TheFutureEconomy.ca: You spoke at our conference, The Future of Oil & Gas 2017, and stated that we need to shift to the new paradigm where speed of execution trumps all – a model that is faster and more collaborative. What would you identify as the first steps to be taken by industries and governments to initiate such a transition?
Marty Reed: Overall, there is a general risk aversion in Canada as compared to the United States and I really think that it has a pretty profound impact on innovation and the culture. Innovation by definition is not a linear, well-defined process and it is inherently a lot of failures before you get those successes. And when you are overly conservative in your risk tolerance, you miss a lot of those opportunities. If we want to compete with the United States, with China, with India, some of these cultures that are just sailing on innovation, we have to be able to take bigger risks by changing that fundamental behaviour.
To get into the specifics I’ll start with universities. I believe there are two fundamental challenges here. Firstly, those responsible for tech transfer are their own worst enemy. In my opinion, their number one goal should be helping to get technologies out of companies without trying to claw back and license. All of that effort is counterproductive. It has been shown dozens of times that the best approach is to give the IP to the principal investigators, to the grad students and let them run with it, and the return to the university, to the community, the province and to the country is just far, far greater than any effort to try to secure licenses and royalties. It is just a horrible process.
Secondly, we talk a lot about Science, Technology, Engineering, Math (STEM). I am a big believer in STEM, but we do not talk enough about MBA programmes. We have to compete on a global basis with the top MBA programmes. When you look at an overlay of innovation clusters and the top 20 MBA programmes, it is almost a perfect match. There is a higher correlation with that than with soft engineering programmes. If it were under my control, I would do everything I could to try to create one or two top-20 global MBA programmes in Canada. I think the impact would be massive.
“If it were under my control, I would do everything I could to try to create one or two top-20 global MBA programmes in Canada. I think the impact would be massive.”
Another significant barrier is talent. We need more talent in this country. We talked about MBA programmes, we talked about universities, but immigration has to be a big component of that. There has been talk about it and we are starting to see some changes with the new administration. What will that impact be? It’s hard for me to say but we cannot just talk about it, we have to make it available. A lot of it started in technology – under NAFTA there are already some existing exemptions. I believe that the biggest shortfall in terms of talent in this country is sales, marketing and business development. Those are the professionals that we need to find a way to get in. They are job multipliers: they get here, they attract more to come in with them, they help those companies that are here to grow faster as opposed to moving south where are a lot of companies will build their sales teams. So that is another area I am a big proponent of.
What about the role of industry and governments?
I am actually a fairly strong advocate that if you really want to improve innovation, the less government intervention the better. I think the role of government is to set clear policy, reward the behavior that we want, punish the behavior that we do not and then get out of the way. It should not be overly prescriptive. In my opinion, we are starting to see some policies that are a bit overly prescriptive as to “This industry is bad, this industry is good”, instead of saying, “Here is what we do not want.” Taking the challenge of CO2 emissions as an example, there is a whole host of ways to reduce CO2 emissions. It does not mean that necessarily coal is dead or coal has to go away. I am not personally a big proponent of coal but in the same vein, they should have every opportunity to compete as everyone else. So what we should be saying is “here is the bar and however you want to get under that bar, great”. And that is where you see innovation happen.
On the industry side it goes back to the “speed of execution trumps all” idea. There was this long belief that IP was king and we would not collaborate. I think those days are behind us and you are starting to see a lot more collaboration in the oil and gas industry today. I think COSIA is a wonderful example and they are now looking to continue to expand that model as the companies involved partner and work more together. But we also have to continue to embrace open source innovation or external innovation. You cannot do it all internally, you cannot do it just collaborating within your ecosystem, you have to look elsewhere for solutions. So if you are an oil company in Alberta, you should be talking to Google, you should be talking to start-ups in South America, in Asia, in Europe because you never know where that breakthrough is going to come from.
All those groups we just mentioned – government, industry, academia and others – tend to collaborate through a considerable number of agencies in Canada; some people call them an acronym soup. How can the country best optimize its resources to avoid too much overlap and generate better results?
I am not the expert on how you improve the interagency relationships and dealings, and it is an absolute alphabet soup that befuddles entrepreneurs and innovators. Where would I start to streamline all of this is, firstly, be willing to kill underperforming projects quickly. We support bad ideas too long. We need to eliminate that and be willing to look at a company and say, “We outlined a number of objectives, you did not hit them so, sorry.” We then take that money and give it to those projects that are hitting their objectives so we double down on the winners. We are not picking winners up front. Projects get Scientific Research and Experimental Development (SR&ED) or Industrial Research Assistance Program (IRAP) funding upfront, and then those that do not deliver will be weeded out and those that do get increased funding.
“The biggest shortfall in terms of talent in this country is sales, marketing and business development.”
