Looking to sell into Canadian Aerospace and Defence?
If you have a product or service that you’d like to sell into the Canadian defence market, and have attended any of the many trade shows or industry events bringing small and medium sized business (SMB’s) and international aerospace and defence primes together. You’ve likely heard about “ITB’s” /eye-tea-bee’s/ and the ITB obligations that prime defence contractors have to Canada and Canadian Small Business’
What are ITB’s and how do I get some??
Industrial Technological Benefits (ITB) transactions aren’t some easy pot of money you’ve been told about by industry associations and economic development agencies. I say this with some authority because I’ve won $8.1 million in ITB transactions for my company – reducing international prime obligations by $36M. I’ve secured ITB Future Sales, Investment Framework, Direct Work, and Indirect Work transactions while building a company in Canadian aerospace and defence.
This is my no BS guide for SMB’s looking to take advantage of this Canadian program which, if you do manage to get involved, can be a great non-dilutive strategic investment into your company’s products, services, and R&D as well as the Canadian economy. But you’re going to have to work harder than putting your hand out and saying I’m a Canadian SMB!
So… What is an Industrial Technological Benefit or ITB?
“Canada’s Industrial and Technological Benefits (ITB) Policy leverages defence and Canadian Coast Guard procurements to contribute to jobs, innovation, and economic growth across the country. The ITB Policy contractually requires companies awarded defence procurement contracts to undertake business activity in Canada equal to the value of the contracts they have won.” – The Gov.
In a nutshell if Canada spends over $20M on defence procurement of equipment or services, the company that wins the contract needs to spend the same dollar figure in Canada… From a government perspective this sounds amazing! Our tax dollars stay in Canada!
From a Canadian small business perspective this makes you a valuable partner for foreign primes to swoon over, even if they have internal resources and partners outside of Canada that could do the work. (Caveats to follow). The R&D components also give you cash to innovate in Canada without diluting or losing your IP (more caveats).
What are the caveats?
From the perspective of a foreign prime selling to Canada… This sounds like a bad business decision! (The other companies were right to laugh at you!) Give me $18B for fighter jets that are predominantly built outside Canada, and I’ll give you the jets plus your $18B Back??? They’d be giving the equipment away for free!
The primes do try to do as much of the work with Canadian employees and buy as many Canadian components as possible on the program. (Direct Work) or spend as much as possible from unrelated business activities such as civil programs on Canadian wages and Canadian components (Indirect Work). These activities both net the prime a 1:1 repayment of their ITB obligation to Canada.
Its debt, not ‘a pot of gold’ (money)…
And there’s the term: Obligation. A prime with ITB transactions owed to Canada is called an ‘Obligor’ – like some mythical horned creature that scares kids from under bridges. If the prime defaults on their obligations over the life of the program, they will be forced to pay a 10% penalty (although no one seems to know if this has ever happened before, they will presumably also have a very hard time getting another gig in Canada.)
Obviously, it’s not always possible to build or source all program work in Canada, especially if we are buying off the shelf equipment like aircraft – the prime now has a debt to Canada – not a big pile of money sitting around waiting for you to put your hat out and tell them you are a Canadian SMB. Primes must put their 10% default penalty aside which reduces their available capital and borrowing power to fulfill the equipment contract. By reframing our understanding of the obligation as a debt, we can better understand how to help a prime achieve their goals! Primes understandably want to spend as little money as possible paying down their ITB debt. They’d prefer to spend their money on things they would do regardless of ITB obligations This is where you can help!
Multipliers for investments
Luckily the government has provided a few activities that will give the prime a multiplier on indirect cash invested in Canada to offset their debt. Many of the indirect transactions with multipliers are for investments into skills training, academia, or consortiums which I won’t cover here. There are two that apply to SMB’s: ITB Investment Framework (IF) and ITB Future Sales.
ITB IF will give the prime good multipliers depending on activities undertaken:
- Cash for R&D activities or license for IP: nine (9:1)
- Cash to purchase, or in-kind transfer of, equipment: seven (7:1)
- In-kind transfer of knowledge or marketing/sales support: four (4:1)
Future Sales will return a credit equal to every dollar received by the SMB for eligible sales. Conceivably if you receive a cash investment of $200K to support a service or product, and the product then goes on to make $20M the prime gets a 100:1 return on their investment! (Who’s laughing now?) Unfortunately, many Future Sales investments don’t generate as much as a safer ITB IF or simply fail altogether – this has spooked many of the primes. This is where you need to be sharp.
Although these investments sound great, the challenges are that the Primes are not really set up to assess random technologies outside of their own offerings, and even if they like what they see they will need to go and ask their corporate leadership for any money to spend on a Canadian SMB. It will be competing for funds with internal programs and other investments.
