Evidence of meeting #24 for Industry, Science and Technology in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was investors.
A recording is available from Parliament.
The Clerk of the Committee Mr. Michael MacPherson
The question is on the amendment of Mr. Masse, to include, after the word “sector”, the words “for two dates in October 2016”.
Liberal
The Chair Liberal Dan Ruimy
All those in favour of the amendment?
(Amendment negatived: nays 5; yeas 4)
Is there any further debate on the main motion? If there's no further debate, we'll go to a vote.
Liberal
Liberal
The Chair Liberal Dan Ruimy
Could we have our witnesses to the table? We're going to move forward now.
Our apologies for—
Liberal
The Chair Liberal Dan Ruimy
I'd like to apologize. It is the right of the chair to apologize, thank you very much.
We have an hour, so you still get your 10 minutes. We're going to go right into it.
Mr. Hilchie, do you want to go first?
Jayson Hilchie President and Chief Executive Officer, Entertainment Software Association of Canada
Thank you, Mr. Chair, and thank you to the committee for the opportunity to participate in this study.
The Entertainment Software Association of Canada represents a number of leading video game companies with operations in this country, from multinational publishers and console makers to local distributors and Canadian-owned independent studios. Canada's video game industry is one of the most dynamic and prolific in the world. During the period of 2013 to 2015, the industry grew by 24% and now contributes over $3 billion to Canada's GDP.
The video game industry is the fastest-growing segment of the entertainment industry globally. Here in Canada, approximately 475 studios from coast to coast directly employ over 20,000 full-time people in what many consider to be a maturing sector in Canada's burgeoning digital economy.
There's no debate: the video game industry is a strategic sector for economic development. Seven provinces have already recognized this fact and have introduced targeted tax incentives to attract and retain the industry in their jurisdictions. In fact, this model is now employed by many other countries and states worldwide in hopes of attracting and growing their own video game industries.
As our industry has matured in Canada, we have developed well-functioning ecosystems with fully integrated value chains for training, creative conception, development, quality testing, marketing, and sales and distribution of world-class entertainment software products.
We may not instinctively think of the video game industry as part of the manufacturing sector, but in a lot of ways it is very closely linked. From the collaborative nature of this sector with other creative industries, to the R and D being undertaken and the highly skilled workers required to innovate and excel, Canada has discovered the potential that digital manufacturing industries like ours can have for the economy. In fact, many of the technologies developed by the video game industry are now employed in many unrelated sectors. Technologies include 3-D animation and modelling in the defence industry, virtual reality in medical training, and motion sensing technology in law enforcement.
To maintain our success, we require policies, laws, and programs that help us grow in scale to remain competitive, protect our core assets—our intellectual property—and promote our successes.
I will start with the first point: help us grow in scale to remain competitive.
Some of the larger studios in Canada, employing several thousand workers in the cases of Ubisoft and Electronic Arts, are developing creative video game franchises that are exported throughout the world. Games such as NHL and FIFA, and franchises like Assassin's Creed, are now household names globally, even if few realize that they're actually made here in Canada. In addition, nearly 200 smaller studios in Canada are developing smaller games that are finding huge success on your phone, games that you likely play on the bus or the subway on your way to work.
While Canada remains a tiny market for domestic video game sales, we are a giant exporter, with 90% of the products developed here being exported and distributed all over the world, through physical retail outlets and, increasingly, digital online platforms. Despite our success, we continue to face challenges that are similar to those of other manufacturing sectors in Canada.
The most prevalent and concerning is the lack of timely access to skilled labour from abroad. Highly specialized talent and true innovators are hard to find in Canada and, indeed, in most other countries, yet those workers with specialized expertise are critical to our industry's ability to make great games, create new innovative technologies, and also remain competitive in an increasingly crowded marketplace.
Research conducted in 2015 by consulting firm Nordicity estimated that nearly 1,400 jobs in just the intermediate and senior categories needed to be filled in the video game industry between 2015 and 2017 to meet the rapid growth of the industry and increasing demand for our products. Canada must ensure that the environment for developing digital products remains competitive. Talent is our natural resource. As all digital industries continue to grow in this country, our natural resource is becoming more difficult to obtain.