The other priority for government should be better, clearer policy. Canada is too small to have all of these little silos, each with their own sets of regulations, many of which are quite dated. Again, we must go back to setting policies that reward the many areas we want. I will use water as an example. I am involved as an investor in a water company here in BC, and 100% of their sales pipeline is from US companies because Canadian water regulations are prehistoric. The test for water conditions in Alberta is still tied back to a trout: you put a trout in a bucket, you add in whatever your wastewater is, and if it kills the trout, you cannot discharge and if the trout lives, you can. I am oversimplifying a bit but it is not driven by modern science. We need to look at these opportunities. Look at a state like California, which is roughly the same sized market as Canada, but where we are seeing forward thinking policies have a massive impact and and all of the fears and critics that were charging that proposed changes would cause all sorts of pain and increase costs have not played out. The cost of power in California has just continued to decline as things like solar have exploded. It all came from policy up front. We just saw legislation proposed there to move to 100% renewable energy. Whether or not that will happen, it is setting a very clear direction that allows investors and entrepreneurs to say, “Great! I know there is going to be a market here in 5, 10, 15 years. Let’s go.”
If you want to affect change quickly, I would start with policy. Policy can be hurried and passed fairly quickly, and the impact can be massive. If you just look at what are the barriers or the challenges that start-up companies are facing, and if you can find a lever to flip that, that is where you can have some really quick impact.
Silicon Valley is an area that people around the world look at for inspiration and you were quite successful there. What are the best practices from Silicon Valley that you think Canadian tech and cleantech companies, as well as the oil and gas industry, could adopt for quick and transformative gains?
Quick is not easy, it took Silicon Valley 50 years for it to become Silicon Valley. What I think Silicon Valley does really well despite its size – and it is approaching 9 million people there – is that there is an incredible amount of cross-fertilization and collaboration with just this density: Google is across the street from Facebook, is across the street from GM, is across the street from a food company or SpaceX. So you get this mash-up and intersections of cultures and companies and skillsets that you just do not see elsewhere and I think that is a big part of what drives this innovation. If you have only known upstream oil and gas, it is hard to think about anything other than upstream oil and gas. But when you come from medical devices and then you were in biotech and then you were in social media and you start mashing all of these things together, you start coming up with some really interesting and novel approaches.
So diversity is really important. I worry a bit about some of these super cluster efforts being talked about where we are going to try to really get focused on one specific area. I will use cleantech as an example. We try to silo cleantech versus ICT, versus energy. Cleantech underlays everything just like 10 years ago or 20 years ago, IT was its own separate department within a company and now it is ubiquitous.
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What is your definition of cleantech?
Cleantech to me is simply doing something better, faster, smarter, cheaper or more precisely. It allows us to accomplish the same or greater productivity with less impact on the earth, and that could be with respect to energy, it could be water, it could be air but fundamentally, it has to be around continuing to drive and improve productivity. Being dependent on regulation is probably not a sufficient model and so cleantech allows us to always be looking for ways we can prove the economics.
“if you are an oil company in Alberta, you should be talking to Google, you should be talking to start-ups in South America, in Asia, in Europe because you never know where that breakthrough is going to come from.”
There is a lot of talk about artificial intelligence, IoT and data in general. What potential do you see for Canada’s legacy sectors coming out of the digital transformation – in particular oil, gas and mining – and how do you rate Canada’s efforts to support the adoption of these technologies so far?
The impact is going to be absolutely massive and you are going to see a complete transformation of not just oil and gas or mining, but all industry. You are just starting to see some of these examples play out with companies like MineSense here in Vancouver that is optimising the mining space. Suncor, for example, is rolling autonomous haul trucks. Despite that, this is a marathon and I am not sure that Canada is even out of the starting chute just yet, particularly in the oil and gas sector. Whereas the light tight oil sector in the US might be at mile two or three already. There is still a long way to go and a lot more impact that is going to be realized but yes, I think that we are a bit behind the ball but there is plenty of opportunity to catch up.
“I do not think anyone is expecting the price of oil to go back to the level at which efficiency does not matter.”
Are you concerned that the relative turnaround in the oil and gas industry, and the optimism that comes with it, could hamper efforts to adopt transformative initiatives?
No, I do not think anyone is expecting the price of oil to go back to the level at which efficiency does not matter. I think oil and gas companies are all 100% in agreement that we need to get smarter, cheaper, faster and the light tight revolution has proven it. That segment’s production increased quite quickly in response to pricing. So for Canada’s long-term competitiveness, Canadian energy companies need to continue to track that down. I would certainly say that my partners in Suncor and Cenovus are very motivated to continue to push and adopt. I do not see that changing regardless of the price of oil.
How is Evok different from other funds, in particular in its ability to support innovation entrepreneurship in the oil and gas industry?
