistent inflation and rising interest rates, is now over 55. We’ve had recessions since, but we’ve also had a steady wave of technological innovation, expanding global trade, historically low central bank interest rates and low inflation to weather the storm.

But today we live in a different world. A global pandemic that will not go away; the supply chain chaos tearing the economy apart and a bloody war in Europe that could become something we would rather not consider. With a global slowdown looming, the pressure is on policymakers to manage volatility and get the right response.

One thing Canada lacked the last time we were hit by multiple inflationary forces was a thriving innovation sector driven by startups. According to Innovation Economy Council. Moreover, it is growing more than three times faster than any sector. The innovation economy is key to Canada’s future economic growth.

The most promising startups are led by founders with no safety nets at the best of times, and they rely on venture capital in the race to scale their innovations, attract customers, and hire talented workers. But venture capital investment fell dramatically, an unintended consequence of interest rate hikes as central banks battled inflation.

This is a time when we need to ensure the availability of capital for our tech startups. Without risk capital, they will have to scale back their operations to keep the lights on. This means no investment in infrastructure, talent, people, processes and systems to support growth; which then means lost opportunities to establish new markets, increase productivity and get ahead of global competitors.

Policymakers need to deploy surgical measures to address the declining availability of venture capital and investments in productive capacity. Choking off capital in this sector right now is like stepping on the hose that waters the vegetable garden when you need produce to survive.

The innovation economy is the backbone of Canada’s future economy. But let’s also understand that a drop in capital for the innovation economy has repercussions that go far beyond the start-ups themselves. It depends on the impact these companies have in delivering transformational solutions that create a better future for us all.

Take the cleantech sector. As the world experiences the highest temperatures on record, Canadian innovations in direct air capture and carbon capture and storage are being touted as leading measures to truly eliminate greenhouse gases of the atmosphere. We cannot afford to see a reset in this and other cleantech developments. And to be clear, there is no path to net zero emissions without innovation. We must lead interventions that maintain the momentum of our clean technology sector and its crucial role in the fight against climate change.

from Canada Emission reduction plan has set ambitious greenhouse gas reduction targets for 2030, and the clean technology solutions that can help us meet those targets are available right here now. Encouraging large energy consumers to adopt these solutions is not only an economic opportunity but an existential imperative.

The recently announced GHG Offset Credits Regulations can be expressly approved by the Canadian Securities Administrators as producing high-quality offsets that can be used to achieve corporate net zero goals. This small change will encourage innovation financing with ESG benefits for investors. An updated offset system could also accommodate venture capital investments in cleantech portfolio companies, allowing offset credits to flow back to investors and fund sponsors who invest in innovative cleantech startups.

We should also consider directing some funds raised through Canada’s Greenhouse Gas Pollution Pricing Act (GGPPA) to programs that support the creation, growth and scale of these clean technology companies. For example, there is a clear opportunity for governments to up their game when it comes to clean technology procurement. A one-stop marketplace for cleantech and circular economy innovations would give this sector an instant boost. These programs are the innovation infrastructure that forms a recurring launch pad for the companies that will pave the way to net zero and create jobs for the future in a multi-trillion dollar global climate economy.

With respect to the wider innovation economy, policymakers could consider creating accessible funding programs to automatically match investments from savvy global investors with the best global track records.

We should seriously consider taking a page out of Israel’s playbook: allowing founders who have successfully completed liquidity events to reinvest their proceeds, free of capital gains tax, into new innovations and innovators within two years. their exit. This creates a multigenerational flywheel for experience and capital to invest in successive generations of entrepreneurs.

Given the momentum in our startup community, Canada must not let go of an innovation ecosystem that we have carefully nurtured over the past 20 years to become one of the great growth engines of our economy.

Yung Wu is CEO of MaRS Discovery District, one of the largest innovation hubs in the world.

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