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Accelerating Growth: Canadian Funding Policy for Innovation Intermediaries

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Abstract and Figures

Executive Summary There has been a sustained increase in the amount of innovation intermediaries in Canada and the capacity for supports in this space. As part of an ambitious innovation agenda, the government of Canada has sought to support these actors with targeted funding programs, such as the Canadian Incubator and Accelerator Program (CAIP), and has offered complementary supports for incubators and accelerators throughout the innovation "valley of death". While more public sector support for innovation generally, and start-ups and scaleups more specifically, is both laudable and timely, the implementation of these supports has been subject to numerous hurdles, not all of which have been overcome. Quite simply, the design of the funding supports some market interventions unintentionally, while other valuable interventions intended to receive funding are passed over. At a technical level, CAIP program uptake and disbursement of funds was unsteady in early phases. Innovation intermediaries have had to allot considerable energy into the administration and reporting requirements of the program itself, a sure sign of the potential for program optimization. There is some evidence to suggest that the funding disbursement and oversight mechanisms were distortionary, with burdensome administrative requirements effectively steering the funding away from optimal activity areas. With the reporting standards and metrics internal emphasizing politically salient outcomes at the expense of more meaningful indicators and rigor in program evaluation, it is an open possibility that the success metrics in this space have been unintentionally over-reported, in some cases, claiming the same success factor multiple times. Future rounds of funding will require much more concerted attention on success metrics and attention to uniform standards. A broader thematic question that often recurred throughout the research was whether or not innovation intermediaries should be supported by the public coffer at all. Our research cautions against a hasty retraction of support for innovation intermediaries. There are many innovation intermediaries that make invaluable contributions to Canada's capacity to innovate, some of which we had the pleasure to interview and were often some of the most vocal about the sector's deficiencies. In spite of these success stories, the wider sector of innovation intermediaries faces numerous issues that detract from the credibility of the sector, at least in its existing form. This includes a clear over-expansion in the number of innovation intermediaries, conflicting and competing organizational mandates often lumped together, and the often-distortive effect of innovation intermediaries on market signals.
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Accelerating Growth: Canadian Funding Policy for Innovation Intermediaries
Mark Robbins, Senior Researcher at the Institute on Governance
1
Jeffrey Crelinsten, PhD. President, The Impact Group and Senior Research Associate, Munk
School of Global Affairs, University of Toronto
Executive Summary
There has been a sustained increase in the amount of innovation intermediaries in Canada and
the capacity for supports in this space. As part of an ambitious innovation agenda, the
government of Canada has sought to support these actors with targeted funding programs,
such as the Canadian Incubator and Accelerator Program (CAIP), and has offered
complementary supports for incubators and accelerators throughout the innovation “valley of
death”. While more public sector support for innovation generally, and start-ups and scaleups
more specifically, is both laudable and timely, the implementation of these supports has been
subject to numerous hurdles, not all of which have been overcome. Quite simply, the design
of the funding supports some market interventions unintentionally, while other valuable
interventions intended to receive funding are passed over.
At a technical level, CAIP program uptake and disbursement of funds was unsteady in early
phases. Innovation intermediaries have had to allot considerable energy into the
administration and reporting requirements of the program itself, a sure sign of the potential
for program optimization. There is some evidence to suggest that the funding disbursement
and oversight mechanisms were distortionary, with burdensome administrative requirements
effectively steering the funding away from optimal activity areas. With the reporting
standards and metrics internal emphasizing politically salient outcomes at the expense of
more meaningful indicators and rigor in program evaluation, it is an open possibility that the
success metrics in this space have been unintentionally over-reported, in some cases,
claiming the same success factor multiple times. Future rounds of funding will require much
more concerted attention on success metrics and attention to uniform standards.
A broader thematic question that often recurred throughout the research was whether or not
innovation intermediaries should be supported by the public coffer at all. Our research
cautions against a hasty retraction of support for innovation intermediaries. There are many
innovation intermediaries that make invaluable contributions to Canada’s capacity to
innovate, some of which we had the pleasure to interview and were often some of the most
vocal about the sector’s deficiencies. In spite of these success stories, the wider sector of
innovation intermediaries faces numerous issues that detract from the credibility of the sector,
at least in its existing form. This includes a clear over-expansion in the number of innovation
intermediaries, conflicting and competing organizational mandates often lumped together,
and the often-distortive effect of innovation intermediaries on market signals.
The report makes several recommendations which all point towards a more targeted and
1
Research conducted while a Researcher at the Munk School of Global Affairs, University of Toronto.
