Shopify is often celebrated as a Canadian tech success story. It was founded here, and it's headquartered here.

So are CGI, Lightspeed and a handful more.

But why don't we have more home-grown success stories?

No one doubts that we have the talent, but the data shows that tech founders are increasingly leaving the country.

So what can we do to keep them here?

And what do we lose when they go?

Then on the flipside, there are companies that are increasingly setting up shop in this country.

You may not even know it more and more local businesses think about your vet clinic, the dentists. They're being snapped up by private equity.

Can you expect to see the cost go up and quality go down?

This is The Rundown.

Canadian tech firms can face challenges getting capital and keeping talent.

So what can we do to help founders build companies here at home?

Abdullah Snobar, the executive director of DMZ, a tech incubator at Toronto Metropolitan University, and Kelsey Hahn, the CEO of monarch, a leadership development platform, sat down with me to explain.

Abdullah Kelsey, thank you so much for joining us on The Rundown.

I'm going to start with you, Kelsey, which is the bigger problem in Canada, enticing people to begin start-ups Or increasing the size of existing ones?

I think for me there, I would probably go with enticing people to start companies.

This country was built on entrepreneurs.

If you think about it, we are only most of us are only 1 or 2 generations removed from parents or grandparents that moved to this country and started their own businesses.

And I, you know, what we've seen over the last 20 years is entrepreneurship rates have been lowering.

And so we have approximately 100,000 less than we did 20 years ago.

And yet over that same period, our population has increased drastically.

And so I think, you know, there's there's a little bit of stigma in some ways that comes with entrepreneurship.

You know, in the US we celebrate entrepreneurs, and it looks a little bit more like a badge of honour and experience.

And we celebrate failure.

And in Canada, you know, I can speak for myself, but the you know, the first thing I thought when starting a company was, oh, I'm going to have to move away if I fail because I would lose, you know, all my networks and contacts.

So yeah, I think for me it's it's more of the entrepreneurship piece.

Abdullah they're so intertwined, to be honest with you, that it's hard to kind of pinpoint on one.

I do agree with Kelsey though.

It is becoming a bigger challenge for, you know, to see the energy that you need in a market that needs to build the right incentives to, to help entrepreneurs kind of start an idea and start a company here in Canada.

But truth be told, once people build a company, I think they quickly realise how difficult it is to scale in Canada, not because we're in a small country only.

But because the conditions haven't been created in a way that would allow an entrepreneur to really leverage the full extent of what Canada has to offer.

And I know we can talk a lot about these things, but three areas that we really identified as big challenges today.

Number one is, you know, how do you take IP to commercialisation.

And that really gets back to the question of how do you really build really good companies that have the potential to become billion dollar businesses in the future by leveraging the insane amount of dollars that we're putting into research here in this country, but not able to really build the incentives to get that research to commercial reality.

The second part is around VC and just venture capital dollars, and the amount of money that can be supporting the company's growth.

In many ways limited.

I won't say non-existent because that's not true, but it's very limited in a way that doesn't really feed the entire funnel of of of of need from a start-up perspective, especially with the amount of talent that we have in Canada.

And then finally, I think the government plays a big role in this, actually, and being able to shine a light on a lot of the entrepreneurs and the founders that are being supported locally and globally.

But then it goes deeper into things like procurement and even into buying Canadian and putting Canadians first.

Kelsey, there are some companies, Canadian companies that go to the US.

Do we have an idea of how many Canadian tech firms are deciding to go south of the border for maybe greener pastures?

Yeah, I mean, look, I think every Canadian founder starts their company and probably one of the first pieces of advice they hear is get your product to the US.

I mean, that is the playbook build. If you can build your company, build your talent inside of Canada and go get your revenue outside of Canada as soon as possible.

Validate beyond our borders.

And I think, you know, there's some pros and cons to that, but it's it's largely an issue of market size.

We know that obviously there's just much more opportunity there.

But I think when it comes to it kind of goes back to my point around productivity.

There's also just a willingness to adopt technology faster.

And so, you know, you hear of these stories where Canadian companies, you know, there's one in Calgary that has, I think over 90% of their customer base comes from the US, but they have over 100 employees headquartered in Alberta.

And so that's a common story for many, many Canadian start-ups.

Look, we don't have an innovation problem. We don't have a talent problem.

We certainly don't have an ambition problem in Canada.

We have we've built great companies today.

We've had an incredible past where Canada has been a leader on innovation.

In many ways. What we don't have is the right infrastructure and the right incentives in place to allow people to really, again, build for, to their full extent while being here in Canada.

And what I mean by that, when someone's looking to expand and build their company, they don't think about going from Ontario to Alberta or to BC or to Quebec.

