Alberta task force calls for systems approach to assist province's tech sectors

An Alberta task force has submitted an interconnected slate of proposals to accelerate the commercialization and development of the province's technology-based sectors. The centerpiece recommendation is a $300-million fund of funds to encourage the capital markets to increase investment in promising start-ups and early-stage firms. Chaired by David Martin, executive chairman of Smart Technologies Inc, the Task Force on Value-Added and Technology Commercialization is urging the government to quickly implement all seven of its recommendations to help diversify the Alberta economy beyond resource extraction.

The task force is calling for programs and mechanisms that are familiar to those in other jurisdictions. But for Alberta, their implementation would represent a dramatic breakthrough in terms of public support of the private sector and technology-based business in particular.

In addition to a $100-million government contribution to the fund of funds — called the Alberta Enterprise Fund — the task force is recommending a provincial top-up to the federal R&D tax credit program, a network of product commercialization centres, and the use of innovation vouchers for use by companies to access those centres and purchase support services (see list).

The report and the expectations of task force members suggest that the timing may be right for Alberta to embrace the role of government in addressing the specific needs of tech-based companies as they seek early-stage capital and facilities and services that are critical for the development of products.

"An environment change is happening in Alberta. Before I agreed to chair the task force I was led to believe that the demeanor of the Cabinet and the government to jump-start a non oil and gas sector of the economy was positive," says Martin, who has taken his Alberta-based company from two employees to more than 1,000 over a 20-year period. "We would be disappointed if only two or three recommendations were accepted and funded. We believe that a systems approach is required."

The main driver of company formation and growth is investment capital, hence the task force's foregrounding of a provincial funds of funds. In 2006, Alberta secured $40 million or less 2% of venture capital (VC) invested in Canada, far below its economic output and population base. The inability of tech-based firms to attract VC is particularly acute at the seed and early-stages of company development, resulting in the loss of promising firms through relocation outside the province or acquisition by external players.

If the fund of funds proposal is accepted and implemented, the Alberta government would create a $100-million Alberta Enterprise Fund to co-invest with private and institutional investors in up to three funds. They would be established with independent boards, their own investment criteria and advisory panels to provide sectoral expertise. Government would take a "passive limited partner role with no influence on actual business decisions".

"It is clear that government can and must play a pivotal role in working toward consensus, brokering cooperation among different parties, and strategically applying its resources to leverage and sustain economic momentum"

— Task Force Report

"The fund of funds idea has helped in other jurisdictions and we had good input to the task force. We had lots of debate on the size of the fund," says Martin. "It's like the Goldilocks problem — not too big, not too small, just the right amount. But we think we have it right. There's a lot of interest from the private sector in this."

The private sector would expect to contribute approximately $100 million to the funds (encouraged by a tax incentive), with the remaining $100 million coming from individuals participating in the funds. This latter group would receive a 25% tax credit.

SR&ED top-up

The task force also addressed a glaring deficiency in Alberta's knowledge-based economy by recommending a provincial fund to complement the federal scientific research and experimental development (SR&ED) tax incentive program. Such a credit would cost the province about $150 million in foregone revenue. The task force went even further, asking the government to encourage Ottawa to expand SR&ED to include activities closer to the market.

"The task force was aware that SR&ED is under review," says Martin. "More customer focus is needed and it needs to include activities like design and software usability. We also need to recognize the reality of marketing programs."

Another major plank in the task force's recommendations is the creation of targeted commercialization centres. These centres would add value to existing products and services along the lines of the existing Food Processing Development Centre in Leduc AB. The centres would provide access to physical infrastructure for prototyping, lab testing and pilot production, as well as technical advisors and assistance in finding customer partners.

Companies needing access to the centres would be provided with innovation vouchers, circumventing opposition to direct financial support. "You can't give cash directly to companies without running into political problems or claims of favouratism,' says Martin. "Several countries including the Netherlands have tried this and it seems to be a good way to proceed."

The task force is expecting the Alberta government to respond to its report in the next provincial Budget in early 2008.

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