Dr Peter Morand, founding president & CEO, Canadian S&T Growth Fund

The entrepreneur's dilemma: catch-22 funding

Dr Peter Morand

The fragility of early stage advanced technology companies is well documented. That luck plays a part in the ones that survive is undoubtedly true, but the chances of survival can be improved by having a management team that personifies innovation and makes the timely strategic decisions needed to accelerate the commercialization process in an increasingly competitive environment.

In terms of policy, the key is to have programs and mechanisms in place that will facilitate a safer journey through the "valley of death" faced by these intrepid technology leaders. Canada has a number of long-standing programs to assist companies in the early stages of development but is the job getting done? What adjustments could be made to make these programs more viable for our emerging advanced technology companies that are the key to Canada's economic health?

Technology start-up ≠ bureaucracy

The life of anyone associated with an advanced technology start-up is hectic and involves long hours. But ideally, it is also highly focused on getting the product or service into the commercial phase. The other important characteristic is that the enterprise does not have the ready cash for the matching requirements of many of the federal government's support programs.

Government assistance to such early stage companies should be synergistic with that kind of environment, i.e. accountability should be an integral part of the program but with consideration given to the financial straits of the company and a preference not to sidetrack human resources from the company's product/service focus to satisfy unduly onerous bureaucratic processes.

I did not agree with the Jenkins Report recommendation to create an Industrial Research and Innovation Council and to shift delivery of the Industrial Research Assistance Program (IRAP) to that new entity. Without political clout, IRIC would simply add another layer of bureaucracy and there are compelling arguments for keeping IRAP closely integrated within NRC's Canada-wide S&T infrastructure of state-of-the-art equipment and leading-edge experts (R$, May 22/12).

But, as pointed out in a recently released Canadian Advanced Technology Alliance (CATAAlliance) Discussion Paper, there are shortcomings in what IRAP currently provides to early stage technology enterprises compared to what the US Small Business Innovation Research Program (SBIR) delivers. Major differences are the Phase 1 and II SBIR grants (up to $250,000 and up to $1 million respectively) that do not require matching funds and companies can qualify for more than one grant simultaneously.

As for Canada's Scientific Research and Experimental Development (SR&ED) program with a $4-billion annual budget, the CATA Discussion Paper argues that it does not meet the needs of advanced technology start-ups — incentives kick in after the work is completed, identification of R&D that qualifies often needs the help of a consultant and unduly high administrative costs.

Following release of the Jenkins Report changes were made to the SR&ED Program but it still continues to have the catch-22 conditions that are counterproductive for small, very early stage high-tech companies.

The level of derisking by SBIR is often sufficient to attract venture capital investment to take the company to the next level of development (R$, Feb 10/14) whereas Canadian start-ups, without these advantages, are less likely to attract venture capital.

But is the solution a Canadian version of the US SBIR program as proposed in the CATA Discussion Paper? In view of the landscape of Canada's existing programs aimed at narrowing the innovation gap, a more realistic approach might be to take steps to improve and complement what is already in place rather than to insert a copycat agency into the system. And this approach does not preclude adopting certain elements of SBIR.

For example, CATA highlights the procurement aspect of SBIR that often enables an SBIR-supported company to sell its first product to a government department. But it makes no reference to the federal government's Build in Canada Innovation Program that "helps companies bridge the pre-commercialization gap by procuring and testing late stage innovative goods and services within the federal government before taking them to market".

As well, there is the recently launched Canada Accelerator and Incubator Program (delivered by IRAP) that provides non-repayable funding to qualified accelerators and incubators on a competitive basis.

Through the tri-council Networks of Centres of Excellence (NCE) program, Canada has invested about $2 billion for research, knowledge translation and commercialization. More recently, NSERC introduced Connect and Engage grants, with a relatively quick turnaround time for funding decisions, to enable advanced technology companies to partner with students in universities and colleges.

The fly in the ointment is that Canada's performance in Business Enterprise R&D spending ranks 15th among 16 OECD countries and continues to decrease (R$, Nov 2/15). It is no surprise that results of surveys carried out by the Conference Board's Centre for Business Innovation show an underdeveloped culture of innovation in Canadian businesses. These metrics have a direct correlation to Canada's economic health and for this reason there is an urgent need to improve the return on investment on government programs that purport to bolster Canada's performance in these areas.

Fixing Canada's innovation gaps is not a trivial undertaking but the commitment must begin at the political level (R$, May 22/12). The appointment of a Minister of Innovation, Science and Economic Development by the newly elected Prime Minister is certainly a step in the right direction.

Put very simply, advancing knowledge needs money while innovation makes money. If we want to maintain a high level of support for research in our universities and related research institutions we will need to make a corresponding improvement in our innovation performance.

Hopefully minister Navdeep Bains will act on this as the top priority of his "to do" list as the future of Canada's economic well-being and quality of life for all Canadians is at stake. Now is the time for constructive leadership and effective actions that will put Canada's innovation agenda back on track.

Dr Peter Morand is former dean of Science and Engineering, University of Ottawa, past president of NSERC and founding president & CEO, Canadian S&T Growth Fund. petermorand@rogers.com