COVID-19: Why tech startups matter in Canada's recovery

The uncertainty caused by the pandemic risks 'disrupting the flow of angel financing and venture capital' in the tech sector

COVID-19: Why tech startups matter in Canada's recovery

As billions of dollars flow into bridge loans and wage subsidies, the federal and provincial governments of Canada will “inevitably turn their attention from protecting citizens’ health to rebuilding the economy,” according to a new report from Canada’s Innovation Economy Council.

Economic relief programs have been mostly focused on aiding sectors that have been hit the hardest by the coronavirus pandemic – from retail and hospitality, to travel and manufacturing.

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“Getting these industries up and running again is essential,” analysts from the council said. “But it’s also only a first step. Unless governments also invest in future growth, any recovery they create will be short-lived and shallow.”

The COVID-19 crisis isn’t necessarily about investing in the ‘old economy’ versus the ‘new economy’ – where technology companies generate the most impact – but about recognising how closely integrated industries have become in the digital era.

“All sectors of our economy depend heavily on a vast supply chain of technology companies to meet needs in areas such as cybersecurity, artificial intelligence, data privacy, e-commerce and clean technology,” the council said. “When the health crisis subsides, established companies will need innovators to navigate an increasingly uncertain world.”

To thrive in a post-pandemic world, however, companies will need to be “resilient, nimble and better connected than ever – using tools that Canada’s fast-growing technology sector [is] perfectly positioned to provide,” the analysts wrote.

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But there is a major hurdle threatening Canada’s tech startups.

“The uncertainty caused by COVID-19 risks disrupting the flow of angel financing and venture capital that these early-stage companies need to transform into Canada’s next generation of technology superstars. Starved of fresh capital, startups could be hit particularly hard in a protracted economic slump,” the report found.

A 25% drop in employment, for example, in the sectors where these startups tend to grow could eliminate as many as 274,000 jobs across Canada, based on figures cited by the council.

“These sectors also have some of the highest rates of productivity and generate more economic output for every hour worked,” the analysts said. “A disproportionate share of job losses in these advanced industries would also damage productivity nationwide.”

Canada cannot afford to overlook the impact of the economic crisis on the tech startups emerging from its key cities. “A deep tech slump would worsen the COVID-19 recession and delay recovery,” the report found.

“Without a healthy technology sector, everything the sector has delivered over the past decade will be at risk,” the analysts said.

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