Science and Research Committee on March 23rd, 2023

[Mario Simard, Bloc, Jonquière, QC]

I am compelled to agree with you, Mr. Asselin.

I come from an academic background. In social sciences and humanities, it's a different story, but knowing my friends in applied sciences, that field has very little interest in commercializing research, which is why it's important to develop translational research structures.

In your presentation, you said that Canada has put all its eggs in one basket. If I understood you correctly, we may not have valued this translational research enough.

[Robert Asselin]

That's true.

I would also say that applied research can be integrated into the real economy. Research and development is fine, but from an academic or scientific perspective, it's not a goal in itself. The state must develop it and get involved with the intention of making it an important link in the industrial strategy. That is what the Germans are doing with Fraunhofer and the Max Planck Institute. It is what the Netherlands, a country half the size of New Brunswick, is doing in the field of agriculture, where it is the world's second largest exporter. It's also what the Americans are doing in aerospace and defence, with DARPA, the Defense Advanced Research Projects Agency, and NASA, the National Aeronautics and Space Administration.

In Canada, we have not created such institutions. We have a national research centre that dates back to the 1950s that has not been renewed. I think the government is looking at options, but there is an urgency to make progress on this given the new geopolitical configuration. This is where we are going to create economic growth in science and technology. We need to look at ways to integrate that into the economy, and I think this committee has a very important role to play in that regard.

[Mario Simard, Bloc, Jonquière, QC]

We have experienced this with vaccines. We saw that there was work to be done.

Ms. Furlong and Mr. Asselin, I don't have a lot of time left, but I would like you to explain something to me. What do you think could be done in the short, medium or long term to allow for a little more robust and efficient operation?

I don't know if you were familiar with the networks of centres of excellence program, which was a federal program that had apparently had some success in translational research. I've heard a lot about it. What government actions could be taken in the short, medium or long term to achieve better linkage between research and commercialization?

[Robert Asselin]

I think incentives need to be created. Right now, researchers are acting a bit like SMEs—in other words, they are picking and choosing what they work on. That's the way our system is designed. So there is no incentive for them to commercialize their research or to use Canadian firms. If a foreign firm wants to buy all the patents of these researchers, there is totally passivity.

However, I don't know of any country that innovates properly while thinking like that. All the countries that have been successful in growing their innovation sectors have cultivated research and development in universities so that it gets passed on to firms. So very strong institutions, incentives and intellectual property policies are necessary, and I don't think we have those right now.

[Mario Simard, Bloc, Jonquière, QC]

Thank you.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much for keeping within your six minutes of allotted time.

We'll move to the next member of Parliament, Richard Cannings, for six minutes.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you to the witnesses for being here. This is very interesting.

I want to start with Mr. Asselin. Well, perhaps I'll start with both of you.

It seems the core question in this study, the whole question of IP and developing Canadian technology companies, is around this failure at the later stages. We have good universities and people doing good work, but there's something missing in the culture of investment, or in how we try to develop that.

Mr. Asselin, you mentioned.... I'm tempted to say, “What's wrong with the private sector here?” The government sector seems to be doing a lot, in terms of the education part, but it seems we're not as successful as other countries. You mentioned the DARPA model, the Defense Advanced Research Projects Agency. I'm wondering whether you could expand on what the United States gets out of DARPA other than, I assume, a lot of IP that stays in the United States.

You said you were hoping for more of a DARPA model. Is that more like a Crown corporation? Say we had a Crown corporation for AI and a Crown corporation for biotech that would do the.... We lead the world in many of those sectors at the research level.

[Robert Asselin]

That's a great question.

Interestingly, the U.S. is replicating DARPA in key sectors. The industries I mentioned now have an ARPA-E for energy, which deals with clean tech, and an ARPA-H, which deals with biomanufacturing—biotechnology, essentially. These institutions are independent and very nimble. They are led by scientists. The genius of it is they bring industry and researchers together to solve real industrial problems, which they translate into American companies, afterwards.

