"Highway to Heaven":
Investing in Canada's Path to Prosperity
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Charlie Coffey, O.C.
Executive Vice President
Government Affairs & Business Development
RBC Financial Group
5th Annual Angel Investor Summit
The Westin Hotel
Ottawa, Ontario
Monday, October 24, 2005
Paul, thank you for the wonderful introduction. I read a
piece in the Ottawa Business Journal (OBJ) on September 6th
that put a grin on my face because it was classic Paul LaBarge
at work. At that moment, I knew what my opening would be for
these remarks. As Paul and at least OBJ editor, Leo Valiquette
will recall, the story headline was Business leaders jeer
tax grab, referring to Ontario's plan to eliminate the 15-per-cent
tax credit it gives investors "who pour their money into
labour-sponsored investment funds (LSIFs)." Paul's quote,
in part, went like this:
"Finding angel investors for early-stage companies and
substantial (venture capital) VC opportunities for more mature
businesses, is already a real trick. Make it less attractive
to the moneymen and you're asking for trouble. The impact
of the LSIF was that it was a cushion during the ("tech
wreck") in 2000. U.S. venture capital ran for the exits
and other funding ran for the exits as the meltdown started.
The angels got fried and the LSIF was the only capital available.
If the market starts to rise and the Americans come in and
we've eliminated the front line that allows us to keep the
head office in Canada, it will encourage people to come in
and loot and plunder our companies."
Interestingly enough, the Province has now committed to an
"orderly wind-down of this tax credit" by the end
of the 2010 taxation year. Time will tell how this one unfolds,
however one thing is sure…Paul, you continue to set the
pace on these type of issues with your voice and leadership
in action - you're simply one of those people who keeps
raising the bar (no pun intended) for all of us!
I'm delighted to join you at the 5th annual Angel Investor
Summit - the timing is great since we're celebrating small
business this month. It's also a pleasure to see familiar
faces in Ottawa and from across the country - and it's always
gratifying to see many RBC clients in a room. Angels and angel
organizations are alive and well in Canada and so is entrepreneurship!
I must admit that hearing about "purple angel" and
the "band of scoundrels" - now the Ottawa Angel
Alliance - piqued my curiosity throughout the years! I'll
chat with Laurie Davis about this later…
RBC Financial Group has supported the National Angel Organization
(NAO) and this event right from the start. We believe that
angel investment can be likened to a highway to heaven
for burgeoning entrepreneurs, especially those involved in
knowledge-based industries (KBI). As Henry Vehovec, honourary
chair and founder of the National Angel Organization often
says: "Early stage capital plays a pivotal role in the
creation of businesses….there's considerable capital
out there; (sometimes) the money isn't actively chasing the
deals." By the way, I'm sure Terry Matthews will have
much to say about chasing the deals, so don't miss
his remarks tonight!
This morning you were treated to an opening presentation
by my colleague Craig Wright, so I know you have a solid picture
of the growth and opportunity for investment on the Canadian
business landscape. What I want to do in the next few minutes
is address the opportunities and challenges faced by entrepreneurs
in breaking through the barriers to growth and commercialization
and highlight the importance of bridging the gap between entrepreneurs
and the investment community. It's clear that more leadership
in action is required by Canada's governments, financial
institutions, educators and other stakeholders, including
private investors, if promising small-to-medium enterprises
(SMEs) are to emerge successfully in the global economy. It's
also clear that angels and angel investments have a huge impact
on entrepreneurship, knowledge-based industries and Canada's
path to prosperity - these investors and investments cannot
be minimized or marginalized - rather, they must be encouraged.
Let's move forward by looking back first. In the early 90s,
Canadian investment in research and innovation was below par
with other G7 nations. To make a long story short, Canada
didn't have national objectives or goals that would drive
us to success on the world stage in the knowledge-based economy
(KBE).
More recently, Canada has embraced a renewed confidence and
willingness to try new things and compete in new ways. It
required big changes from all of us - from provincial and
federal governments, from academia, from industry groups and
from financial institutions. Governments significantly increased
their investments in research and research infrastructure
- and we now have the National Innovation Strategy. Academic
institutions are taking, very seriously, their responsibility
to capture economic value from the enormous investment in
research. Small companies with great ideas discovered they
can get attention from customers in the U.S., in Japan, in
Germany - that they are "world class." Financial
institutions introduced specialized banking programs for knowledge-based
industries. In other words, Canada established new partnerships
and new ways of doing things. As a result of the changing
environment, angel and venture capital investment is on the
upswing. And we're not just seeing more money, we're seeing
smarter money.
During this journey, RBC has played an interesting role in
helping to bridge gaps and break down barriers for entrepreneurs.
As a national financial institution, we participated in "on
the ground" issues as well as contributed to public policy.
