Industry Committee on Nov. 25th, 2009

[Jean-René Halde]

I'll consult with my colleague here.

We have a rating system for all loans in terms of the risk level. Above what we internally call a 4.0 becomes a high risk. On the percentage, I'd like to get back to you rather than quote a wrong number.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Fantastic.

Mr. Rémillard, you mentioned there's only one-third of venture capital capacity here compared to the United States. I believe that's what you said, but correct me if I'm wrong.

[Richard Rémillard]

When you look at the amount of money put into Canadian companies by their venture capital investors compared to the amount of money American venture capital investors put into their companies, it's about one-third.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

You're talking about a significant contraction that you felt was going to happen in the United States.

[Richard Rémillard]

At the risk of boring you to tears with numbers, if I look at my third-quarter data for 2009, the industry collectively invested $191 million in Canada across the country, and exactly five years ago the industry invested $500 million. That line goes straight down. We invested in 97 companies in the third quarter of 2009, compared to just under 200 companies five years ago. That's what's happening.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

We had a significant round table at McMaster University a couple of weeks ago on the gap between the lab and the shop floor--between the actual researchers and their translation into getting it commercial ready and the investor understanding the technology. That seems to be the critical place. My concern is that if there's less venture capital money here, there's already a risk that the value chain will end up in another country. Most often it ends up south of the border where there is more venture capital.

Do you have any insight into narrowing that gap? We had some conversations about developing a centre for commercialization. Do you see that as a private initiative? I'll leave it with you and whoever has some thoughts around that. I think that's a huge piece, as far as our competitiveness internationally and us creating jobs.

You talked about clean technology. Whether it's clean tech or high tech, we have to make sure the value chain stays here. We have lots of emerging technologies happening in all of our research universities, but capturing that and keeping it here right from the lab all the way through to the finished product is my main concern. Anything we can do to encourage that is what I think we should be focusing on.

[Jean-René Halde]

Maybe I can try to answer that. We have a number of our projects that come from university labs, where we invest at a very early stage, obviously, because it comes out of a university lab.

There are two suggestions I could make. One is, some universities are much better than others at transferring the intellectual property to the new company at a price that's reasonable, because the venture capitalist will not put the money down unless he or she knows the property is theirs. Right now, it's a difficult process in many universities, so I think this is something that could be improved in some universities.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

By the way, the universities know this. They actually talked about having a centre for entrepreneurship to teach researchers.

Go ahead.

[Jean-René Halde]

Quite honestly, I just lost the second item I wanted...

[Thomas Hayes]

If I could just make a comment on that, we did a scan of all of the investments that we've made over the years at GrowthWorks, and over 40% of the companies that we've invested in, either directly or indirectly, originated through research at a university.

Richard and I listened to an entrepreneur last week, a very successful chap here in Ontario, who has probably raised in excess of $100 million for three different companies. We got into a bit of a philosophical discussion over whether this is an issue for the private sector to deal with or for government to deal with, but what he explained was it's got nothing to do with that; it's all about country versus country. He travels to China, I think once a month he said, Richard, and 60 times in the last five years, and the kinds of incentives and the kinds of resources that folks in China are prepared to make available to his company, if he were to move there, are just incredible.

So it's really about whether we want to encourage new technologies in this country, and develop the new industries, the new emerging technologies. That's what it's really all about. Government has a significant role to play there, in my view.

[The Chair, Conservative, Michael Chong]

Mr. Halde, have you recovered your second thought? Why don't you go ahead?

[Jean-René Halde]

Yes, I have redeemed my second thought.

[The Chair, Conservative, Michael Chong]

Then we'll go to Mr. Rémillard.

[Jean-René Halde]

The thing was about the mindset of the professors.

One of the things you notice when you go to Stanford in the U.S., which is well known for how good they are at doing this, is that the professor who has a business mindset, who really tries to create a company, is seen as someone quite special and is highly valued. I wish we could have the same mindset in many of our universities.

By the way, my colleague did find an answer to your previous question on the percentage and the amount of higher risk, and of the $1.9 billion that we did in BCAP, $690 million was for high risk.

[Richard Rémillard]

To add my two cents' worth, if I may, to build on what Jean-René has said about intellectual property, universities might have a look at what the incentives are for tenured professors to leave and to come back. I've had over the years some of our members say to me that it's really tough to get a hold of a university professor who has this idea for something absolutely revolutionary, because if it fails, and many do, he can't come back to the university, he's off the tenure track, and it's really tough. So intellectual property control is one part.

