Acknowledge financial gap, put onus on financiers, entrepreneurs alike to close it
TORONTO—People and ideas may be key crusaders of innovation, but according to at least one expert there’s another ingredient in the recipe for success.
“It’s the entrepreneur that builds the rocketship,” said John Ruffolo, CEO of OMERS Ventures, “(but) the financing is the jet fuel.”
Simple equation, right? Wrong.
Speaking during the Conference Board of Canada’s Business Innovation Summit 2013, Ruffolo and co-panelists from the financial world agreed there is a huge challenge facing innovators in Canada who need capital financing.
Attendees agreed, too, with an impromptu survey finding 68 per cent of audience members had attempted to access capital funding and failed.
A lack of ability for innovators and financiers to speak the same language often leads to difficulty funding innovation in Canada, according to panel chair Michael Grant, director of capital market research with the Conference Board’s Centre for Business Innovation.
Senia Rapisarda, vice-president of strategic investments and initiatives with the Business Development Bank of Canada, said the abundance of natural resources in Canada muddies the water of whether there is a financing gap, but her short answer would be that, indeed, one does exist.
“If you close your eyes and suddenly mining, water, gas and oil disappear from Canada, we are in a very, very different situation,” she said.
An influx of funding outlets in recent years has helped lessen the blow across the board, according to Ruffolo, particularly outside natural resource industries.
“Over the last three years … with the advent of incubators and angels and super-angels that whole class of new capital sources really came about,” Ruffolo said. “Is the problem solved at that early stage? I’m not really sure, but it’s a heck of a lot better than it was.”
In fact, according to Ruffolo, Canada’s ability to create startups is world class. Where the nation begins to lag is in and around the five-year mark, he continued, where later-stage financing capital proves difficult to come by.
“There’s one major reason for this that I don’t think people like to talk about, and that’s that money follows returns,” said Barry Gekiere, managing director of the investment accelerator fund at MaRS Discovery District. “The returns in the venture industry in Canada have been not so good.”
What this may show, according to Gekiere, is an issue of getting Canadian innovation to market.
When asked which side bears more of the responsibility, Gekiere said often companies aren’t developed enough for the financial markets to see some level of commercialization.
“(They’ve already) got the technology and the vision, but it’s really about going to market,” he said.
While a solution to the problem may not be simple to achieve, panelists proposed a pair of steps innovators can take to gain access to funding they need to get started, and, perhaps more importantly, continue to ascend their respective markets.
“I think the entrepreneurs have to really look at saying, ‘what do I really need to show the capital markets in order to attract that (financing)’,” Gekiere said. “They really have to change their attitudes and (gain) the confidence of the capital markets.”
Perhaps the easiest way to gain that confidence, according to Gekiere, is to develop a strong market strategy.
More simply, Ruffolo said innovators can’t wait around for the financing to eventually find its way to them.
“The entrepreneur must go to where the money is,” he said. “If the money is not sourced in Canada and they have to leave Canada (to get it), good for the entrepreneur (and) shame on us as Canadians.”