And we built what we originally called our KBI bank. We did
this by learning from a decade of experience in banking high
tech in the Ottawa cluster and we reached out to experts in
other areas to advise us.
The three pillars of our KBI strategy have always been specialization,
innovation and networks. And today, KBI is a cornerstone for
RBC's North American strategy. Our specialized relationship
managers provide customized financial solutions and support
for companies at all stages of their lifecycle - from start-up
financing to going public. They also bring a rich network
of relationships with industry, government and academia to
their clients and leverage the extensive capabilities of RBC
Financial Group.
As many of you know, our KBI team focuses on information
and advanced technology, life sciences and health care, as
well as media and entertainment clients. And members of the
group are here today and for the entire Summit. I would like
to recognize Mark Usher (Toronto) and the Ottawa team of Christine
McCrady, Greg Commons, Andrew Arnott, Luke Clare and Matt
Kellow. I also want to single out RBC's Chethan Lakshman,
who among many activities in corporate communications, lent
his skills and support to the NAO publication, "The Primer
for Angel Investment in Canada."
We're proud of our KBI clients, their marvelous success stories
and their contribution to helping break down barriers and
bridge gaps. For example, Semiconductor Insights (SI) has
grown from a small consulting firm to one of the world's pre-eminent
firms in its field. As the leading technical advisor to the
microelectronics community around the globe, SI's international
client base spans Fortune 500 enterprises, governments, legal
firms, start-ups and venture capitalists. Within the semiconductor
industry, SI has participated in virtually every major licensing
campaign over the past 15 years, and counts 47 of the top
50 companies among its clients. It's good to see more leadership
in action with President and CEO Doug Smeaton in the house,
who's also wearing his Canadian Advanced Technology Alliance
(CATAAlliance) hat!
QNX Software Systems (a Harman International company) is
another example of a leadership in action client. In
July, the U.S. National Institutes of Health acknowledged
QNX's Neutrino realtime operating systems for "helping
to advance the understanding of human vision and improve on
measures to prevent disease and trauma in future generations."
Not too long ago, RBC's Christine McCrady was one of QNX's
key advisers for sourcing patient capital and providing an
innovative banking financing package. With executive talent
like QNX President and CEO Dan Dodge, the business relationship
continues to be a win/win/win, as the knowledge-based industry
is winning too!
RBC Financial Group has also looked at ways to participate
in the venture capital market, particularly through RBC Technology
Ventures. The story of RBC Technology Ventures is one about
a "positive conspiracy" of industry, government
and academia. The focus is on early stage venture financing,
starting with seed capital. And the business model is one
of creating funds with like-minded partners to invest in promising
sectors in Canada that have real research strengths. These
sectors include biotechnology, information technology, engineering,
physical sciences, and agri-food technologies.
Of course keeping one step ahead of technology innovation
can be a challenging task. RBC's response has been to create
the RBC Strategic Technology Fund (STF) to help its businesses
stay abreast of technological and competitive advancements.
Started in 2001, the STF's mandate is to invest in early-stage,
privately held software companies that are developing innovative
technologies for firms in the financial services industry.
Think of it as RBC's eyes and ears on technology in the external
market place.
For RBC and the small business market, we know there is room
for improvement, and we take this challenge seriously. We
continue to make improvements in the range of our business
offerings, taking pains to make entrepreneurs feel more welcome,
heard and valued. We continue to improve our resources to
deliver new, targeted information related to business competitiveness,
profitability and growth. And we continue to improve our training
programs so that account managers better understand the climate
in which this critically important segment of corporate Canada
operates.
However, the collective "we" need to do more for
entrepreneurs and the knowledge-based industry…we need
to do more when it comes to investing in the path to prosperity.
After all, the future prosperity of a country is inextricably
linked to its capacity for continuous innovation and entrepreneurship.
Retaining and attracting talent will be one of our greatest
challenges in the years ahead as nations compete for top talent.
Unless we create attractive opportunities, this talent will
be more tempted to go elsewhere. By investing in new research
opportunities, we are already attracting talent home. Management
at both small and large companies must do their part in attracting
and retaining talent. Over the years, many academic studies
have offered the view that what ultimately counts in determining
the international success of a nation's business sector is
the depth of managerial talent. Angel investors, the venture
capital industry and financial institutions all need to feel
confident in the management skills of those running businesses
in which they might invest.
It's not enough to have a good business idea. What matters
just as much is the ability to design and execute a credible
business strategy. The biggest single reason why smaller businesses
fail to get the financing they want is because investors do
not have confidence in their management ability. If Canada
is to succeed in commercializing new knowledge from its universities,
research hospitals and other institutions, it must do a better
job of training managers who can create commercial success
from new knowledge.