The second one is, thinking about our friend from last week, it might be interesting to have a look at increasing the talent pool of serial entrepreneurs. There are a number of those in this country, and when you look at some of the research we have done in concert with Industry Canada and BDC, we see that they tend to have this snowball effect. They don't just go and create one company, but they create 10 companies, or 30 companies, and we need to find a way of packaging that and improving it--get more serial entrepreneurs.

Lastly, I think government has to look at everything it does. We suggested that the government offset program with respect to large contracts be revisited, at least in terms of getting money into venture capital funds. Government procurement...government is a great big purchaser. How does it use that power?

I have one final comment. I was in Israel two years ago on a very small “t” trade mission. You get very impressed with what they're doing in that country to generate a venture capital industry, which they grew from zero 14 years ago to where it's rivalling the size of Canadian industry today.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Rémillard.

Madame Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

I'll echo what everyone else said and say thanks for being here. I know that some of you have come a long way, so thank you very much for that.

Mr. Halde, in your presentation you mentioned two things--an increase in the delinquency rate, but at the same time an increase in the number of your clients who are looking to invest in the future. That, to me, just reinforces what I think, that, as it has been historically, at times of recession a weeding out happens.

We recognize that it's difficult for some, but it is an opportunity if it's taken advantage of. What it says to me is that this is a particularly important time to ensure that those stronger ones do not in fact suffer from a lack of capital. If there is a time to really take advantage and really help those that are showing promise, this is the time not to allow them to be jeopardized by the lack of access to capital.

I'm putting this question to you and Mr. Hayes and Mr. Rémillard.

We certainly, from the Liberal perspective, are recommending in the pre-budget finance committee report that there be increases in both the amount available for tax credit for venture capital and the amount available to be creditable. We are moving, I think, in the right direction, at least in terms of recommendations, but we're also hearing real concerns about continued exodus to the United States for some of these companies.

Mr. Hayes, you mentioned the continued gap between R and D and then the next step of commercialization. That is part of what is leaving to the United States.

In addition to some of those recommendations that you were saying for venture capital from a tax credit perspective, what else can government be doing in particular that you could recommend to us now to bridge that gap specifically? As well, what are we not doing in terms of numbers vis-à-vis the United States?

I know that some of that has been answered so far; just more succinctly, please.

[Jean-René Halde]

I guess I'd like some clarification on the question.

The numbers I quoted on the increase in delinquency and impaired are from our general population of clients, the 29,000 clients. So is the 75%; our very large survey of thousands of our clients shows that 75% are looking at investments over the next 18 months.

That is, quite candidly, very different from the clients we have in the venture capital sector or from the investee companies we have in the venture capital sector. So I'd just like to clarify whether you're talking about the overall economy generally or specifically the venture capital sector. The dynamics are very different.

[Martha Hall Findlay, Liberal, Willowdale, ON]

It's a little bit of both. If in fact there is a weeding out going on, then I'd go back to the premise that this is the time to really focus on those that are looking at positive growth. Those are the ones we really want to be able to make sure don't suffer from lack of capital. My suspicion is that there are some who may end up turning to venture capital. There may be some that are just starting out and looking to start out with venture capital.

So it may be a little bit of both, but it is really the venture capital side that I'm looking at, especially because that's where we're seeing an exodus to the United States--that group of companies that are really relying on the VC market.

[Jean-René Halde]

The definition of venture capital that I think we're all using around the table is very much young technology companies. That's really it and nothing else, right? We're focused on that?

So the question you're asking is what else could we be doing?

[Martha Hall Findlay, Liberal, Willowdale, ON]

Yes.

[Jean-René Halde]

I'll turn to my colleague here.

[Voices]

Oh, oh!

[Richard Rémillard]

What else could we be doing? I have no shortage of ideas on that.

We need a goal. Going back historically, ever since we started collecting statistics, the Canadian venture capital industry has been half the size proportionately of the American--period, full stop. Generally in Canada, as every Canadian knows, it's 10:1. They have 10 times the population and they have 10 times the economy. Sometimes it's 12:1.

In our case, it's 20:1--ouch--so the goal of public policy and the industry is to narrow that gap.

[Martha Hall Findlay, Liberal, Willowdale, ON]

But how? How do we do it?