2
intentional funding program that can help spur the retrenchment of the sector. Some
innovation intermediaries spawn serial success stories but are bottlenecked by a need for
greater public funding, while other publicly-funded innovation intermediaries have dubious
claims of responsibility for a small number of successes. An inclination towards a wide and
politically significant distribution of spending may well have circumvented some of the
competitive spirit required for the effectiveness of innovation intermediaries. This strikes at a
core issue of innovation policy more generally; how can public funds be utilized to empower
private markets, all in the public interest? The report concludes that this is a challenging task
but one that is nonetheless possible with meticulous attention to private sector imperatives,
and a public sector willing to take a courageous approach to risk.
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Table of Contents
1) Scope and Methodology
2) Background of Innovation Intermediaries
3) Innovation in the Canadian landscape
4) The CAIP Program
5) Interview Results
a) Program Design
i) Funding Mechanisms
ii) Administrative Procedures
iii) Improvement in Funding Accrual Rates – Learning or Distortion?
iv) Measuring Success
b) Policy Considerations
i) Measurability
ii) Interactions with Government
iii) Concentration of Resources
iv) Globalization and Exports
c) Interaction Among Innovation Intermediaries
i) Policy Isomorphism and Sharing Practices
ii) Competition and Collaboration
iii) Supporting Innovation Intermediaries
d) Start-Up and Scale-Up Perspective
i) Firms connect with multiple Innovation Intermediaries
ii) Using the Offerings of Innovation Intermediaries
iii) Interactions with Government
iv) Assessing Innovation Intermediaries
e) The Triple Helix
i) Private Capital
ii) Risk Transfer
iii) Public Sector Supports
iv) Post-Secondary Institutions and Innovation
6) Policy Recommendations
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1) Scope and Methodology
This study focuses on an in-depth analysis of incubators and accelerators (from hereon called
“innovation intermediaries”). In particular, we are examining their role in connecting client
firms globally – with global innovation networks, value chains and customers. More precisely
we are investigating Canadian innovation intermediaries (with more precise attention on
accelerators) that are receiving government funding from the National Research Council
(NRC) through the federal government’s Canadian Accelerator and Incubator Program
(CAIP). We examine how these innovation intermediaries work with their client firms, the
extent to which they help firms connect globally and how they measure success.
We also attempt to assess the incremental benefit of government funding on the effectiveness
of innovation intermediaries and to identify exemplary practices in accessing global
innovation networks. Data collection consisted of 32 interviews conducted between February
and September 2017. Interviews lasted roughly 45 minutes each and were conducted by
phone according to the participants’ availability. Two CAIP organizations declined to be
interviewed due to time constraints on their part and several others were unable to be reached
successfully. The control group consisted of 4 interviews with innovation intermediaries that
were not selected for participation in the CAIP program. The control group served to prevent
research truncation or confirmation bias in the study’s findings.
Interviews included a range of participants, industry sectors and types of innovation
intermediary. Innovation intermediaries themselves ranged greatly in size, scope and focus of
operations. Some included dedicated physical locations, others partnered with another
organization to have a physical presence and did not host a physical operation themselves,
while others still were national and principally operated a digital presence. Interviewees
represented stakeholders from all the major regions in Canada and were conducted in both
French and English, depending on the linguistic preferences of the interviewee.
An additional wave of interviews was conducted with stakeholders that were not directly
involved in the operations or decision-making of innovation intermediaries. This group
principally consisted of representatives from client firms who had gone through business
incubation or acceleration in a Canadian innovation intermediary. In smaller proportion,
stakeholders were interviewed from the policy and expert community who are connected with
the funding of innovation intermediaries in Canada. This gives the study additional depth and
breadth while providing an arms-length perspective on the policy environment from those
least at risk to “group-think” (Figure 1).
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Figure 1: Characteristics of Organizations Interviewed
2
Characteristic
#
Innovation Intermediary
15
CAIP Funded
10
Businesses
11
Policy Community
3
Conducted in English
26
Conducted in French
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2) Background of Innovation Intermediaries
Before the appearance of incubators and accelerators, “technology transfer” was viewed to be
the most important technique for promoting innovation. This paradigm is generally associated
with the 1980 ratification of the Bayh-Dole Act in the United States (Merill & Mazza, 2011).
After this point, the emphasis of innovation policy was on improving the intellectual property
climate through legislation, targeted subsidies and the development of technology transfer
offices. The initial goal of TTOs was to provide technical support to researchers in order to
solidify the ownership of discoveries, so those discoveries could ultimately be developed into
commercially viable products by being licensed, sold or spun out into a start-up company.