And this is part of the reality that founders have to face.

And when you're building a company, it's your livelihood.

You will do whatever it takes to keep that company alive.

And if it means going south, that's what you do.

But there certainly isn't a lack of, of, of of ambition in what Canadians can do here.

And, and quite, quite frankly, the need to to build a business has to always be thought of globally.

Where our challenges come to come to come to set right now is that Canadians are leaving sometimes the country to go build abroad.

That doesn't need to be the case.

Kelsey, as a good example of that, can continue being in Canada, being in her home, building a global business, hiring global talent, but focusing her HQ here, right here in Canada.

That needs to be the storyline that we continue building moving forward.

Otherwise it's really it's ours to lose.

It's a story that we have control of.

The narrative should be in our favour, but you know, we're not building the right blocks to, to, to to go in that direction.

All right.

I want to pick up with Kelsey Abdullah.

You talked about inter-provincial trade barriers.

Kelsey, you are based in Canada.

I am curious, what are the barriers?

What are those barriers that are maybe, perhaps stopping you from building in the US, if that is something that you want to do?

Yeah.

So honestly, we're an AI based company.

And so one of the things we do is we we have a leadership intelligence product.

So we analyse real time meeting data from leaders in their direct reports.

And then we turn that into performance insights to help them manage their lives more easily.

And so one of our biggest challenges of course, is security, risk compliance and all of the different standards, you know, across Europe, the UK and the US, which which vary, right, based on where you are.

The, you know, the rules of note takers, what kind of data you can keep, where it is stored, how you use that data highly varies.

So that would be one of the biggest challenges as AI companies navigate those borders, which I think, you know, I think that's probably an acute problem.

I think we're going to see that all catch up rapidly over the next couple of years.

I want to stick with you, Kelsey, because I want to talk a little bit of let's talk dollars.

How much money do you think you could raise if you moved your company to the US?

Because correct me if I'm wrong, is it a is it a 403 area code in Calgary?

Yes.

Is there does there is there a little discrimination when we're talking investors, when they see maybe a 403 area code versus maybe area code south of the border?

Oh yeah.

I mean, I think that's one piece in investing for sure.

But no question as well in selling.

I think we get obviously tons of inbound from Canadian companies.

And there is an element of let's make sure they don't see where to Canadian because that would signal maybe we move slower, maybe we're a smaller team, maybe we don't have clients in the US.

It you know, it just signals the things that you don't want a client to not get you to that next meeting stage.

Yeah.

And I have friends that.

Have you found her friends that purposely buy and use different area code numbers to make sure that when they're cold calling and doing their sales calls, it doesn't appear that they're coming from a Canadian number.

And so, yeah, lots of Canadian Start-Ups know a little bit of those tricks of the trade to make sure that, you know, we take some of that bias out of either the sales or the investment process.

Very good.

Abdullah Kelsey talked AI.

So let's talk a little bit about that.

How much harder is it for Canadian tech firms to find funding right now if their business is not leveraged by AI?

Yeah.

Look, we're in a moment now where AI generative AI is everything, right?

So, you know, a lot of the founders and the companies have now shifted their businesses to be called either native AI companies or AI enabled businesses.

It really is the movement.

But look, it needs to be incorporated in some way, shape, or form.

And companies are building deep technologies and really thinking about the future and what what's to come are naturally just incorporating AI into into their, into their start-ups.

So it's not you know, it's no longer a matter of is it incorporated? It's a matter of how how deep into the business actually is it layered in, and what are you doing with it to create a differentiated product.

So it would certainly be difficult to, you know, capture the VC dollars, if you will, without having that well thought out.

And but again, Canada is has always been, you know, at the forefront of this space.

And you know, something that we should take pride in the fact that we've helped build some of the biggest capabilities in the world from an AI perspective and something that we have such strength and, and, and, and rigour with and right here in our backyard in Canada.

AI programming, we know, is different than traditional coding.

Kelsey, do we have enough AI graduates or experienced coders who could handle the demand that is out there right now?

Are you hiring right now?

Are you looking for some programmers and coders?

Yeah.

No, I mean always hiring AI talent and trying to keep them with us.

You know, I think we are lucky in Canada in that this is an amazing place to live, build a family, incredible work life balance.

It's still obviously relatively affordable, you know, politically stable.

And so we do have other factors that can attract people to come and set up their lives.

And I think for many Start-Ups, we're holding on to that, because if our talent went south, we would not be able to compete on the salaries and the drop of our dollar.

And so we're just becoming less and less competitive.

Do I think that we have the talent here, and do I think we can continue to attract the talent?

Absolutely.

But you know, AI developers and I think no different than other developers and engineers.

They want to work for big, innovative companies that have gumption.