So how can I get involved?
Do not walk up with your hand out and say you are a Canadian SMB looking for ITB’s!
You need to be proactive. Identify primes that have ITB obligations unfulfilled (you can find the numbers here) . Research their Canadian and international business and see if you add anything of value to their Canadian program or their international operations. See if you can determine their Tier one suppliers, the primes pass obligations down their supply chain.
The ITB or offsets manager is usually the first and last person you talk to. (Search “Offset manager” on LinkedIn or get their name and email from the government current obligations by contractor website). You can also find them at industry trade shows and industry engagement days.
Describe to the offsets manager the services, products, or R&D projects that you believe will be valuable to their company, leave a good one-sheet behind and let them make introductions for you into the appropriate business units, project leaders, and tier one suppliers. It’s now up to you to do traditional relationship building and business development with these groups. Add value, solve problems; It’s a long sales cycle be patient… Only work in defence if your company is totally viable, you won’t survive the sales cycle otherwise. But if you do, it’s a great industry.
The key to getting a transaction with a prime is Multi-Layer Value: Your project brings a technology, capability, or efficiency that makes the prime more competitive, your project adds value to their current or future offerings, your project qualifies for a high multiplier (9 x IF or better like future sales), you have built a relationship with the buyer group within the prime, you check all the security and stability boxes, and finally you have a good trusting working relationship. Only then do you have Multi-Layer Value and the offsets manager can start putting together a transaction for their leadership and the government to review and approve.
The Canadian subsidiary of the foreign prime might also need to go and ask the international “mothership” for approval to spend money on a Canadian SMB. It will be competing for funds with internal programs and other investments. So it needs to be attractive! This entire process will take more time then everyone involved thinks it will. Be patient.
Checklist: Approach and Engage the Canadian ITB Program
Click on Image to Download PDF
The successful approach:
- Research First
- Relationship Second
- Business Case Third
- Multi Layer Value Forth
- ITB Transaction Last
Is Your Canadian Small or Medium Sized Business (SMB) Ready to Break into Aerospace Defence & Shipbuilding?
You’ve built an innovative company with products, services, or technologies applicable to Aerospace, Defence, and Shipbuilding. You’re eager to expand into these sectors, but navigating the complexities of Canada’s Industrial and Technological Benefits (ITB) Policy investments and connecting with international primes that have ITB obligations can be challenging. You’re not alone—and there’s a way forward.
If you make it through the startup phase to product market fit, check out my Business Growth Consulting practice.
If you landed on Rock Bottom is a Trampoline page first, consider starting at the Prologue: Ehh?
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About Me
Hi, I’m a founder-CEO with 20 years of experience growing companies, building relationships, imagining the future, and creating new things. I started my entrepreneurial journey in 2002 when I founded my first company, creating visual effects for Hollywood TV shows, where I won an Emmy for ‘Lost’ and received four nominations.
In 2010, I founded an aerospace and defense technology startup and led the company through unbridled naivety, survival, bootstrap, dogged resilience, and scaling. Over the years, I’ve had the opportunity to sit on numerous boards and round tables comprising diverse companies, communities, people, and points of view. I’ve successfully sold to Hollywood giants like SyFy, Fox, ABC, and Disney, to aerospace leaders such as Boeing, Lockheed, and Babcock, as well as the Canadian government, securing multi-year multi-million dollar contracts.
Now, my mission is to help fellow founder-CEOs by bringing proven strategies and customizable playbooks into their businesses. I coach them on building a solid team and executing their plans while focusing on what they love to do, ensuring their business thrives. My coaching expertise lies in strategy, business development, B2B & B2G, marketing, sales, and creative problem-solving. I’m here to help you get your business working for you, not the other way around!
Awards
1 Emmy, 4 Nominations, News Maker of the Year, Young Entrepreneur of the Year, Team of the Year, Tech Company of the Year, Top 5 Moments in Television History (Lost – Pilot), 4 Time Top 75 Defence Company
Achievements
TEDx Talk, FuckUp Night Talk, Host of Western Innovation Forum, Trade Show Panelist, and Speaker.
Boards
Victoria Innovation, Advanced Technology & Entrepreneurship Council (VIATEC) Western Canadian Defence Industry Association (WCDIA), The Alternative Board (TAB), Vancouver Island Aviation Association (VIAA)
Hobbies
Painting, Running, Sailing, Hiking, Camping, Traveling, Reading, Cooking.
Great Books
Scaling Up, Unfuck Yourself, Good to Great, Everything is Fucked, The Untethered Soul. How to Sell an Elephant