Among the most worrying of a rash of recent near-term economic outlook reports is a study by the Business Development Bank of Canada (BDC) that highlights an ongoing generational decline in entrepreneurship.
The report, issued in the fall, shows that Canadians are starting significantly fewer businesses – only 1.3 individuals out of 1,000 did so in 2022, compared to three out of 1,000 in 2000. With entrepreneurship rates less than half of what they were 20 years ago, the pipeline that feeds our nation’s future growth is in jeopardy.
Canadian policymakers and the business community must act to reverse this dangerous trend. There are many levers they can pull, but among the simplest is to increase supports for early-stage companies.
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As BDC notes, entrepreneurs behind early-stage firms face many difficult challenges, from operational problems, such as finding and retaining talent and creating business plans, to personal issues such as managing stress. How the capital gains tax could potentially impact the decision-making on deals for early-stage investors adds another layer of complexity. When it comes to funding and support, they need all the help they can get.
In more than four decades of founding and scaling companies, I’ve seen numerous times how early-stage supports can benefit a business. The success of my most recent endeavour MindBridge Analytics, an Ottawa-based provider of risk discovery and anomaly detection for financial professionals, is a good example of how those supports can enable growth.
When I joined the company as CEO and chair in 2015, artificial intelligence wasn’t nearly as alluring to investors as it is today. Solon Angel, MindBridge’s founder, and I had difficulty finding investors who understood the technology, much less take a chance on it.
Fortunately, managers at the Toronto-based MaRS Investment Accelerator Fund (IAF) saw the company’s potential despite our product still being in its pre-beta stage. They took a risk and invested in the company, which helped attract venture capitalists from Silicon Valley and Canada to fund the seed round, the most challenging round to raise funds for a start-up.
It wasn’t just funding, though. IAF and the other early investors knew that it takes a proverbial village to build a successful start-up and they continued to actively assist with our journey.
They were always one phone call away to provide advice, support and reassurance of our plans. They pointed us to individuals and organizations when we were building the core management team and our board. They were diligent in attending all formal board meetings and were always generous with their time and networks of contacts.
MindBridge is now recognized as a global leader in AI-driven financial risk discovery. We’ve grown significantly and have several Fortune 100 companies as customers, including KPMG and Chevron. But it all starts with early funding and support.
Canadian entrepreneurs identify the lack of these vital aids as their key obstacles. Nearly 68 per cent say funding is their main problem, while 56 per cent say they need help with mentoring, according to the 2022 Canadian Entrepreneurship Census. Nearly two-thirds are frustrated by funding inaccessibility and inadequacy, while 43 per cent think information and education regarding the support system is deficient.
Risk is a key underpinning of our economy – new ventures and industry renewal or creation, never mind growth, simply can’t be achieved without it. Canadian stakeholders, known for their conservatism and general risk aversion, simply must accept that they will not achieve their own successes without taking chances on the next generation of businesses.
Their responsibilities also do not end once the cheque is written. The most successful start-ups are those that have an ecosystem – the village we speak of – backing them. If we fail to provide our entrepreneurs with additional supports such as mentorship, access to expertise and connections with networks, we risk losing our brightest minds and companies to other countries.
As a recent report from consulting firm McKinsey notes, “getting the full potential value from technology requires companies to be able to scale it.” Funding is necessary but not sufficient – scaling requires much more, including providing entrepreneurs with support, mentoring and connectivity to get them to the next level.
We need investors who are also willing to put time and effort into the next generation by improving funding, the supports that follow it, and the education on how to access and use both.
Canada is a powerhouse in developing world-class tech talent, but we struggle in translating this into world-leading companies. If we want to reverse the trend of declining entrepreneurship and bring our plenitude of ideas to a global scale, it’s time we come together to pave the pathways to success for our early-stage entrepreneurs.
Eli Fathi is chair of MindBridge Analytics Inc. and a member of the Order of Canada.
