Grow Companies and Accelerate Clean Growth Roundtable
Interviews conducted since July 2016—Cambridge, UK
Grow Companies and Accelerate Clean Growth
Hosted by Sarah Lubik
Area of Focus
What can Canada do to grow $1 billion firms? What can Canada learn from other countries to better grow and scale-up firms?
At both a country and firm-level, the act of "scaling-up" requires bravery, patience, and the ability to accept, cope and learn from failure. Failure of even major companies can have a positive outcome through the 'release' of entrepreneurial talent. It also requires investments in people, and financial and physical infrastructure, including access to markets home and abroad. Talent is key in two areas: Growing and attracting employee talent and building leadership capable of scaling.
Progress on closing the scale-up gap requires data tracking to know what is working and to provide assistance to those doing it.
Growing the clean tech sector will require both radical innovations and incremental changes. It will take a strong market pull with a commercial imperative. The government might consider social innovation policy or "grand challenges" vs. subsidies that distort market conditions. Targeting problems relevant to the focal country and globally has also proven effective. Successful companies are using novel ways of looking at traditional problems by merging previously unconnected areas.
Summary of Discussion
The UK faces similar issues as Canada in terms of lack of scale and relatively wide disbursement of its venture capital market. This is seen as ineffective in growing the industrial base in a meaningful way. Funds that back multiple companies in the same sector can foster healthy competition. The Scale-Up report by Sherri Coutu emphasizes five key challenges of the UK: finding the right talent, building leadership capability, accessing customers, accessing the appropriate combination of finance and navigating infrastructure (including access to R&D facilities). One solution to infrastructure access was sharing space with large established firms. This requires efforts with stakeholders at a local level.
TheIsraeli government provides continuous, non-repayable support for companies along their development phase. Their government-funded accelerators launch start-ups, and transfer the equity back to the private sector to run the company. Other government-funded accelerators are outsourced. A successful private-sector accelerator model, Citibank's Financial Technology Accelerator Program is recognized for their ability to attract some of the best talent in the world to Israel to run their program.
In the Netherlands, Dutch chemicals company DSM has partnered with their government to fund start-ups around technical needs; this model facilitates the matching of real-world problems with potential solutions from new technologies, applications and even markets.
The US's strong performance in scaling-up companies can be accredited to their military investment in early stage technologies (specifically the Small Business Innovation Research (SBIR grants) that require government entities over a certain size (like the DoE) to invest a fixed percentage of their budget in science and tech ventures, escalating from proof of concept grants to proof of market to an actual contract), a strong culture of entrepreneurship and their large domestic market. A large immigrant population supports this. There is an opportunity for Canadian industry to partner with US organizations to better access technologies and markets.
If we are going to be aiming to grow companies to scale, we also need to think about building infrastructure and premises that will allow companies to scale from 30-500 employees more easily.
Key Implementation Considerations/Challenges
Ecosystem approach: Growing or scaling-up companies requires an effective ecosystem of support; therefore rather than looking just at individual "winners", one must take a systematic approach to examining each inflection point for growth. This also includes any plateaus or regressions that will naturally occur in a company's evolution. Just because a company falls off a "fastest growing list", does not mean that they cease being successful, thus emphasizing longer time horizons. Lack of coordination between players and regions was also seen as a challenge.
It also requires working with local clusters/ecosystems to identify scalable companies and make scaling part of their goals; however, this requires recognizing that high growth companies are not only in clear tech sectors, are not necessarily new firms and can start outside of established clusters or large cities, so geographic focus may be less important that identifying firms with the right characteristics.
Public-private partnerships: Conditions associated with government funding of public-private partnerships are often time-sensitive, and do not match the realities of a commercial venture. This can intentionally influence the private sector partners in adopting shorter-term thinking.
Attracting talent: It is truly a global competition for talent; a country's competitive advantage is associated with their taxation and visa systems. Scaling up requires focusing on skills, building leaders who can scale, developing a large enough customer base in one country before moving to another. A UK suggestion was publicly aiming for top global education ranking and ensuring educational institutions make links and expose students to local companies scaling up.
Finance: Finding the right combination of financing is a significant challenge in scale-up. Banks are less likely to lend money to innovative companies and large pools of equity capital are not found in Canada. Once capital comes from off-shore then relocation may be an issue. The UK has created the Business Growth Fund and British Business Bank to provide growth capital. Both must report after several years of operation.
Time frames and data: There is a need for short, medium and long term investments and goals as well as systems to track them and provide data to the public and private sector over time. A percentage of public funds could be allocated for this (and planned to continue over time).
Capital: Capital needs to be patient and have a long-term outlook. There also needs to be enough capital available for useful follow-on investments, not spreading capital so thin as to be less meaningful. In terms of coping with failure or regressions of key companies, Canada could consider funds/banks targeted for growth and a "survival fund", a small investment fund available to help move such companies through challenging times or setbacks. Investors can also play a very disruptive role for a company, and decisions about equity need to be balanced accordingly. Corporate entities can also be incentivized to work with early-stage companies in areas that matter to them.
Networks: Supporting collaborative networks of people or organizations across the country and internationally around a certain technology or technology family can be seen as reducing various levels of risk and increasing the overall value of the community, as can creating these networks around specific global issues (aging, clean energy, mental health, etc.). Funds can also play that role by investing in companies that may be of use working with existing portfolio companies.
Procurement: Must not only benefit large companies; governments should adopt an open, competitive system to foster growth and innovation of SMEs. Processes and reporting requirements however must be realistic and help SMEs succeed. Governments could also invest in R&D in public sector problems. Local and national governments could also be measured on their procurement from Canadian scale-up firms.
Scaling-up: Technology scale-up and business scale-up are not the same thing, nor is scaling up employment vs. a company achieving a high market valuation and then selling; the government must understand and identify their goals in order to effectively measure success.
Talent: Scale-Up Visa made available to companies reaching scale so that they can recruit necessary scarce talent more quickly. Government entities could be measured on how efficiently they assist with this. Mentorship connections could also help. Students should also be made aware of areas of demand for skills, be given hands on training and exposure to enterprise for every discipline. Mature employees could also be retrained to work in scale-ups.
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