This so called “technology push” approach (Crelinsten, 2005) has attracted criticism due to
the fact that commercial success depends on many other factors besides good research and
technology. Furthermore, TTOs are generally unprofitable, with typical returns that TTOs
and their host institutions enjoy from technology licensing equal, on average, to the costs of
running the TTO. Spin out firms from TTOs typically struggle and either fail or sell earlier
that would have been optimal, which can often result in the transfer of IP to foreign interests
at bargain basement prices.
Since the 1990s there has been a growing consensus that an exclusive reliance on TTOs is
insufficient to bridge the so-called innovation ‘valley of death’ (Flanigan, 2015). As a result
of these and similar critiques, many TTOs have since expanded their mandates and now offer
a wider range of services (Fishburn, 2014). Nonetheless, there is mounting criticism of TTOs,
particularly the success metrics they employ, such as licensing revenue (Gardner, et al. 2007,
Clarke & Reavely, 2011) or number of spin-offs, with no measures of spin-off survival rates
or business success. It has become clear that TTO metrics offer, at best, an incomplete picture
2
Several organizations had more than one interviewee, which accounts for the discrepancy between the total
number of interviews and the total number of organizations interviewed.
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of innovation performance (Fung et al. 2007), focusing as they do on technology rather than
value creation, sales and overall business success.
More broadly, TTOs are criticized for short-termism and for adopting too narrow a scope of
action (Valdivia, 2013), including a disproportionate focus on immediate revenue generation
(Litan, et al. 2007). Furthermore, TTOs often suffer from low institutional empowerment
(Bramwell, et al., 2012) and an overall inability to bridge the gap between businesses and
academic research (Kendell & Kendell, 2009).
In Canada, the number of licenses issued by TTOs has steadily declined since 2009
(Flanigan, 2015) while the number of startups has steadily increased. This may be an
indication that traditional technology transfer from an academic institution to a firm via a
licensing agreement has been bypassed as the core mechanism of innovation in policy circles
in favour of increased emphasis on entrepreneurship as an engine of innovation policy.
Although TTOs remain an important tool in promoting technology and were historically a
crucial stepping-stone in the evolution of innovation intermediaries, the emerging consensus
is that technology transfer is typically too focused on trying to match technology to a problem
rather than being solutions-oriented in approach.
Research parks first began to emerge in the mid 1980s to address some of the gaps left by
TTOs, adopting a more holistic view of innovation that emphasizes interaction between
researchers and commercial players. Research parks provide a collaboration space for
industry and academics, emphasizing the cluster model of industry promotion. In this model,
growth is seen as partly due to synergies in industry through the close proximity of
complementary businesses (Bramwell, Nelles and Wolfe, 2008) and academic-industry cross-
pollination through co-location and shared workspace arrangements (Dimick, 2014;
UNESCO, 2016). Research parks are an extension of technology transfer offices in that they
believe that successful innovation will often require support after the technology transfer
stage and that fragile initiatives require continued assistance to become firmly established.
One significant improvement of the research park model is that while TTOs seldom cover
more than a small share of their operation costs (Heher, 2007), research parks can often
achieve revenue neutrality once start-up costs are paid. Research parks can also be used in
partnership with local efforts at job creation and urban redevelopment (Robbins, 2015) and
thus feature prominently in regional development initiatives and political programs
(Goldstein & Luger, 1990). However, this link can make research parks politically appealing
beyond their demonstrated utility and it is possible that research parks often engender job
creation at the expense of innovation performance (Löfsten & Lindelöf, 2002). This concern
is especially relevant to Canada, as some have observed an increased policy emphasis on job
creation rather than innovation competitiveness (Flanigan, 2015).
Research parks achieved the height of their popularity in the innovation policy literature in
the early 1990s and were ultimately surpassed by business incubators by the late 1990s. As is
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clear in Figure 2, the two concepts share some intellectual heritage and they have been
guided by similar lessons about innovation. In fact, the first business incubator established in
Batavia, New York, could have just as easily been described as a research park, were it not
for the sliding fee schedule for tenants (Dimick, 2014). Business incubators, while sharing
much in common with research parks, tend to be more niche in size and industry focus. They
will often offer a wider range of client services designed to facilitate research
commercialization. While there are many different business incubators and attributes, all are
defined by, “the objective of facilitating the successful new venture development of the
incubatees while simultaneously containing the cost of their potential failure” (Hacket &
Dilts, 2004a, p. 57).
Figure 2: Frequency of the Terms “business incubator” and “research park” in all
books published between 1975 and 2008.