We're pleased to see that the Standing Committee on Human Resources, Skills and Social Development and the Status of Persons With Disabilities made positive recommendations about the need to reform the temporary foreign worker program. Similarly, we are encouraged that the Minister of Innovation, Science and Economic Development has marshalled cross-departmental resources to address the issue of skills as part of Canada's innovation strategy.
That said, we encourage the committee to consider recommendations that encourage the government to implement digital skills training as early as kindergarten and throughout the school curriculum, similar to the United Kingdom, which aspires to lead the world in innovation into the future.
The second point is the protection of our most valuable assets, our intellectual property.
Intellectual property has long been recognized as a core currency in the digital economy. Intellectual property is also a key component of what makes manufacturing companies generally successful, and it gives them a competitive edge. Intellectual property protects our innovation and gives our creators, companies, and products commercial viability.
Strong intellectual property laws attract foreign investment and can fuel job growth in the digital industries. Legislated IP protections and meaningful investment in the practical enforcement of these laws must be strong and robust if Canada expects to lead in the economy of the future. Our industry is rapidly evolving away from products that are sold as packaged goods toward one where games are digitally downloaded. We encourage the government to engage more regularly with industry stakeholders and enforcement officials to stay up to date on our challenging IP environment.
In addition, we encourage the government to commit to Canadian innovators that you will not only help to incent innovation but will also protect commercial viability through strong enforcement frameworks and partnerships. Strong protections and enforcement will go a long way in protecting the work and the jobs of the thousands of people in this country who develop world-leading and innovative products.
Finally, our last point: promote Canadian innovation. We encourage the committee to consider programs that help raise awareness of Canada's manufacturing successes, whether in the digital economy or otherwise.
Many Canadians are unaware of the incredible accomplishments of our sector. Celebrating innovation raises awareness of the work being done in Canada domestically and internationally. Initiatives offered through the trade commissioner service, such as trade missions and export assistance, are crucial components in helping small Canadian video game companies grow into global players. We believe that Canada is an exceptional place to innovate and manufacture products that the rest of the world can enjoy and love, and we hope that through greater awareness of Canadian innovation we will achieve an even greater level of domestic and international success.
In closing, we encourage this committee to support efforts that help us grow in scale to remain competitive and meet market demands, that protect our core intellectual property, and that promote our success.
Thank you for the opportunity to appear and speak before you today.
Liberal
The Chair Liberal Dan Ruimy
Thank you, Mr. Hilchie.
Now we will quickly move to Mr. Navarro.
You have 10 minutes.
Yuri Navarro Chief Executive Officer and Executive Director, National Angel Capital Organization
Thank you very much for the opportunity to present to this committee.
I think that because angel investment is something that the government is now becoming more aware of, but that hasn't always been at the top of the list, let's say, I want to give you a bit of an overview about who we are as an organization and who we represent, and then maybe I could talk a bit about the manufacturing sector.
First of all, NACO is the national industry association for the angel investor community in Canada. We are here to help bring together the angel investment community and make it more effective as an asset class that can invest in innovation, essentially, by investing in those who come up with the ideas and develop the technologies and companies that are really leading the way in the new economy.
Because of that, we think we've identified the same gap that the government's Ministry of Innovation, Science and Economic Development has identified around the innovation and productivity gap. We think we have an interesting way of addressing that gap with our community.
Just for some definition and context, angel investors are high-net-worth individuals who are usually former entrepreneurs or professionals. They depend on social networks to identify entrepreneurs or investments they want to make. They're usually locally focused, but they enjoy investing in early-stage high-risk companies, something that is often seen as rare in the Canadian marketplace. Unfortunately, though, because they are fairly individualistic, they are often investing alone and are typically uncoordinated, and they lack a lot of self-awareness about their practices and about what else is going on around them. But they do fill a very important gap between where government and grants and programs like that can come in to help support entrepreneurs, and where larger stage venture capital, institutional capital, can come in to support these companies. This is what makes them so essential to what we call the “innovation continuum”.
