Nobina Robinson, CEO of Polytechnics Canada and Carl Byers, Chief Strategy Officer and Co-Founder, Contextere

The case for SBIR – how government's strategic needs can seed small business innovation

By Nobina Robinson and Carl Byers

At the recent Waterloo Innovation Summit, Innovation, Science and Economic Development minister Navdeep Bains stated, "We (the government) can set aside a portion of our resources to support start-ups with the most innovative solutions. We can provide these high-potential companies with the testing ground they need to refine their products and services." But how can the government actually do this? What mechanism could make government procurement an enabler of innovation? Part of the answer is a Canadian Small Business Innovation Research (SBIR) program.

The Liberals floated the idea of SBIR in a backgrounder for their innovation policies during the election campaign, but scant notice has been paid to it since. It is uncertain whether such thinking is behind the rhetoric of enhancing the government procurement process to create opportunities for small and medium business, or if it is an idea that has been relegated to the policy backburner. Regardless, we want to raise the topic head-on and to challenge the government to build SBIR into its "innovation nation" toolbox.

SBIR was pioneered by the US in 1982 to stimulate technical innovation and commercialization by small business. The program is so successful that it brands itself as "America's seed fund." and credited as the foundation for success of FedEx, Qualcomm, Amgen and Symantec, providing initial funding support while they were still small, private businesses.

SBIR requires government departments and agencies to set aside 2.5% of their external R&D budgets for competition-based awards to small business. The program is coordinated by the US Small Business Administration (SBA) but is implemented and managed by individual government departments to address their respective innovation challenges. Importantly, the US SBIR operates in tight alignment with the Small Business Technology Transfer program (STTR), to encourage research collaboration and IP commercialization with academic institutions. It has also reinforced set-asides that restrict a portion of competitive government procurement to small businesses.

In the US and other key competitor countries, SBIR-like programs have been shown to successfully accelerate innovation and facilitate transition from product idea to commercialization. However, not all national SBIR programs are equal, and not all outcomes are effective. Careful attention to program structure and implementation is essential to maximize innovation outcomes and objectives.

The US SBIR program has well-defined objectives, a well-structured competitive intake and down-select process, substantial long-term funding commitments, and complementary initiatives that stimulate a spectrum of research, development, and commercialization.

A similar SBIR program in Canada is needed because a crucial gap exists in the federal toolkit that supports business innovation. Canadian small businesses often do not have sufficient working capital required to access current funding programs such as the NRC's Industrial Research Assistance Program (IRAP), and much of Canadian business innovation does not fit into the strict criteria for the SR&ED tax credit program. Without working capital, companies will postpone or reduce R&D until they build up sufficient resources, leading to sub-optimal business innovation and growth and lost opportunity for commercialization success.

Revamping federal procurement pro-cesses to include a Canadian SBIR program would have the following benefits:

• address the need of early stage companies to access up-front working capital;

• enable companies to scale-up their innovation capacity from concept through to pre-commercialization;

• stimulate responses to ‘grand challenges' relevant to government departments;

• provide the government with made-in-Canada solutions that meet its needs for innovative products and services; and,

• bring together teams of R&D performers (researchers, technicians, developers and marketing experts) working to solve the government's own procurement needs.

The SBIR program we are recommending is different from IRAP, SR&ED, and other loan programs such as the Strategic Aerospace and Defence Initiative (SADI). It would provide 100% up-front funding support directly to small business for innovation and R&D working capital without the requirement for industry matching funds.

Unlike SADI, SBIR would not be repayable and would not represent a contingent liability on the balance sheet of a small business. Many government officials point to the Build in Canada Innovation Program (BCIP) as an innovation stimulation success. BCIP is capped in its total funding at $40 million per year, and targets later stage pre-commercialization products at a high technology-readiness level. It does not aim to use government demand for innovation as a stimulus, nor is it focused on small business only.

Implemented effectively, a Canadian SBIR program has the potential to stimulate early stage innovation and R&D in small business, increase market-oriented, commercializable products and technologies and, grow the number of global patents for Canadian techniques and technologies.

Integrating a SBIR program as part of government procurement would increase alignment of Canadian innovation technologies and products with the needs of government, while nurturing a critical mass of capability in areas of strategic importance.

To address minister Bains' call for an "inclusive innovation agenda" a Canadian SBIR could award additional evaluation points (or project funding) for collaborations with academic institutions including polytechnics, colleges, and universities, for organizations that commit to actively mentor other small businesses, and for women, disadvantaged, and aboriginal-owned businesses.

We encourage the government to use this opportunity early in their mandate, to think boldly and creatively and to define an SBIR program that will make Canada more innovative, and help more Canadian small business to grow and create jobs.

Nobina Robinson is CEO of Polytechnics Canada and was a member of Expert Panel on the Review of Federal Support to Business R&D (2010-2011). Carl Byers is Chief Strategy Officer and Co-Founder of Contextere.