Audrey Mascarenhas

The term “innovation” has become such a rhetorical commodity in politics and business that it risks becoming an abstraction. Audrey Mascarenhas has been president and CEO of Questor Technologies since 2005. In more than three decades in the energy sector, first in the oil patch, then in clean energy, Mascarenhas has learned an enormous amount about innovation. She shares that insight, from how to navigate the innovation path to how the government can improve its investing strategy.

The online Business Dictionary definition of innovation is: “The process of translating an idea or invention into a good or service that creates value for which customers will pay. To be called an innovation, an idea must be replicable at an economical cost and must satisfy a specific need.”

In other words, the innovation creates a change by improving on the way things were. Many think of innovation as a bright idea, but much of innovation is really about incremental change—seeing a better way. When you see a better way, that is just the start of this innovation journey. There is a long, tough road ahead to figure out how to prove and convince others that this is the better way. Once you do, the next step is determining how to grow and scale up the idea so it is adopted globally, creating worldwide change. It is at this stage that Canada fails because it does a poor job supporting its innovators. 

Innovation is a very tough road if you think of it beyond just the bright idea. It is a journey fraught with many challenges and pitfalls—often referred to as “valleys of death”—of which there are many on the path to success. Governments fund the early stage because it’s exciting and sexy and the easiest part of the journey. In Canada, the majority of our government funding goes to start-ups and demonstrations. The next part of this journey is where the going gets tough and needs an innovator/leader with tenacity.

The team that travels this next part of the journey has to be strong and entrepreneurial because nothing goes according to plan and everything takes twice as long as you expect it to. In this segment of the journey, the team is trying to convince venture capitalists, banks, government funders, clients and employees that the innovation idea is a better way. There are moments of joy and despair and the team that survives this is now ready to scale up. It is at this important and vital juncture, where value gets created, that Canada drops the ball. 

In the product world, scaling up means having clients that repeatedly buy your product because it adds value to them, which gives you the traction and team to grow the company. This sounds pretty simple but determining the team that is going to be successful is not that easy. The private market lives and dies on being able to do pick the winners and losers. If they don’t pick well, then they lose their investment. Prior to making an investment, they meet the team and evaluate many things; the CEO, the management team, track record, ability to execute, size of the market, what clients are saying, the “pull” for the product or idea, etc. Many investment houses are starting to use quants to design complex mathematical models and algorithms to identify the stars. The list of things to look for in picking winners is long and most investors have made mistakes and lost money but have learned from experience.  

To the current government’s credit, there is a recognition that we have a significant problem in Canada, as we are not scaling up the companies we invested in at the early stages. These companies were supposed to create future jobs and generate the GDP Canada needs for a sustainable economy. They are leaving Canada and growing their companies elsewhere. These entrepreneurs are leaving because of a lack of growth capital, minimal appetite for change in Canada, bureaucracy, poor/cumbersome regulation, lack of appreciation and red tape. In other words, Canada is funding the rest of the world’s GDP growth and de-risking other countries’ innovation cycles because we do not understand the full and difficult innovation journey.  

Recognizing the gap and lack of scale-up capital, the government set aside $1.4 billion dollars in the last budget specifically for scale-up, allocated to a variety of government organizations. Each of these organizations has been growing their internal investment teams to manage the funds so there will be an administrative (G&A) cost, which has typically run at 29 percent, leaving approximately $1 billion to invest. To generate a return on this investment it would require a team of individuals with a strong investment skill set and experienced track record to determine the winners that are worthy of investment. It is quite unlikely that people of this skill set would be sitting around waiting for a job in government. So how do we leverage the bright minds making smart investment decisions in the real world?

The bureaucratic process currently in place is application-form based and does not leave room for the decision makers to meet with and understand the companies they would be investing in. In other words, the $1 billion will be invested in companies good at application form writing and not necessarily in entrepreneurs running great companies ready to scale. The lack of understanding of the innovation journey means that there will not be a return on the tax dollars invested. If we truly want to be successful at scaling up and creating great companies, we have to take a tailored, focused approach to the winners and invest strategically to generate a great return on the investment for the future of Canada.

Canada has chosen to strategically invest in clean technology.  Budget 2017 invested over $2.3 billion in this segment and demand is projected to grow from $1 to $3 trillion globally and be the 3rd largest industrial sector by 2020. This large market opportunity has the potential to create significant GDP growth for the country.  Clean tech is not a sector on its own but a mega-trend that will affect most sectors as the world transitions to a low carbon economy. This is what makes this sector unique but also very impactful. It is imperative here that we are thoughtful and strategic on our investment decisions in this space. 

The technology solutions that we champion and invest in must make business and technical sense. It is imperative that a balanced approach is taken. If we only invest in moonshots and start-ups, we will lock ourselves out of a fast-growing global opportunity. History has shown that it takes eight to 20 years for a company to develop traction, therefore, if we do not take a balanced approach and invest in the entire innovation value chain we will waste that money and generate a negative return on the investment. This sector also needs clear regulation that encourages adoption and leadership that embraces change.

Here are my recommendations:

1. Pick winners: Engage the private sector. Public/private partnerships. A “Scale-up Bank” perhaps. Change the current process that only supports the ones that are struggling. Meet with the companies. Create an advisory board with retired successful CEOs and entrepreneurs. “Own the podium”
2. Balanced approach: Invest in the entire innovation ecosystem. 
3. Fail fast: Stop propping up struggling companies. Let them fail when they should.
4. Regulation: See what other countries are doing—pick the best rather that reinvent the wheel—use it to catalyze change rather than kill it. 
5. Acting faster: Entrepreneurs not hearing back for 8-12 months is too late. The pace of change is exponential.
6. Be strategic: Figure out where you have a strategic advantage and go for it.

If we are to succeed in creating a great future for Canada and our young people, we have to rethink how we are supporting the full innovation cycle and take a balanced approach across the whole continuum. It is a tough journey that is much more than the idea alone. Canada needs to find its “gazelles” and nurture them to ensure we have a strong vibrant country for our children.  

 

Audrey Mascarenhas is the President and CEO of Questor Technology Inc.