Since 2002 NACO has been around to help support this ecosystem. We started off with about 100 angel investors back then. Today, we're a community of about 2,800 angel investors, with 38-plus angel groups. We have members in every province and in every major region. Our members invest in different things, depending on where they are, based on what is really booming in that region. For example, in Vancouver and Montreal there's a lot of gaming, and we have many members who are invested in that space.
Our mission as an organization, just so we're clear, is to grow and develop the angel investment community in Canada and evolve it into an asset class that will drive Canadian economic development and prosperity by investing in the entrepreneurs who have the ideas and the vision and can execute on those.
At our core, we do this in three ways. One, we identify and connect the angel investor community. These are people who are very independent and require a bit of connectivity. We help them build the social networks that allow them to collaborate on investing in these companies to help these companies grow over time and over various cycles of funding. You often hear from entrepreneurs that it can take about 100 or more meetings with investors to find the five who might invest in your company. This causes entrepreneurs to be focused more on fundraising than on building their products, so through these connections we help reduce that challenge and make it easier for the entrepreneurs to find the capital they need.
We also collect data. We've been doing this with Industry Canada for six years now. We collect data on the investments of our members and on their best practices. We use that to help them identify trends and identify areas where they can improve and to help them benchmark their activities. Through that, we help them become better investors and improve their outcomes. Because we've been working with Industry Canada and others, that information is also available to the government and can help bring a bit more colour and detail into the granularity of the information the government has about some of the Canadian businesses out there that it wants to support.
Finally, we also provide a voice for the angel investment community. This includes things like what I'm doing right here in speaking to the committee. More importantly, we are creating awareness about angel investment and this industry, because that starts to create the culture change we need in our country to support this innovation. We're often criticized in Canada for not being risk-takers and for not thinking big enough. We need to celebrate the successes and the failures in order to make sure that our communities of investors and entrepreneurs are willing and able to take those bigger risks and build those billion-dollar companies that we all want to see here in Canada.
Our goals for this community are: to grow the size of the angel community; to create stronger local networks and collaboration between them; to reduce our investor risk through collaboration, knowledge-sharing, and syndication; to improve access to capital for our brightest Canadian companies; to make angel investment a sustainable asset class, in the sense that if investors lose their money they're not going to keep investing that money; and, to narrow the innovation and productivity gap in Canada by making sure that we're funding the best and brightest of our entrepreneurs.
Our slide shows some of the members we work with. It doesn't show all of them. This is just a selection that's fairly regional. They are some of the partners we work with. Again, we work with many incubators and accelerators that help to create and initiate some of these companies, but they look to our community for funding to help those companies grow and develop into revenue-making products, as opposed to just prototypes.
We think this is a key challenge facing innovative Canadian companies, regardless of what sector they're in. Manufacturing happens to be one of those sectors that our members invest in. We think that by bringing together the angel investor community, which represents mentorship, capital, and networks for these companies, we can help to reduce the innovation and productivity gap. The effect of that, of course, is to avoid company failure, to avoid the flight of talent, which we've seen in the past, and to avoid the loss of jobs. In fact, if you look at what's happening right now in the ecosystem, you can see that this is starting to become a reversing trend, in that more companies are starting to stay here and build here.
More of the talent that left the country—it was often considered the brain drain era—has come back now. They have started investing in companies in Canada and investing in building Canada. What that has meant is the creation of thousands and thousands of jobs, not just in the technology sector but in many other innovation sectors, and even in traditional sectors where we've been able to apply innovation to things such as the advanced manufacturing, automotive, and even forestry sectors.
This is the role that angels play. They help support nascent Canadian innovation with their financial capital, intellectual capital, and relationship capital, which they can bring to bear for those companies. The result is growing Canadian innovation and economic prosperity.
We have here a chart that we've put together based on some data from the research we've done, including some of the research done by the Canadian Venture Capital and Private Equity Association and some that we were able to pull together from government programs. Again, this isn't perfect, in that it doesn't look at the outliers. There are outlier programs, obviously, but generally speaking we're talking about the gap between where government programs and grants can often fund companies and where later-stage venture capital actually comes in and starts to invest.
