Canadian Government R&D Benefits the US

This month, we are looking at how to move Canada beyond its weak financial support for early stage and technology firms.We will be discussing ideas about how to get beyond this problem of being the little market for American Private Equity to cherry pick our winners.
Canada is among the most generous countries in the world in its financial support of R and D for its emerging technology companies. Canadian government support for business R and D as a percentage of GDP is the second highest of any OECD country and ahead of that of the US.
But Canada is facing a dire shortage of the highly-specialized financing source, venture capital, that is dedicated to commercializing that R&D. In 2010, the Canadian venture capital industry experienced its worst fundraising in 16 years and is virtually moribund.
In the absence of venture capital, the R&D of emerging technology companies cannot be commercialized into products and services to be sold in the global market to create jobs, revenues and exports. Much of that R&D is going to waste. The Canadian government’s billions of dollars in annual support for R&D of its emerging technology companies is effectively a vast program for creating advanced aircraft when there is no fuel to fly them.
When Canadian emerging technology companies do obtain VC financing, it is often insufficient, and many find themselves at a serious competitive disadvantage. Canadian VC backed emerging technology companies currently receive on average only 36% of the funding of their VC-backed direct US competitors.
This underfunding of Canada’s emerging technology companies is a recipe for decline, as these undercapitalized companies must compete in the same fast-moving global market with their far-better financed US competitors (not to mention those from other countries). Hobbled by having only a fraction of the capital of their competitors, these Canadian companies also have little prospect of achieving VC follow-on financing when needed, which is in especially short supply in Canada. As a result, many promising Canadian emerging technology companies fail, or are sold early in their lifecycles long before they obtain industry leadership. These sales are frequently to large US companies, and often at low prices.
The Canadian government’s support for R and D of its emerging technology companies has become, in effect, a subsidy to US businesses which acquire the most promising of these capital-starved but R&D-rich Canadian companies cheaply, then reap the financial rewards by commercializing that R&D and bringing those companies to industry leadership. Worse still, these companies are often moved to the US, resulting in the loss of Canadian jobs, revenues and exports. The bottom line: Canada is losing much of the benefit of its billions of dollars in R&D funding for its emerging technology companies.