Canada must find its niches. And we must do so quickly because
the rest of the world won't wait. This is where the roles
of finance, government and education come together. We need
a financial system that enables growth; government policies
that encourage, facilitate and reward growth; and an educational
system that produces both the people capable of generating
new ideas and people with the management skills necessary
to successfully exploit new ideas. This will require both
public and private capital. This is not an ideological issue.
It is a practical question of finding what works best.
Partnerships are an important part of the equation, so it
was good news to hear that the NAO and CATAAlliance
are "aligning" in a strategic move to strengthen
Canada's technology industry voice for business growth. As
CATA President John Reid stated in August: "We're in
full alignment with the NAO in its efforts to encourage investment
in Canadian SMEs through seeking adoption by federal and provincial
governments of legislation providing qualified and eligible
investors (individual and corporate) with a combined 30% Innovation
and Productivity Tax Credit (IPTC)."
On July 6, Sasha Nagy of The Globe and Mail wrote in his
piece "Angels on their side", that British Columbia's
tax-credit program has been credited with boosting private
investment and bringing angels back to the B.C. technology
sector. Nagy quoted Bruce Gitelman, co-chair for public policy
at the NAO: "Angels are a godsend to new business ventures,
funding 30-40 times as many entrepreneurial firms as the venture
capital industry. There's a 'commercialization gap' in Canada,
one grown out of Ottawa's increased university research funding.
We're about $5 billion short in terms of the money needed
to commercialize all (research and development) that is going
on in Canada…we need angel investors who will spend the
time and effort to get the effort to the point where they
are ready for the venture capital companies."
And speaking of angel investors...the recently launched Winnipeg
Angel Organization (WAO) is also gaining attention. On October
8th, columnist Martin Cash's piece, "Winnipeg Angel group
running" was the feature story on the business page of
the Winnipeg Free Press. In part, Cash says: "The Winnipeg
Angel Organization (WAO) -- is up and running as an electronic
investing network and its well-heeled group of private investors
has directed about $500,000 into a handful of confidential
deals with companies who likely would not otherwise gain access
to such investment capital." It's great to see managing
director Ken Cooper here and to hear him say: "In Winnipeg,
we are getting more deals than the angels can handle."
Ed Shinewald, owner and founder of Melet Plastics in Winnipeg
and one of the 33 angels who joined the network went on to
say: "There are tons of people out there with ideas who
don't know how to get them off the ground…since most
of the companies who are pitching their ideas are in the early
stage of their development, investment from angels might be
the assistance that puts them on the road to success."
I'm also pleased to note that Duncan Jessiman, Jr. and Robert
Warren are among the WAO board of directors. Ken, Kirk Dudtschak
is RBC's new Regional President based in Winnipeg - we'll
make sure you meet him very soon!
As Mark Dietrich knows very well, the Medical and Related
Sciences (MaRS) Discovery District will bring together the
best-in-class of scientific/business/academic communities
to facilitate commercialization. This is not just a Toronto
initiative. "It's about linking science, entrepreneurship
and finance to create new commercial opportunities and good
jobs for Canadians. It's about positioning Canada in the knowledge-based
economy. It's about generating future wealth to sustain a
high quality of life for Canadians." And those are the
words of John Evans, the chair of MaRS.
In closing, I want to introduce a hot off the press
CD entitled 'The New Entrepreneur's Toolkit.' It's not only
a start-up kit for business, it's another good example of
partnerships at work…a collaborative initiative involving
the CATAAlliance, LaBarge Weinstein Professional Corporation,
the National Angel Organization and RBC Financial Group.
The CD is designed to offer some guidance and recommendations
to individuals starting a company, whether they're early stage
technology companies or something else altogether. Start-up
businesses often struggle with creating their first business
plan, understanding legal requirements and accessing government
programs. The New Entrepreneur's Toolkit has pulled together
practical resources, including web links, to help executives
meet these challenges and build a strong foundation for growth.
One of the key messages is that the support of trusted advisors
- bankers, lawyers and accountants (and perhaps an angel)
- can make all the difference in the world. By all means,
please pick up a CD on your way to the next session. Sandra
and Catarina will point them out to you!
Finally, we can all do our part in ensuring the right leaders
and circles of influence understand the opportunities facing
entrepreneurs - and we can help enlist them in our joint mission
of "breaking through the barriers to growth." With
the help of angel investors, the country can build on the
strength of the knowledge-based economy and entrepreneurship.
And this means that the highway to heaven may very
well be one of the best investments for Canada's path to prosperity!
Thanks very much…and now let's hear from you.
CATAAlliance: www.cata.ca
LaBarge Weinstein Professional Corporation: www.lwlaw.com
National Angel Organization: www.angelinvestor.ca
RBC Financial Group: www.rbcroyalbank.com/kbi
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