Innovation Nation: Securing funding here is challenging, so executives end up looking outward, which could leave Canada vulnerable in a cyber attack
Canada has a rich history of innovation, but in the next few decades, powerful technological forces will transform the global economy. Large multinational companies have jumped out to a headstart in the race to succeed, and Canada runs the risk of falling behind. At stake is nothing less than our prosperity and economic well-being. The Financial Post set out explore what is needed for businesses to flourish and grow. You can find all of our coverage here.
To get there, Sprickerhoff followed a path that is becoming the norm in the domestic cybersecurity space and for many other high-tech startups: He sold a majority stake to a New York-based private-equity firm, specifically Warburg Pincus LLC, reportedly for upwards of $100 million. In the cybersecurity space, the evidence is overwhelming. An analysis of TSX, TSXV and CSE listings reveals only three publicly traded Canadian companies entirely devoted to cybersecurity. Combined, the market caps of Absolute Software Corp. , Hilltop Cybersecurity Inc. and Quantum Numbers Corp make up 1.2 per cent of the most valuable U.S. cybersecurity company, Palo Alto Networks Inc. .
Canada, as a House of Commons committee heard in February, has been a target of consistent cyber attacks due to its NATO membership. But the government does not currently have a company it can rely on that uses Canadian-developed, -operated and -owned technology to fend off cyber crime and would have to rely on third parties in case of an attack.
It’s relatively easy to secure funding in Canada when you’re still developing a startup, Sprickerhoff said, because there are several angel investors willing to offer support. Case in point, eSentire once relied on two U.S. partners, Warburg Pincus and Edison Partners, to raise US$47 million to incorporate artificial intelligence into its managed detection response technology.
The Toronto-based company, which specializes in software that assists major institutions to digitally verify the identities of their clients, is much smaller than eSentire — SecureKey has 97 employees in Toronto, San Francisco and Florida offices — but Wolfond has been able to keep his majority stake while finding major Canadian investors to help the company grow.
Critics like Wolfond, Sprickerhoff and Johnson often describe the U.S. as thinking of cybersecurity as an extension of its military. Canada, however, has yet to get there, they said. The budget specifically mentions driving investment, cyber research and development, but does not specify how it will do so or how much funding — if any — will actually reach companies such as eSentire and SecureKey.
“It’s generally easier for me to get on a plane and fly to Hong Kong in 15 hours than it is to fly an hour to Ottawa and do business,” Sprickerhoff said. “We have a Canadian inferiority complex for our tech. Nobody ever got fired for buying IBM.” Q1 Labs had about 100 employees working in one Fredericton office when he made the sale. Now, under IBM that number has grown to about 300 he estimated.
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