Raising money can be a challenge for companies across all sectors, but the defence and security industry faces an additional hurdle as its long sales cycles can scare off some investors.
Bernadette Terryis the senior business development manager for the defence and security sector at Invest Ottawa.
By Jacob Serebrin
“It’s tricky,” says Mike Greenley, chair of the Canadian Association of Defence and Security Industries and a vice-president with aviation simulator company CAE Canada. “It has to be the right investor who understands the defence sector.”
While he says returns can be stable for patient investors, “it’s slow to get in.”
Many smaller defence companies know they’re in it for the long haul, says Bernadette Terry, the senior business development manager for the defence and security industry at Invest Ottawa.
“They’re not necessarily interested in angel investors and venture capital,” Ms. Terry says. “Generally, they’re looking to build the business long-term.”
This frequently involves large research and development expenses, which means financial support from the government plays an important role in helping companies keep the lights on while working to commercialize a product.
“There’s no doubt there’s a lot of money out there. The problem is access,” says Teri Kirk, CEO of The Funding Portal, a Toronto-based company founded in Ottawa that helps businesses find government support programs.
While it’s not a challenge unique to the defence sector, many smaller companies struggle to keep on top of the various forms of government assistance that are available, says Ms. Kirk, adding government funding is important for the sector, since less private capital is available.
While larger firms can more easily afford to have employees dedicated to finding and applying for funding, entrepreneurs are typically more strapped for resources, adds Invest Ottawa’s Ms. Terry.
Keys to success
Local firms that have secured government assistance have had a clear idea of what they’re looking for – and what bureaucrats readying their proposal want to see.
Strong business plans are a factor in securing government support, but some programs have more specific requirements. The National Research Council’s Industrial Research Assistance Program, better known as IRAP, is focused on supporting research and development. That means securing funding requires a high-quality idea.
The SageTea Group, for example, has developed a software tool that allows users to write computer programs using natural language, a product that can be used to help manage databases more efficiently. That’s particularly useful for organizations like the Department of National Defence, which maintains thousands of databases, CEO David Long says. But if his idea wasn’t so innovative, he says IRAP, at least, would have been off the table.
Sidebar: Regional benefits
Recent changes to the federal government’s defence procurement strategy could also mean more contracts flowing to small and medium-sized businesses in the industry, especially those developing new technologies.
Under the new strategy, announced in February, companies bidding on large federal defence and coast guard contracts will now be graded on their plan to invest the proceeds in Canadian companies.
Since 1986, whenever a company wins a defence or security contract from the federal government, that company has been required to spend an equivalent amount on goods and services from Canadian firms within a certain time frame.
However, under the old rules, defence contractors were largely free to spend that money however they saw fit.
Now the government is looking to ensure that this money is supporting the development of Canada’s industrial capabilities.
Teri Kirk, CEO of The Funding Portal, says the strategy encourages international defence contractors to invest in Canadian technology companies. The goal is to promote Canadian businesses by requiring that all DND procurements worth more than $100 million include a “value proposition” – evidence that a successful bid will create jobs and support Canada’s defence-related industries.