Source: Google Books, Ngram Viewer.
Business incubators represented a significant improvement on the more “hands-off”
approaches of TTOs and research parks, and the number of business incubators grew
dramatically in the 1980s and 1990s. Yet incubators too have recognized limitations. For one,
even though incubators help to sustain newer business initiatives during fragile early stages,
they often lack the ability to encourage the development of sufficient scale for them to be
sustainable (Hacket & Dilts, 2004b). There are also concerns that incubated businesses may
become dependent on the subsidies of the incubator, creating perverse incentives and
rescuing businesses that should be allowed to fail (Schwartz, 2009). Finally, business
incubators share a limitation with TTOs in that they focus on technology and utilize metrics
that measure innovation inputs rather than outputs, making it difficult to judge truly
successful outcomes. Business incubators also share a limitation with research parks, in that
they are essentially real estate plays in which revenue comes from the tenants regardless of
whether or not their business is successful.
Business accelerators developed in the mid to late 2000s in order to address the limitations of
these earlier intermediary models and to focus more narrowly on business success (See:
Figure 3). Accelerators aim to help startups and early-stage firms grow quickly so that they
may achieve a sustainable scale of business operations and achieve financial independence
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(Mian, et al. 2016). Through a competitive process, accelerators select an exclusive group of
start-ups and put cohorts through an intensive regimen of mentoring, training, scaling-up and
growth (Cohen & Hochberg, 2014). This process usually occurs over a defined term and is
accompanied with a privileged access to sources of expertise, networks and venture capital
(Pauwells et al., 2016). As is the case for most innovation intermediaries, accelerators have
proliferated without displacing previous models. As such, the presently existing innovation
infrastructure includes all types of innovation intermediary, sometimes working together and
collaborating with one another.
Figure 3: Number of Technology-Based Incubators in the United States (1980-2012)
Source: Mian, S., Lamine, W., & Fayolle, A. (2016)
Business accelerators have their skeptics as well. As with previous iterations of innovation
intermediaries, there are concerns about how well the metrics for accelerators actually
represent successful innovation (Pauwells et al., 2016). Some raise further doubts about
whether accelerators are significantly different from incubators (Pauwells et al., 2016) or
suggest that there is an oversupply of accelerators (Clarke, 2013). It should be noted,
however, that the study of accelerators is very limited due to their relatively recent
emergence, making new research into business accelerators an important priority for the
innovation community (Pauwells et al., 2016).
3) Innovation in the Canadian Landscape
Canada has a long history of weakness when it comes to the commercialization of research
(Jenkins Report, 2011; CCA, 2013; Balsillie, 2015) although it is important to be aware of the
significant variation in innovation performance that exists between provinces. Canada’s
overall performance has been especially weak when it comes to business enterprise R&D,
patents, and researchers (See Figure 4). These measures have been used to confirm a general
weakness in the ability to move research “from mind to market”, a weakness which
successive governments have sought to correct. However, others have suggested that the real
weakness is a feeble culture of entrepreneurship and commerce in Canada (Crelinsten, 2005;
Barber and Crelinsten, 2016).
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Figure 4: The Conference Board of Canada’s Innovation Report Card
Source. The Conference Board of Canada, 2015.
With the 2008 recession ushering in an era of low growth among the advanced industrial
economies, the ability to unlock innovative capacity in the economy had become even more
important to the policy community. This concern may have been especially pronounced in
Canada, which depends greatly on the U.S. market and also during this time witnessed the
disappearance and decline of flagship firms like Nortel Networks and Research in Motion
(Blackberry). With the impetus for new innovation policy and improving the innovation
ecosystem now brought front and centre, the various governments of Canada began to
develop programs and policies to support its innovation intermediaries.
Today, most of the attention is around the Innovation and Skills Plan of the Trudeau
Government, which seeks to launch new and ambitious initiatives for Canada’s innovation
agenda. The programs under this umbrella are in their early days, making their successes and
challenges difficult to evaluate in any meaningful way at this point. However, some of the
policies launched under the Harper Government’s various Economic Action Plans are
sufficiently mature that their effectiveness can be evaluated in a way that informs future
iterations of government innovation programing.