There are a couple of components. The first is that we are a team of entrepreneurs – myself and all of the partners have all been CEOs, built tech companies and we come from that ethos. We put a structure in place at Evok where we are also financially motivated and aligned with our portfolio companies just as we would if we were a traditional venture fund out of Silicon Valley. But we have combined that with some of the advantages of corporate venture, meaning we have partners who are some of the biggest customers in Canada and who are quite keen to adopt these technologies. So when we get involved with a company, we do everything we can to make sure that they land great anchor customers that help them optimize, pilot and then ultimately deploy and commercialize those technologies.
Which are not necessarily Suncor and Cenovus?
We hope they are but they do not need to be. We are more than happy to work with other customers. All Suncor and Cenovus ask is that they can roll out the technology when they are ready to do so. If other companies such as CNRL or Conoco want to participate and help us get the technology fully ready, so much the better. For Suncor and Cenovus it is a great leverage model that allows them to get multiple parties all pulling in the same direction to solve challenges.
Are there any areas of success you can point to right now?
Our first investment was a company called DarkVision, which is now completing trials at Suncor and Cenovus. The second company that we invested in was a very early stage pump company in Squamish. They are already starting to attract the likes of GE and Schlumberger who want to partner with them to incorporate the pump into their solutions. We will be bringing that technology up to Edmonton in a couple of months to do initial tests. It’s not easy for a small company in Squamish to attract Schlumberger or GE and I think we played a pretty integral role in connecting these dots. What would have taken the company five to seven years, we think we have accomplished now in less than 18 months.
“I think there are a host of reasons why Vancouver could very well be a future innovation center more so than it already is today.”
How well positioned is Vancouver to cater to Canada and the world’s future tech demands?
There are some seemingly superficial advantages that Vancouver has but I believe those advantages are quite meaningful. If you look at Silicon Valley, one of the reasons Palo Alto became the epicenter is it is one of the nicest places on the planet to live. It has perfect weather, it has nice, green rolling hills – it’s amazing. One of the reasons why a lot of venture capitalists from the Valley come up to Vancouver on holiday is because it is similar – spectacular hills, oceans and it is just an amazing place to live. And a high quality of life is important. It also has the University of British Columbia (UBC), which is obviously a world-class institution. Combine those two things with a downtown that is quite thriving for young professionals to want to live in – despite the cost of living which you will hear is the number one concern, and I will counter that the only market more expensive than Vancouver is San Francisco – all this seems to have no difficulty attracting young talent. So I think there are a host of reasons why Vancouver could very well be a future innovation center more so than it already is today. I think the question is how does Calgary position itself differently and uniquely, because it cannot compete with Vancouver on those traits but it certainly can compete on others. Neither Vancouver nor Calgary should try to compete with Silicon Valley – they shoul create your own identity. Austin Texas has done a good job at this.
TheFutureEconomy.ca focuses on opportunity, reinvention and prosperity in the Canadian economy. What is your vision for the successful transformation of Canada’s oil and gas sector?
There has been a fair bit of discussion lately around next generation materials; it has been labeled “bitumen beyond combustion”. I certainly think that has a lot of promise and Evok has been spending a lot of time trying to identify opportunities in that arena. But I do think liquid fuels will play a critical role for quite a long time frame. At the same time we know we have to reduce the carbon footprint associated with that. So I think in the short-term you will unquestionably see carbon capture technologies that are increasingly critical, and carbon utilization where you are then taking that carbon and using it in a productive manner. Companies like CarbonCure as an example, where they are injecting carbon into concrete to produce a better product. I think you will see in the short term – 5, 10 to 20 years – a lot of impact in that arena as the next generation bitumen beyond combustion opportunities will hopefully then be coming online. It will take time for those to develop, but they show incredible promise.
Marty Reed spent the last few years as a Partner with The Roda Group, an early stage venture capital firm focused on clean technology. Having served in operating roles at multiple Roda Group portfolio companies, he joined the firm in 2010. Over the last few years he has served on the Boards on numerous cleantech ventures. Most recently Marty served as Chairman of the Board of Directors of mOasis, the creator of a soil amendment product that allows farmers to increase crop yields while reducing water and fertilizer applications. He also served on the Board of Directors of Inventys, the developer of a low-cost method for capturing carbon dioxide from industrial sources, Gridtential, the developer of high-performance, low-cost energy storage systems and Axine, the creator of a low-cost, chemical free solution for treating toxic wastewater.
Evok Innovations is a unique partnership between the BC Cleantech CEO Alliance and two Canadian energy companies, Cenovus Energy and Suncor Energy. It is a cleantech fund that accelerates the development and commercialization of solutions to the most pressing environmental and economic challenges facing the oil and gas sector today. It protects the environment and strengthens the economy by investing in the commercialization of clean technology. It is an independent, entrepreneur-led fund that offers mentorship and customer access for early-stage clean technology companies while accelerating the development and commercialization of breakthrough solutions for strategic partners.