Canada’s technology sector is a major economic driver and will continue to grow in importance. As the world moves closer towards a digital economy, technology-based companies will become essential to driving GDP, providing high-paying jobs, and innovating a variety of other industries.
Canadian tech firms invested $9.1 billion on innovation in 2015.
Public and private investments in Canada’s technology industry will continue to improve the competitiveness of Canadian firms on a global stage. Startups and mature businesses both have a role to play in the development of advanced technologies, and ultimately more investment is needed to help companies compete on a global scale. Failure to provide this critical investment will result in hindered economic performance.
Canada’s Technology Industry: By the Numbers
According to the Brookfield Institute for Innovation + Entrepreneurship’s (BII+E) State of Canada’s Tech Sector 2016 report, Canada’s tech industry consists of 71,000 companies operating coast-to-coast, and employing 864,000 Canadians (5.6% of the country’s workforce).
The Brookfield Institute for Innovation + Entrepreneurship also reports that:
- Canada’s tech sector provides high-paying jobs, with an average salary of $67,000 compared to the national average of approximately $48,000.
- 69% of Canadian tech firms have only 1-4 employees, yet the sector is responsible for generating 7.1% ($117 billion) of Canada’s total economic output.
- Information and communications technology (ICT) firms make up the majority of the tech sector’s economic output, contributing 61.2% of the total, while employing 55% of all Canadian tech sector employees.
As can be seen in the chart below from BII+E’s The State of Canada’s Tech Sector 2016 report, the technology sector remains larger than various major economic sectors, including Finance & Insurance, Wholesale Trade, Retail Trade, Agriculture.
Technology Industry’s Commitment to Innovative Research and Development
Canadian tech firms invested $9.1 billion on innovation in 2015 alone, easily making it the largest sector for R&D spending in the entire Canadian economy. Despite this, there is still significant room for growth when it comes to driving innovation on a global stage.
“By international measures, our innovation performance has continued to be pretty mediocre at best… We have not paid sufficient attention to what it takes to scale and grow our most promising startups and help them to compete in global markets.”
– Micheál Kelly, Dean of the Lazaridis School of Business and Economics, Wilfrid Laurier University
The World Economic Forum (WEF) ranks Canada 22nd in innovation worldwide, and the Conference Board of Canada, a not-for-profit think-tank dedicated to researching economic trends and issues, gives Canada’s tech sector a ‘C’ grade in innovation.
The Global Entrepreneurship Monitor, a study conducted by a global consortium of Universities, ranks Canada as virtually tied with the U.S.A. for per-capita production of startup companies, however Canada has a reputation for not adequately supporting those startups to help them evolve into stable, profitable firms in the long-run.
Micheál Kelly notes that less than 5% of Canada’s tech-firms are “high-growth” firms, indicating long-term financial sustainability risks for 95% of Canada’s tech companies.
Future Growth Potential for Canada’s Technology Industry
Despite not fostering innovation as well as some countries around the world, 84% of Canada’s technology companies are profitable. Since many tech companies in Canada are relatively new startups, there is potential for significant revenue growth within Canada’s tech industry.
Accenture Consulting, a global professional services and consulting firm, reports that Canada’s tech sector is outperforming the rest of Canada’s economic sectors. Growing faster than any other sector on the Toronto Stock Exchange (TSX) since the start of 2013, the tech sector is currently valued at $250-billion.
The company also reports that Canadian tech firms have attracted larger venture capital investments in the last 18 months compared to previous periods, “indicating a class of maturing businesses with promising market opportunity. Average investment amounts rose from $4.4 million in 2013 to $5 million in 2014”; 21 companies across Canada collected at least $784 million from venture capital investments.
Second and third-round funding is accelerating as well; whereas additional rounds of venture capital funding usually take 7-8 years to materialize for Canadian tech startups, that gap is decreasing to 2-3 years, a similar time period which is leveraged by tech startups in California’s Silicon Valley.
Accelerated venture capital investments made to Canadian tech startups is a clear sign of the increasing potential for long-term profitability among these companies, and increasing startup quality.
Canadian Government Funding for the Tech Sector
There are many sources of funding for Canadian tech companies, not just from venture capitalists, but also from provincial and federal governments. Canadian government funding programs focused on supporting innovation and tech industry growth include:
Industrial Research Assistance Program (IRAP) Tech Funding
There are two unique IRAP research grants that enable Canadian businesses to perform R&D. They include:
- IRAP ARP: A research grant for solving internal technical challenges, such as process or product/technology improvements. Funds projects spanning 1 year or less with up to 50-80% of project expenses to a maximum $50,000.
- IRAP Mid-Size: Enhances a business’ ability to innovate and develop new products or services. Projects eligible for Mid-Size funding are often follow-ups from a successful IRAP ARP project. Funding may cover up to 65-80% of project expenses to a maximum $500,000.
Sustainable Development Technology Canada (SDTC)
SD Tech Fund: Technology development grants covering up to 33% of expenses related to late-stage development or pre-commercialization strategies for clean technologies. Projects should focus on environmental concerns such as clean air, clean water, and climate change.
R&D Project Hiring Grants Program
R&D Project Hiring Grants offer seek to maximize the utility of industry-academic research partnerships. The program has two streams:
- R&D Project Hiring Grants Internship Program: Funding to engage a college or university student, post-secondary graduate, or Master’s graduate for a 4-month internship. Businesses may receive up to 50% of expenses to a maximum $10,000 per internship provided.
- R&D Project Hiring Grants Fellowship Program: Funding to engage a PhD graduate or post-doctoral fellow for a 12-month period. Businesses may receive up to $35,000 per fellowship and a maximum of $70,000 in total funding.
National Sciences and Engineering Research Council (NSERC)
There are two streams of NSERC research grants for Canadian businesses to leverage. They include:
- NSERC Engage: This research funding stream predominantly focuses on short-term research projects that can be completed within 4-6 months. Businesses may access up to $25,000 per academic researcher requested.
- NSERC Collaborative Research and Development (CRD): Longer-term research and development projects, usually following an NSERC Engage project, may qualify for NSERC CRD funding. Businesses hiring a team of academic researchers may receive up to $200,000 per year for a maximum of 5 years.
Mitacs Research Grants for Canadian Small Businesses
Mitacs Elevate: Businesses hiring a PhD fellow may access funding to reduce the cost of their labour. The Elevate program provides up to $30,000 per year for a maximum of two years. Mitacs also helps to match PhD fellows to industry partners, reducing the time and human resources staff needed to recruit.
Posted: August 11, 2016 by Jeff Shepherd. Updated: July 20, 2018 by Jeff Shepherd.