Peter Morand, former dean of science and engineering, University of Ottawa

Finding solutions to Canada's innovation gap

By Dr Peter Morand

What will it take to achieve a quantum leap in Canada's innovation process to optimize societal and economic impact? A recent book by Mariana Mazzucato — The Entrepreneurial State: Debunking Public vs Private Sector Myths — makes a strong case for the role played by government in taking the boldest risks and achieving the most spectacular breakthroughs.

The author cites specific examples in which the underlying business success factor is attributable to government support at a critical stage of the innovation process.

For example, it was government-supported research that led to the far-reaching discoveries of Douglas Engelbart at the Stanford Research Institute (SRI). In the 1960s, Engelbart, the inventor of the computer mouse, demonstrated how his device could control a computer and how a networked, interactive computing system would allow for rapid information sharing among project collaborators.

In the next decade these technologies were refined at Xerox's Palo Alto Research Laboratory, again with substantial government support. It was at this point that Bill Gates and Steve Jobs stepped in and went on to commercialize many of the pivotal innovations of Engelbart and his collaborators.

There is no question that innovation thrives with brash entrepreneurs. Mazzucato's point is that governments can play a complementary role by derisking promising technologies. Share buy-backs by publicly traded firms may have short-term shareholder appeal but do little to keep products at the leading edge. And venture capitalists are viewed as more interested in personal gains than in socio-economic impact.

To compete successfully in global markets, the bottom line must be to nurture an ecosystem with the key interactive and synergistic components to accelerate the commercialization and successful market entry of innovative products and services.

Recent federal budgets have included specific allocations aimed at improving Canada's innovation performance. Although the lapse between announcement and implementation has sometimes been unseemly long, the government has acted quickly to allocate substantial increases pledged in Budget 2011 and 2012 to the highly-touted IRAP.

The Canadian Innovation Commercialization Program (CICP) was announced in Budget 2010 and launched as a pilot. CICP connects small- and medium-sized enterprises with federal departments and agencies to complete the pre-commercialization cycle by validating late-stage products and services within government before taking them to market. Prompted by its early success, Budget 2012 earmarked an additional $95 million over three years, starting in 2013–14, and $40 million per year thereafter to make the renamed Build in Canada Innovation Program permanent.

One of the highlights of Budget 2012 was the commitment of $400 million "to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector." Having advocated the creation of an early stage "Canada Seed Fund" some years ago (R$, June 6/06) I will watch with interest what impact these funds will have.

The Venture Capital Action Plan announced by government in January, 2013 includes the Canada Accelerator and Incubator Program (CAIP) to be delivered by IRAP. There was a call for proposals last fall by eligible business accelerators and incubators for non-repayable funding over a five-year period. CAIP is very much in line with what Mazzucato describes as state-supported derisking of promising technologies.

However, most of the $400 million committed by government will be managed by the private sector. In some provinces where such funds have been created the bar for technology readiness level has been set so high that riskier, highly innovative and disruptive technologies stand no chance of being supported. The same can be said of most of the existing private sector VC funds in Canada. The biggest gap in Canada's innovation/commercialization ecosystem is the lack of funding mechanisms to advance promising but high risk technologies and services beyond the proof-of-concept stage.

Quebec's provincially supported "sociétés de valorisation universitaire" (SVUs) that have been in place for over 10 years have done an enviable job of derisking promising technologies across the board. More recently, NeoMed, a partnership of the Quebec government and pharma companies can be compared to the role of Xerox's Palo Alto research lab in the ITC sector.

Similarly, the Centre for Drug Research and Development (CDRD) in Vancouver, one of the most successful CECRs, has made good on its mandate to de-risk publicly funded health research discoveries and transform them into viable investment opportunities for the private sector. CDRD has now created a commercialization arm — CDRD Ventures Inc — and is poised to reap the benefits of an extensive network of inventors, entrepreneurs and receptors.

With a suite of three Networks of Centres of Excellence programs, targeted initiatives from the granting councils and other contributors such as CMC Microsytems, Canada is beginning to assemble the infrastructure necessary to strengthen its innovation performance in specific technology sectors. The leaders and champions who are making it happen are easily identified.

Before finalizing the arrangements and performance expectations with the private sector venture capitalists in whose pockets virtually all of the $400 million of "early-stage risk capital" is being allocated, why not seek the advice of those who have been visibly contributing to the improving innovation landscape in Canada.

Peter Morand is former dean of science and engineering, University of Ottawa, past president of NSERC and founding president & CEO, Canadian Science & Technology Growth Fund. petermorand@rogers.com.