Covid-19 has put a strain on all aspects of our lives - our social interaction, our mobility, and most important of all our health. While keeping safe should be everyone’s priority right now, we also need to think about the longer term, and how we approach growth post pandemic. One key area for rebuilding the economy is to support struggling startups and small businesses. There are several measures already in place to address this in the short-term, as outlined in the federal government’sEconomic Response Plan, but more can be done by all of us if given the proper tools to do so.
There are approximately 3.5 million entrepreneurs in Canada today*,and it is thanks to this group of innovators that we have such a vibrant startup ecosystem. But by the very nature of their business model, startups require a very different type of support to what is currently available. These companies are rarely profitable during development, as they invest their revenue into growth and innovation, meaning they are particularly vulnerable to prolonged downturns such as the one brought on by Covid-19. While current income assistance programs are a step in the right direction, it is the long-term survival of startups that is crucial going forward.
An essential part of the Canadian economy
Startups are one of the cornerstones of our economy, driving growth and innovation in nearly all sectors. In a recent report the Canadian Government acknowledged that“firms that achieve high growth in a short period of time tend to make a large contribution in terms of employment and wealth creation”. Looking at the tech industry alone there were 10,000 new jobs created in Toronto last year, with 60,000 workers joining the industry across Canada each year overall.
If we do not provide concrete, immediate measures to help our startups through this difficult time, many of them will not survive, and along with them thousands of jobs and growth opportunities will be lost. We need action, and we need it now!
A solution focused on equity, not debt
There are a number of initiatives already in place to help companies, including credit facilities by BDC, EDC and, as mentioned above, the federal government’s Economic Response Plan. But with the exception of government wage subsidies, all the support being offered is in the form of debt. These loans typically come with the requirement of the borrowing company being profitable anda personal guarantee. These measures generally do not cater to the specific dynamics of startups or small businesses and may add unwanted stress on these job creators during an already unpredictable time.
We feel that these companies need a more balanced solution that helps them to strengthen their equity base without taking on too much debt. This would help alleviate any short term disruption caused by Covid-19, but also help lay the foundation for future growth and success in the long term without the burden of debt. To do this we propose a system of tax credits and matching funds from individuals and government to spur activity in this integral ecosystem across the country. In conjunction with these measures, we actively encourage securities regulators across the country to implement a national crowdfunding exemption, to provide companies access to a wider investor community interested in supporting entrepreneurs from coast to coast.
Such a program would be similar in principle to BC’s Eligible Business Corporation tax credit system or the Enterprise Investment Scheme(EIS) in the United Kingdom. Covid-19 is a pandemic that affects all Canadian businesses and must be fought at a national, provincial and civic level. We believe that indirect and direct public funding through a proposed tax credit and fund matching scheme, along with a comprehensive crowdfunding tool to be used in tandem with other available exemptions, will help unlock and allocate private investment in startups by the public, but also provide significant support for these businesses during the very important rebuilding period which lies ahead.
A shared problem with a shared solution
We will be writing to both federal and provincial government stakeholders outlining our comprehensive plan to address this issue in the coming days, stressing the importance of swift and immediate measures, and warning against the dangers of inaction.
As with all lobbying for change, strength really does lie in numbers. And so we ask that if you too believe in the importance of the startup ecosystem to our Canadian economy that you help us promote this message. You’re welcome to share the article, join the list of signatories for the open letter, or indeed just to champion the main message, in order to raise awareness for the cause.
Startups are the engine for economic growth and jobs in Canada. The federal and provincial governments have done much to this point, but we can all do more together to help this very essential part of our economy. We must act now to protect and nurture Canada’s startups and small businesses.
*Of these, roughly 1 million have between 1- 6 individuals employed with their venture, meaning a total of 6 million jobs might be, or have already been, affected by Covid. Figures taken from StatsCan.