And so, you know, that would be more of my call to action is like, we need to support these big companies to Abdullah's point, like getting past that or into that growth stage because they want exciting, meaty, challenging problems.

They want to solve them. They're hungry, they're very curious.

And we need to keep that talent here.

Well, let's talk incentives.

Abdullah, what incentives can employers put out there to keep people here in Canada?

Well, look, a lot of it comes down to from my side, I'm talking about particular Start-Ups, you know, to keep Start-Ups here in Canada and want them to kind of continue to grow and scale their businesses. You need to build maybe the two of the biggest things that we know in the in the South, in the US, that they've done really well is speed, scale and the ability to actually procure government contracts.

If we're able to figure out a model that would push the the market here to start being first to move, as opposed to always be a follow a follower in terms of what the US is doing and how the US is doing things, the ability to actually remove some red tape and the barriers that would allow Canadians to scale within their own backyard, from province to province to province, from market, and then in particular to government.

And imagine for a day that we're able to unlock the biggest customer in the country for founders to actually leverage, so that when they go abroad and start to to grow their companies and hire the best talent, they can start with the position that our biggest customer or one of our biggest customers in the world is the Canadian government or the provincial government of Ontario, of Alberta, of BC, of Quebec.

That in itself holds so much weight that we haven't been able to crack yet.

So I think those are some of the big incentives that will beyond what what, you know, Kelsey mentioned around safety and standard of living and stability.

You know, there needs to be an entire cohesive market that's opening up that allows companies to see themselves being able to build a business that would actually grow in scale.

And it has to go beyond the non-dilutive funding, the grants that Canadians are so well equipped to get.

But that in itself won't make us the most competitive nation in building what we want to build.

We need to create a market that's that, you know, that has speed, that's able to think about scale across borders, across provinces, across countries, and then looking at procurement from a government perspective.

Kelsey, last question to you.

What are some of those potential solutions to entice tech firms to remain headquartered in Canada?

Oh gosh.

So many.

I mean, I think, of course, tax incentives help.

Of course, the scientific research, the shred program that the Canadian government incentivises for R&D is incredible.

And we need more incentives like that for Canadian businesses around, you know, Abdullah mentioned it. Government contracts around buying Canadian tech.

So tax credits, incentives to encourage adoption pilots.

You know I think we have to face it as Canadians. We do not we inherently don't like risk, which is unfortunate.

Right?

We're we're kind of we always have this cultural belief that just we aren't good enough and we aren't as good as the US.

And maybe our products aren't as good, which is absolutely not true.

Our products are as good, if not better.

And so we're always looking for that external validation.

And I think we need to be the champion of our own entrepreneurs.

We need to dig in to what started this country, and we need to champion and support the incredible ideas and innovation ecosystem that we are building here.

And that is not just tech in and of itself.

It goes beyond the tech borders.

Right?

That's to Abdullah's point.

From universities, ecosystem partners, government and private businesses, other small to medium enterprises in Canada.

Kelsey Abdullah, thank you so much.

Really appreciate your insights.

Thank you.

Thank you.

Do you know who owns your NEIGBOURHOOD V8?

What about the dental clinic on the corner?

Private equity firms are buying up businesses that generate steady cash flow, and it has some experts worried about quality and competition.

To find out more, I spoke with Rachel Wasserman, founder of Wasserman Business Law and the author of The Private Equity Playbook How Buyout Firms extract Rather Than Build Value and What to Do about it.

Rachel, welcome to our studios.

How are you?

I'm good.

Thanks for having me.

All right.

For our viewers who are not financial experts, break it down for us.

What is private equity?

How does it work?

So a very broad term that can mean a lot of different things to a lot of different people.

So let's start very basic.

So private equity is really just investing money in assets that are not publicly traded.

So not stocks or bonds that you would see in the stock market or the bond market.

So this is buying up private assets.

So real estate, private companies, infrastructure projects.

There's nothing inherently wrong about private equity because, you know people are saying private equity is the big bad wolf right now.

But that's not true of the generic private equity.

Within private equity, there are actors and industries that invest in these types of assets and have specific a specific playbook of how they make their money.

And within that are the critiques of where things in the economy perhaps aren't working as great as they could be.

And so within private equity, there is an industry of venture funds, buyout funds, real estate funds that are investing in the economy.

That is really just a layer, a hidden layer up above what we as consumers see as the regular economy.

It's ownership of existing businesses, buyout.

That's one that we will be delving into.

It's one that seems to be hitting the headlines.

We have seen over the years a number of Canadian businesses being bought up by these private equity companies.

What types of businesses are we looking at?

It's literally everything.

And so one that is quite notable that we're hearing a lot of in the news are buyouts of professional practices.

