Have you heard of Canada’s Christmas tree problem?
Canada’s corporate and innovation ecosystem is a Christmas Tree Farm*, but it needs to be a Forest.
Canada is known for its forests. These dense woodlands, rich with biodiversity, are critical because they allow for an all-encompassing and sustainable ecosystem to thrive and flourish. However, every winter, millions of our precious trees are chopped down and sold internationally as Christmas trees, thus creating an endless cycle of Canadian investment in growth followed by foreign acquisition. Our soil and resources nurture our trees, but non-Canadians reap most of the benefits. There are several critical stages in the development of a Forest: seedling, sapling, mature tree, and, with diligent repetition, ultimately a Forest.
Our corporate ecosystem is no different.
Prior to 2010, Canada’s investment fabric for new companies was relatively weak and new companies struggled to succeed even at the seedling level. However, with the launch of OMERS Ventures in 2011 and its $800 million of early-stage investment dollars, a very active domestic venture capital (VC) community was sparked and began to thrive. Today, Canada excels at growing seedlings (VC) and saplings (early growth — Series A), having increased VC investment from $1.5 billion in 2011 to over $8.3 billion in 2021, and ranking among the top 10 countries globally for VC investment since 2014.
While this is clearly meaningful progress, our economic performance pales in comparison to countries of comparable stature. Why, you might ask? Instead of growing a Forest, we’ve created a veritable Christmas Tree Farm. Once our saplings reach a certain intermediate and desirable size, they are frequently sold off, in entirety or in part, to foreign investors who benefit from the future value creation of these businesses, and typically divert that newly formed capital away from Canada. In Q4–2021, 57% of all reported mid-market deal volume was cross-border, and is trending upwards. This negatively impacts both our ability to recycle new financial capital back into the Canadian ecosystem and to retain highly valuable intellectual property within our borders. Much akin to the erosion of soil that occurs after the loss of tree cover, our national wealth base is negatively impacted and this has broad repercussions for the future quality of life of Canadians.
Canada’s current standard of living is overly reliant, and unsustainably dependent, on natural resource extraction and deficit finance. It is only with the systematic development of a corporate Forest, Canada-based global corporate leaders and champions, with a policy focus on intellectual and financial capital retention in Canada, that we can develop the wealth base to sustain our current standard of living into the future.
The blossoming Canadian growth equity industry, is playing an active, and I would argue important, role in building the scaffolding needed to transition our corporate and innovation ecosystem from a Christmas Tree Farm to a vibrant and self-renewing Forest. Growing a Forest, by nurturing our trees to full size and allowing them to flourish on Canadian soil, retains capital growth within our borders and allows for the development of a growing taxable digital wealth base. This is our path to a sustainably financed standard of living and a prosperous future as a nation.
*Special credit to Giles Gherson, Ontario’s Deputy Minister of Economic Development, Job Creation and Trade for his inspiration of the Christmas Tree analogy. Over the past 15 years in various deputy minister roles, he has been a strong advocate for developing our corporate ecosystem.
