Should Canada’s federal and provincial governments be funding start-ups?
In an ideal world, the answer would be “no”, other than perhaps the tax credits that Canadian companies receive for investments in research and development.
But this is Canada where start-ups are high on ideas but low on financing. The troubling lack of financing has become more obvious by the growing number of promising start-ups, many of them requiring nothing more than a healthy shot in the arm ($100,000 to $250,000) to take a huge step forward.
And while there are some new players such as Real Ventures providing seed financing, it’s not enough. So it was interested to see Wave Accounting (a former client) and Guardly received $755,039 and $237,500 respectively from FedDev Ontario‘s investing in business innovation program.
The FedDev program “boosts private sector investment in start-up businesses to accelerate the development of new products, processes and practices and bring them to market. Among companies eligible are southern Ontario start-ups with “less than 50 employees who have a signed draft term sheet from a recognized angel or venture capital investor”.
As a staunch start-up supporter and someone who provides services to them, I’m pleased for Wave and Guardly. It has been exciting to see Wave evolve from a great idea – online accounting – into a business adding thousands of users a week. There needs to be a lot more start-ups like Wave.
Should We Be Giving Money to Start-Ups?
The question is whether the Ontario government (aka taxpayers) should be giving money to start-ups that have raised financing from other sources. From the outside looking in, it seems hard to justify at a time when all levels of government are under growing financial pressure.
But the harsh reality is that if the government doesn’t participate, Canada’s economic development and innovation activity will be impacted in a major way. Until there is sufficient private sector funding in place, the government has little choice but to stay involved by supporting a variety of programs.
By investing in start-ups rather than standing by idly, government can support innovation, keep entrepreneurs close to home, support job growth and, hopefully, encourage private investors to get in the game. If the government isn’t involved, it will be difficult for Canada’s start-up ecosystem to thrive, and we’ll have to be content to rely on natural resources for our wealth.
While seeing the Ontario government make these kinds of investments may be difficult for some people to swallow, they’re a necessary fact of life. Maybe they won’t be needed down the road but given the private sector’s track record don’t count on it happening any time soon.
For some of my other recent posts on Canadian start-ups, check out:
First time poster, long time reader!
As always, a great post!
I would really like to see government come up with new ways to HELP small businesses, opposed to just throwing money at us.
Some ideas:
1. Renting office space is a huge financial burden for a small business. What about some property tax subsidies for small businesses, or landowners who rent to small businesses?
2. Providing financial / business advise for small businesses
3. Finding great employees is not easy, especially on a budget. What about developing better programs to help connect new graduates with small businesses or, helping in some financial manner with the hire of new graduates
4. Holding business plan competitions, with grants awarded to the best plans
5. Encouraging local-customer loyalty
Maybe all, or some of the above are done. However, I am a small business owner, and I have never seen any of the above. So, if there are amazing programs, then maybe the government(s) need a better PR company to help us realize that they are available!
Then again. It is business, and the strongest and best survive. If you need financial help, then maybe your business shouldn’t stay alive!
Matthew,
Thanks for reading the blog and the comment. I think there are lots of things the different levels of government can do to encourage and support start-ups and small business other than giving them money. I particularly like the idea of office space because it not only provide start-ups with a low-cost place to hang their hat but, hopefully, the chances to rub shoulders with other entrepreneurs and start-ups to share and gain wisdom, contacts, etc.
cheers, Mark
Hi Mark,
As always, a thought-provoking and insightful piece.
1. Most governments invest in and support startups, including the US and Israel, which I would argue are the most technically innovative economies in the world.
2. On the office space issue: Quebec built two such complexes about a dozen years ago, Cite de Multimedia and Cite d’eCommerce. I’m wondering what the results have been?
Sincerely,
Byron
This is a great topic, and I wish more people were talking about it!
I think that rather than the government investing in business, they should make it easier for private investors to invest in start-ups – such as offering tax-breaks or other programs. The reason is that there is no way for a government to understand the intricacies of individual industries. For example, if I want to build a healthcare start-up, I would rather be backed by someone who understands the healthcare industry inside-out, rather than a government department which at best would have a generalist’s understanding.
Also -investors are usually not just that. They also provide connections, expertise, and, wanted or not, motivation to grow.
Feel free to visit http://www.ontariocanada.com for a variety of services to support small and medium sized businesses. MEDT, the Ontario economic development ministry, does a great job supporting small business.
“Funding startups” is NOT a good model for sustainable businesses. A better question is ‘How to create sustainable conditions for capital formation for sustainable businesses?’