That gap—and this is based on the data we've collected—is currently being filled by the angel investor community. Through the later stages, it is being filled by collaboration among the angel investor community, whether as networks of angel investors or as funds of angel investors. This is really important, because without that, these companies essentially would either leave or die.
From our point of view, we're recommending that this committee look at supporting initiatives that would allow us to effectively bring together this community using fewer resources.
We do have certain partnerships with the current government, as we had with the previous government as well, which we have been able to use to build up the community. They've been very effective, but there are limitations within them that require more burden than we would like in terms of administration. We would like to instead redirect those resources towards building up the community and collecting data about the community. Also, we would like to be able to present that single set of statistics to the government in order to help your policy development. Through that, then, we think we can have a meaningful impact on the access to capital for early-stage entrepreneurs.
That's it. I have more information about some of the sectors our members invest in and some of the stages of investment. I'm happy to go into that later, but that was at least the overview.
Liberal
The Chair Liberal Dan Ruimy
Thank you very much, both of you, for your presentations.
We're going to go right into questions.
Mr. Arya, you have seven minutes.
Liberal
Chandra Arya Liberal Nepean, ON
Thank you, Mr. Chair.
Mr. Navarro, throughout your presentation, you only once made a passing remark regarding manufacturing. Can you highlight very briefly how many of your members invest in manufacturing sectors?
Liberal
Chandra Arya Liberal Nepean, ON
In the growth phase, the “valley of death” is of course that very critical stage that can make or break many companies. I know that the commercial banks will never come in there, and I know that angel investors are filling the gap. Do you think there are any institutions out there that are ready to fill that gap?
Liberal
Chandra Arya Liberal Nepean, ON
Mr. Hilchie, you touched on the challenges with respect to the talent. During the last 20 years, the landscape of the industry has changed, not just in the diverse video games industry, but the entire manufacturing industry. There was a time when industry used to take in fresh graduates, train them on the job, and then continue their employment. Today, that is not the case.
Do you think our post-secondary institutions are well equipped to supply the talent that is required by your industry?
President and Chief Executive Officer, Entertainment Software Association of Canada
The short answer is no. There are a couple of reasons for that.
The first is that we can go all the way back to the supply of talent, going from the school system into the post-secondary education system. I've spent a lot of time meeting with deans of computer science programs in schools across the country. They'll tell you that they get their students in two ways.
In the first way are the kids who teach themselves computer science and programming in their basement because they're interested in it and they do it. The other kids are the kids who are really good at math and don't know what they want to do with their lives, whose parents tell them they can make a hundred grand by taking a computer science degree and becoming a computer programmer.
That is not an official way of building a talent pool for a digital economy. You can take chemistry, physics, and biology in grades 10, 11 and 12, and then enrol into a chemistry, biology, or physics degree in university, and you've already had three years of training. You don't have that in computer science. Oftentimes, the very first time you take computer science in formal education is in your first year of university. That's not a successful way of building a digital economy.
Liberal
Chandra Arya Liberal Nepean, ON
You mentioned the 1,400 jobs. If I recall correctly, you're referring to the medium-level executives and senior-level executives, right?
President and Chief Executive Officer, Entertainment Software Association of Canada
That's correct.
Liberal
President and Chief Executive Officer, Entertainment Software Association of Canada
The temporary foreign worker program should be able to help us bring in those types of people in that we can't find. However, over the last number of years, since the federal IT workers program was shut down around the end of 2010 and in early 2011, we've been having non-stop problems with the TFW program, primarily with the labour market impact assessment.
Liberal
Chandra Arya Liberal Nepean, ON
Other than the angel investors or the venture capitalists, are there any other programs or institutions that are there to help your members?
President and Chief Executive Officer, Entertainment Software Association of Canada
Yes, our members receive money through all sorts of different avenues. His graph is quite interesting. I would say that most of our industry is getting money by starting with the family and friends area.
President and Chief Executive Officer, Entertainment Software Association of Canada
The BDC is actually quite helpful. I've met with the BDC in the past few months. I've met with the CEO, Michael Denham. The BDC is actually one of the more active institutions for small business loans to the video game industry. They have done some equity financing and some venture capital as well.