New regional development agency needs to function like a real investor

If you’ve ever perused a government news release or seen a political funding announcement, you probably heard a politician talk about investing.

Whether it’s roads or schools, elder care or environmental protection, politicians almost never talk about government spending anymore – instead, it’s government investments. The money is all invested in approximately the same way that I invest in groceries so that I don’t die of starvation.

Politicians’ affinity for the word “investing” distracts from the fact that governments do literally invest in Canadian companies in the traditional sense of the word, offering growth capital to support firms as an economic development strategy.

One of Canada’s major vehicles for economic development investments is through regional development agencies (RDAs). Until now, all 12 million people in the four provinces west of Ontario were covered by just one RDA (Western Economic Diversification), but Ottawa is now setting up a new one tasked with fuelling economic growth exclusively in B.C.

All this has me talking to B.C. members of the Council of Canadian Innovators (CCI) about the right way to set up a new economic development agency.

CCI member companies are homegrown scale-up technology companies with market-proven products and services — in other words, exactly the kinds of companies that the federal government should be supporting. Through my conversations, there is one common underlying sentiment: If government is going to play the role of investor, it needs to act like one.

Investors make strategic choices. They make large bets, informed by tested metrics, on market-proven companies. Investors do their due diligence, but they ensure the process is streamlined, modernized and accessible. And, to complement their funding, they make smart, experienced people available to portfolio companies as mentors and coaches.

Too often, governments in Canada try to spread funding evenly, investing too little in too many. This doesn’t give promising companies enough capital to grow, and it wastes a lot of money on dubious startups with no serious commercial prospects.

What’s worse, government investors too often institute cumbersome eligibility requirements and application and reporting processes, which not only force companies to devote resources to paperwork, but which also create slow turnaround times.

The cumulative effect is limited return on investment, limited job creation and limited economic growth.

It’s enough for some to say, “Government should just leave the investing to the professionals.” But this is the wrong conclusion.

It’s true that there is plenty of capital to be found in the private sector, especially for scaling companies that are generating revenue with market-tested products. But much of this capital comes from investors outside Canada, which means that the economic benefits and some control over the trajectory of homegrown Canadian companies is ceded to non-Canadians.

As a country, we should be working to ensure that homegrown Canadian companies can scale their businesses without selling out. To that end, the new B.C. RDA is a major step in the right direction for the West Coast.

But the devil’s always in the details. Success depends on the RDA being set up to function like a real investor that innovators want to engage with. The new RDA should be empowered by the federal government to deploy meaningful amounts of money, quickly, to targeted high-growth, market-tested firms, operating in key provincial priority areas like clean tech, health and biosciences, cybersecurity, fintech and digital technologies. To avoid the creation of another cumbersome innovation intermediary, Ottawa should be working with local business leaders to develop application criteria that is manageable, investment criteria that is modern, and reporting criteria that is convenient. Most importantly, the government should give the green light for this agency to place some big bets on B.C.’s most promising firms.

As we emerge from the pandemic, B.C.’s recovery rests on the shoulders of its homegrown companies that are best positioned to rebound and refuel the economy.

If done strategically, the new RDA could provide big returns to B.C.’s economy for years to come. •

Tessa Seager is the director of government affairs for B.C. at the Council of Canadian Innovators.