Industrial Research Assistance Program runs out of money for SMEs just two months into current fiscal year

Innovative Canadian companies seeking financial support from the Industrial Research Assistance Program (IRAP) may have a long wait. The highly lauded business assistance arm of the National Research Council (NRC) has committed all of its funding for the current FY ending March 31/09 and the situation isn't likely to improve next year unless it receives additional funding.

The cash crunch comes at a time amidst warnings that the lack of government programs aimed at small- and medium-sized enterprises (SMEs) could choke off the supply of innovative technologies required to maintain and expand Canada's beleaguered high-tech sector.

"We've been 100% committed for about three weeks but we'll continue working with clients. IRAP is not just about the money," says IRAP DG Dr Tony Rahilly, who recently toured IRAP regional offices to explain the funding situation. "We came into this fiscal year close to 80% committed so there wasn't a lot we could do. It will be hardest for firms that are working on projects but do not yet have approvals."

Rahilly says there are a number of reasons for the growing demand for IRAP services and funding. These include an overall increase in the number of firms seeking support, an increase in the size of projects it supports, and a growing trend towards multi-year projects meaning that funding commitments carry over from year to year. The funding limit hit first in Ontario and Quebec and has now spread across the country. The message has been delivered to the government's central agencies but no announcement on additional funding has been made.

"Through the NRC, Industry Canada knows about the situation and Industry Canada and Treasury Board have been asking questions," says Rahilly. "A lot of SMEs have been going into innovative projects so there's been an increase in demand."

Over the past two years, IRAP has had to deal with the loss of funding from the regional development agencies totaling approximately $12 million. The Conservative government also cancelled the joint IRAP-Technology Partnerships Canada (TPC) program, to which each organization contributed $15 million annually. IRAP's portion has been returned to its A-base which has helped to offset the sunsetted regional funding.

business support drying up

The TPC-IRAP collaboration resulted in many investments that are now being repaid. Rahilly says that $9-10 million annually is being generated through repayments, but that funding goes back into Industry Canada's general revenues and not to IRAP.

The cancellation of TPC has had a major impact on SMEs outside of the aerospace and defence sectors. A portion of TPC's annual $350-million budget was earmarked for a variety of sectors grouped under environmental and enabling technologies. Its replacement by the Strategic Aerospace and Defence Initiative (SADI) stranded firms in the other sectors, placing greater pressure on IRAP to pick up the slack.

At the most recent RE$EARCH MONEY conference, Mitel Corp chairman Dr Terry Matthews bemoaned the decline of federal business assistance programs, particularly the cancellation of TPC and the inability of IRAP to meet the needs of industry (R$, June 5/08).

"Ever tried to get (IRAP funding)? It's not easy. The fact is that the government, for whatever reason over many years, has sliced back all kinds of things. I don't actually care who pays for R&D, whether it's VC funds, government R&D grants, matching dollars, as long as it's up front," said Matthews.

Several organizations have called for an increase in IRAP funding in recent years. A lack of response from Ottawa has prompted several provincial governments to fill the void by developing new business assistance programs. The most recent example is Alberta, which last month unveiled a suite of programs designed to accelerate high-tech company formation and growth (R$, June 20/08).

IRAP interacts with approximately 8,000 companies at any given time, including more than 2,000 through direct financial support. With an overall budget of $128 million, IRAP provides about $70 million to support the R&D activities of SMEs. Other services include technology expertise and advisory services, networking and partnerships. In the latter area, Rahilly says IRAP is extremely active, working to link firms to venture capital and angel financing as well as working with the provinces and regional organizations.

"There are a number of opportunities to work with clients for sources of funding," he says. "We help to find VC and angel funding for clients. We've been working with groups like the National Angel Organization."

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