So dentists, vets, massage therapists, HVAC, like effectively it's a playbook.

It's a playbook of how you can extract value in economies of scale and economies of scale.

And it gets deployed as frequently as it's profitable.

And so really what we're seeing is this consolidation of entrepreneurship in the economy for the purposes of building value for other people.

And so there's a real change in the economy, which is when I'm an owner operator, someone owns a business, I get to decide how that business is run.

Or maybe it's a family business.

And my brothers and sisters and cousins were on the board, and we fight it out amongst ourselves.

But this is a new layer being added on, which is an increasing number of businesses, a strong or a large percentage of businesses are now being run by people who are in the business of making money for other people.

So it it changes the mission of the underlying--

It's not about the culture.

It's not about any of that.

It's about returning profits to the investor.

So the best example I can give in certification, am I allowed to say that.

You've said it, you're good.

So in edification is this concept of taking out the value and raising prices where you're just getting less value.

And this is a strategy that's been deployed by the finance industry in our economy, where they're optimising profitability.

So if I can sell a product and take some of the goodness out of it and raise prices in such a way that my profit stays the same, the decrease in revenue is balanced by the decrease in expenses.

And so it's really not about selling the best product possible. It's about making as much money as possible.

And so the it's really a perversion of capitalism where we're putting the needs of the investor ahead of the business itself.

All right.

I want to put the lens of a private equity company.

I am looking and surveying the Canadian business landscape.

What is a an attractive business for someone like me? If I am looking to buy?

Great question.

Predictable cash flow.

That is what it comes down to a safe bet.

So the reason why I'm not a fan of these buyout funds, which is a subset of the private equity industry, these are it's called buyout because they buy out the whole company.

And the reason why I don't love this is because of the massive amounts of debt used to subsidise the purchase price.

So I'm going to give a very simple example.

So if I'm going to buy a business for $100 million, I'm only putting down 20.

And then the business itself pays that out.

Now the problem with this is that, you know, like asset backed loans are not bad.

It's when they get used abusively and systemically that we have this problem.

So an asset backed loan is not bad.

But we have to think about what is the opportunity cost of that asset backed loan.

And that means the money that the business is paying to subsidise the purchase price from the shareholders.

So the business gets no benefit from this loan.

It's not going into capital expenditures.

It's not investing in the growth of the business.

It's just subsidising the price for the shareholders.

So think of it as a pure burden with no benefit.

Running a marathon with a cinderblock on your back.

I have to imagine there are regulatory alarm bells ringing off because of all of these sales that we are seeing has, say, the Competition Bureau gotten involved.

Are they looking into this?

They are looking into this, but our laws are not appropriate for what's going on in the market right now.

Our you know, I spoke at the competition summit a few weeks ago.

They are aware of what's going on, but private equity has been private for so long that unfortunately, our policymakers are only starting to figure out what is going on as we speak.

And so, for example, we have a bright line test over a certain dollar threshold.

I think it's 93 or 96 million, $96 million, but we don't track death by a thousand cuts.

So we don't see that someone has bought 20 dental practices in one year, because if they all fall below that 93 or $96 million threshold, there's very little, if any, regulatory intervention.

And so we need to be more progressive in terms of what's actually going on, as opposed to just setting bright lines and waiting for them to be triggered, because by the time they grow into these beasts, it's too late.

Now, some may argue and say that private equity is needed.

There is a legitimate role for it in our economy.

Saves businesses investments.

Is there a role for it?

Absolutely.

There's a role for it. In order to grow our economy, we need to invest.

And that's something we don't talk about enough investing into businesses where they are spending money in research and development, in increasing wages, in training.

Growth takes time, risk and investment, and we're not going to be able to grow the Canadian economy without a little bit of pain.

You know, you can't go to the gym and build muscle without some work.

Fair enough.

And I think that we have been accustomed to just consistent returns without that growth period, without that loss period for the growth to kick in.

And that's really what we need to turn this economy around.

So we have a very interesting perspective as Canadians because not only are we allowing foreigners to plunder our economy, we are doing the same thing to others.

Very quickly in about 30 seconds we have left,

why should Canadians care that this is happening?

Everyone needs to care that this is happening.

This is the future of not just our economy, our political landscape, our social landscape.

This is the consolidation of capital happening behind the scenes.

This is the future of upward mobility.

This is the future of equality.

And if we don't care and intervene, we will create a society of have yachts and have nots.

Rachel, we're going to leave it there.

Thank you so much.

Some food for thought for sure.

Thanks for having me.

And that's it for The Rundown.

What do you want to see on the next show?

Email us at therundown@tvo.org or reach out to me on Instagram @jeyanjeganathan.

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Because Ontario, this is your show.

See you next week.