Changes to SRED Program Threaten Canada’s Global Competitiveness

Following numerous discussions and activities over the last six months, and recent rumours circling around on this topic, it is time to comment. I am deeply concerned about the potential changes to the Scientific Research and Experimental Development—or “SRED”—program in the upcoming Federal Budget, and the impact such changes could have on R&D investment, commercialization, and Canada’s competitiveness.

To be clear on my vested interest, I speak from my personal perspective as an early stage entrepreneur and investor—not as an advisor in a professional services firm. Having spent 20 years in the Canadian technology industry, I have been fortunate to visit dozens of technology centres around the world and had a chance to gauge our global competitiveness as an industry.

INNOVATION AND ENTREPRENEURSHIP IS THRIVING

Over the years, I have become increasingly proud of our Canadian entrepreneur’s ability to be resourceful in investing in R&D to create globally competitive products—in almost all cases, with less capital than their U.S. and international counterparts. This is a competitive advantage which is rarely talked about.

Most exciting to me right now is the fact that start up activity across the country is once again vibrant. The current early stage innovation cycle in Canada has the potential to create significant benefit to the Canadian economy and help ensure our competitiveness as an industry.

Critical innovation “clusters” such as Montreal, Toronto, and increasingly Vancouver, are thriving, creating hundreds of new companies and thousands of highly skilled jobs. Other areas such as Ottawa, Kitchener-Waterloo, Calgary, and Halifax are finally showing signs of recovery, mostly due to start up activity.

NEXT-GEN INNOVATION IS CRITICAL DUE TO M&A ACTIVITY

At the same time, many of Canada’s traditional technology leaders have exited the Canadian marketplace through M&A to foreign companies often resulting in the “hollowing out” of the technology sector. Ironically, this is especially true in the nation’s capital.

Creating an environment where early stage companies have an advantage will be critical in creating next generation innovation and job growth in Canada. However, possible changes to the SRED Program could put this innovation cycle at risk.

In fact, it quite frankly marks one of the most concerning threats to the Canadian technology industry I have seen in two decades. Of most concern to me is the possibility that tax credits may be directed away from early stage companies.

WE DO MORE WITH LESS

There is a simple, undisputed fact in Canada relating to early stage capital. Canada is disturbingly uncompetitive.

Compared to the U.S., the U.K., many countries in Europe, Israel, India, and China, we are lagging behind in terms of having access to early stage sources of capital. One of the few highlights for early stage companies in Canada, following a global financial crisis and the demise of the Canadian venture capital industry, has been the SRED program.

The SRED program is a vital life line for early stage companies. It is called working capital for these companies, and is often the only source of capital available to a start up beyond founders and friends. Without access to early stage tax credits through the SRED program, investment in R&D at the critical early stage will be severally threatened.

SPEAK UP

I urge the Federal Government to leave the level of investment available to early stage companies through the SRED program alone in its review of the program. I believe my view on potential changes to the SRED program being considered by the Federal Government is shared by hundreds of technology entrepreneurs and investors from across Canada.

We need you to speak up too. Without exaggeration, disturbing the current vibrant environment for early stage R&D investment will be one of the biggest threats to the industry and its ability to compete globally in many years.