Think about where Boeing and Lockheed Martin were 50 years ago, before DARPA existed, and where they are today. It's because they were able to absorb the technology they worked on with the government. What DARPA did essentially was de-risk private investments in very expensive breakthrough technologies. Breakthrough technology is a risky business. Sometimes, it works. Sometimes, it doesn't. The genius of DARPA is that it tries not to do incremental innovation. It only does breakthrough innovation. In other words, if it's not crazy enough, they won't do it. That's why it works.

In Canada, we have never done that, culturally. I think this is where the world is going. I don't see any reason why, if we're so good at inventions, supposedly, we couldn't compete and create that model. Could it be a bit different and more adaptive to Canadian institutions? Sure. However, the idea, to me, is very straightforward.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Ms. Furlong, I'd like more on the concept you mentioned of having the government put in money and let someone else choose where it's spent—invest along with other investors. We have investments come in at different stages. A friend of mine was a doctor. He had a company that developed a flu vaccine. Of course, he ended up selling it to Glaxo and made a lot of money. However, I assume the IP for that vaccine is no longer in Canada.

I'm wondering where, in the systems you talked about, they would invest. Is it early on or later, as in Glaxo developing it? I would rather Canada have companies or Crown corporations that develop those biotech products at the end and keep the whole ecosystem within Canada.

[Kim Furlong]

Everyone wants to have a Canadian Glaxo. That would be the ideal: having a Canadian multinational that would help translate and commercialize the data. In life sciences, a lot of R and D is passed through multinationals. The idea of a small biotech growing up to become a Pfizer is very rare today.

I think it's an issue of scale, even leaving out life sciences, which is a particular case in and of itself. There's one member of CVCA called Highline Beta, which works with multinationals to identify a problem. They don't invest in existing companies. They create the company. There are a number of other smaller venture labs, but the scale of them....

It's like what Robert was saying. In these models, the amount of capital the U.S. government puts in these institutions and collaborations.... What we're doing here is peanuts. We're putting $20 million or $30 million to work in a venture fund, in order to start a company and solve a problem. There is one in Calgary that works with the oil industry to address some of their own clean-tech solutions. These things exist in Canada. They are just not fuelled the same way.

Singapore is a good example in terms of IP. There is a direct collaboration between private entities and the Government of Singapore to increase the number and quality of IP filings. Oftentimes, the Canadian government stops short. They start...like with IRAP. They have an IP strategy. They are doing the education, and it's working, but it's not deep enough. We now need to drill down. We need high-paid lawyers. You could hire people from Norton Rose or Gowling, put those lawyers in ISED, have them work with companies and meet the companies where they are, because not every company is at the same understanding.

I gave the example of the IP fund within BDC. When the board of a company and its management leverage the IP to get funding, they understand what they are holding in their hands. Having an understanding of that value and using that value to get the dollars to grow your company makes you more mindful.

To me, it's a question of scale. To Robert's point, it's a question of picking sectors. The ones the U.S. identified are the same ones in which we're having success. We're a world producer of food. We have amazing clean-tech technologies coming out and, on AI, we have been recognized as having done the research fuelling it.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much.

We are now moving on to our five-minute round.

To kick it off, we have MP Lobb from the Conservatives.

The floor is yours for five minutes.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thanks very much.

To start out, Ms. Furlong, I want to ask you about the accredited investor rules for basic income and basic amount of personal wealth.

Is it time to say that maybe they don't have to meet those targets, but if they're really interested and want to take 2% or 3% of what they have and invest $5,000 or $10,000, we'd love for them to participate in Canadian technology? Is it time to revisit that?

[Kim Furlong]

I think having regulators put down thresholds for accredited investors is good, because you want someone to understand what they're getting into.

That being said, democratizing access to venture capital and having the tax sector invest in the value being created before it goes to a public market are conversations we've been having. We've seen some funds in Canada work with Canadian banks to try to get...if you could say, when you do your RRSPs, “Within this RRSP allocation, I would like 2% or 3% to go to alternative investments”, and have those investments placed on your behalf.

The issue there is liquidity. You cannot pull your investment if you need it two or three months from now. There are mechanisms—

[Ben Lobb, Conservative, Huron—Bruce, ON]

They could read that in a disclosure they have to sign and fill out. They would understand it could be three, four or five years—or never. That's why you'd only put 2% or 3% of your investment in there.

