Canada is commercializing… but not scaling

So for the longest time the problem in Canada was phrased as follows:  we are great at R&D but we can’t commercialize or build products that can generate revenue from that R&D.

Much money and effort was spent on figuring out ways to help move R&D from our universities and hospitals into the marketplace. To that effect, in Toronto, we saw the establishment of MaRS (of which coincidentally I’m a fan and supporter), and later MaRS Innovation, and the reorganization of much of the tech transfer offices across the GTA.

We also saw the establishment of brave new early stage venture funds, like Extreme Venture Partners and Rogers Ventures, who are not scared of jumping in “early” and taking a risk on early stage companies.

Over the past year, we observed some nice exits, such as Sysomos (bought my MarketWire), CognoVision (bought by Intel), and Bump Top (bought by Google).

This is great everyone said… we will be the next Silicon Valley (see Toronto Life cover article in November 2010, and letter to editor from yours truly in response in December issue).

Hold on now. We have shown we can spin out technologies from universities (coincidentally all the above companies were spun out of the same lab in the computer science department at UofT)… and our ecosystem has matured… and so have our entrepreneurs… but we are not scaling our businesses.

While entrepreneurs and fund managers are making good multiples on their exits (and many are friends, so I’m delighted for them!), we need to scale our companies if we ever plan on building the next RIM or Nortel on home soil. Otherwise, we will have become experts at commercializing R&D but not at building businesses.

That will require 2 ingredients: later stage venture capital and a focus on building scalable businesses (i.e. acquiring customers and selling products and services to generate revenue).

We can only then start to build a critical mass of innovation and truly contribute to Canada’s economic development and the establishment of a thriving knowledge industry.