[Kim Furlong]

The mechanisms exist right now. There are a few platforms in Canada where you can, as a retail investor, access these. They're limited.

[Ben Lobb, Conservative, Huron—Bruce, ON]

That was my next question for you.

Do you have any thoughts on what Wealthsimple is doing with Sagard? It looks like a pretty good idea.

[Kim Furlong]

From the moment they announced they were doing this fund, they were fully subscribed within 24 hours. This tells you there's a realization that's where wealth is being created, yet the retail investor does not have access to it. Take Fonds FTQ in Quebec, which basically does that. A big portion of what they invest is workers' dollars. They invest in alternative investments.

To your question, yes, there's a need to democratize it. It would be great to have RRSPs qualify for alternative investments under certain rules.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I want to ask you one other question. It's about the capital gains inclusion rate.

Currently, it's at 50%. You always hear about these trial balloons getting floated. It might go to 75%. It would seem to me that if the inclusion rate goes to 75%, it might put a chill on investment from individuals wanting to invest.

Do you have any thoughts on that?

[Kim Furlong]

If that happened, the capital would move. It would go. It's not like moving a factory. The investors and capital would set up these funds in other countries. We would see a large decrease, because you're taking a risk. Unlike a salaried employee, you don't get paid until 10 years after you've made your investment. If someone says, “We are going to reduce the benefit you get in rolling the dice”, you will just go and roll the dice somewhere else.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I have one last question to ask before my time is up.

I think investment communities look at software as a service—a place where they want to invest, because it's easy; there aren't a lot of costs in capital and there are no barriers. You put your money in and—bing, bang, boom—you get your subscriptions and away you go. Perhaps an area where investment has been lacking is in the more capital-intensive businesses, some innovative manufacturers and other things.

Is that where the government should be looking? Should it support people with great ideas for manufacturing who can come in and make changes in the country?

[Kim Furlong]

Seventy per cent of all VC dollars go to information technology software—the SaaS and B2B companies, which are easily scaled globally.

There's a signal the government understands they need to play in niche areas, where it's more capital intensive. Last year, BDC initiated a new deep-tech fund. It was much needed, because the private sector and VC dollars were not going there, as it was too risky.

The other place where it used to be risky and where we've seen a change is clean tech. If I'd been in front of you five years ago.... Clean tech was having difficulty attracting dollars. Today, that's no longer the case. The Inflation Reduction Act in the U.S. and the amount of capital that will flow to that space will also ignite capital in Canada going towards those opportunities.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much.

Moving on to the next member of Parliament, we have MP Sousa for five minutes.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Thank you, Chair.

Thank you both for attending.

I'd like to clarify a few things in terms of the stages. There's the research, the new venture and then we've got the scaling, the commercialization, monetization for IP and so forth, for public ownership.

In that scaling—and this is where we're talking about the first two stages—do I understand it correctly from both of you....

Mr. Asselin, are you encouraging greater government investment into these new ventures and adjudication?

[Robert Asselin]

For me, the issue is not with VC and the availability of capital at that early stage. I think we've made great strides.

It's the stage after. It's these exits and the lack of IPOs in Canada. This is what I'm concerned with.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

I am concerned about it too. I think we all share this.

We have this whole notion of the global trade initiative, how we're good stewards and how Canada participates properly out in the stage of the world. All these other jurisdictions are being very domestic. They're being very sensitive about the infrastructure in their own jurisdictions and protecting their IP, protecting their monetization, and making certain they have those companies in play. We want to do the same, but there seems to be a lack.

Is it government's role at that point to also be a partner?

I hear that coming from you, Ms. Furlong. You're really encouraging Canada to step up a bit in this next stage to participate with the pensions, companies and others, to facilitate greater investment and being an investor too.

With that comes consultants and lawyers and expenses, and we recognize some of the concerns that people on the other side may have with regard to that. With that also comes failures in some of the deals, but the net result is positive if we were to be the players and take that risk.

Should the government be the risk-taker?