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4) The Canada Incubator and Accelerator Program (CAIP) Program
In 2013 the Government of Canada allocated $60 million (rising to a total of $100 million in
2014) to the Canadian Incubator and Accelerator Program (CAIP) as part of Canada’s
Venture Capital Action Plan (VCAP). Although VCAP originated with the Ministry of
Finance, a multitude of federal entities contributed to the development of the program. Funds
are to be disbursed as non-repayable loans for use by leading Canadian business incubators
and accelerators over a five-year period. The program was launched by the National Research
Council of Canada (NRC) and the Industrial Research Assistance Program (IRAP) in fiscal
year 2014/2015. Funds allocated through this program exist as a supplement to existing
funding that any level of government provides to these incubators and accelerators. There are
no guarantees of this program being renewed when the initial allotment has been expended at
the end of its five-year duration.
From roughly 100 applications, the CAIP program selected 15 organizations for funding,
representing a total of 16 incubators and accelerators. Applications were judged on the basis
of how the funding would permit the applicants to expand programs and service availability,
prepare early-stage firms for investment, facilitate support and expertise to young firms, and
engender wealth creation more generally. These criteria are guided by the overarching goal of
CAIP to expand the innovation capacity of the CAIP-funded accelerators and incubators,
whether that be by expanding their geographic reach, their intake or their ability to service
additional sectors. Successful applicants were awarded different amounts on the basis of their
size and how they proposed to use the funding (see Figure 5). Eligible activities for CAIP
funding include overhead costs and salaries whereas long-term improvements, such as real-
estate acquisition, are ineligible.
Figure 5: Distribution of CAIP Funding by Participant
Total Allocation
Per Cent of
Total Funding
$10,934,891
12.7%
$9,949,092
11.6%
$9,565,982
11.1%
$8,842,746
10.3%
$8,282,490
9.6%
$8,276,511
9.6%
$5,387,718
6.3%
$5,245,146
6.1%
$4,114,483
4.8%
$3,804,472
4.4%
$3,396,999
3.9%
$2,646,259
3.1%
$2,010,355
2.3%
$1,886,316
2.2%
$1,059,890
1.2%
$621,892
0.7%
$86,025,242
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CAIP will continue funding the participant incubators and accelerators through to March 31st
2019 at which point the program is set to expire. It is not clear whether CAIP will be
renewed, refunded, terminated or merged into another funding initiative. Nonetheless, this
study outlines some lessons that are valuable for future programs since elements of the CAIP
design and lessons from its implementation will no doubt be considered in future initiatives to
support innovation in Canada.
5) Interview Results
a) Program Design
Funding Mechanisms
The CAIP program has eligibility requirements for participating intermediaries that seek to
promote public benefit. One such requirement is that the funding be used to expand either the
service offerings of the participant, or the capacity of existing services to new areas.
Interviews indicated that participants were generally able to meet the objective of expanding
their offerings. Some opted to accomplish this by expanding their operations beyond a
specific city or region so that they could be accessed more widely, while others principally
expanded their types of offerings, such as making mentoring services available or opening an
incubation space.
Participating innovation intermediaries were required to match CAIP funding on a one-to-one
basis, an issue which regularly came up in interviews due to some of the technical challenges
it posed. In principal, interviewees agreed with a matching funding requirement, especially
when it comes to their client firms searching for capital. As one publicly funded innovation
intermediary described it, “If you are unable to attract enough private capital to match the
public capital dollar for dollar, you are highly unlikely to succeed. That means you are not a
good investment for public funds and you should maybe be allowed to fail.” However, for the
incubators and accelerators themselves, many felt that the matching requirement was
inappropriate.
Some interviewees highlighted that incubators and accelerators are mostly funded out of
public dollars to begin with. While an innovation intermediary may be well-funded and
widely recognized as being successful, it might still not be able to attract sufficient additional
funding from diverse sources to allow it to match the capital eligible from the CAIP program.
This matching requirement, perhaps unintentionally, introduces a dynamic where those who
already receive public funding are better situated to receive even more public funding.
Interestingly, the interviewees in the minority opinion- those who were most comfortable
with the matching requirement- tended also to have more significant funding and budgets to
begin with, and thus were less affected by the matching funding requirement.
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Administrative Procedures
A majority of interviewees bemoaned the amount of time and energy spent on red-tape and
bureaucratic reporting requirements that were built into the CAIP program. Others objected
specifically to details of how the CAIP funding was to be allocated and spent within the
recipient organization, which many considered onerous and unnecessarily bureaucratic. One
interviewee even went so far as to say that, had they had been aware of the administrative
burden in advance, they would have given a second thought to their application to CAIP. This
sentiment is in line with some third-party observations of the Canadian business climate more
generally, which notes that Canadian SMEs face more red-tape and administrative barriers
than counterparts in the U.S. (Deveau, 2013).
An independent evaluation of the CAIP program by the Circum Network noted that the
structure of reimbursement for eligible costs added greatly to the bureaucratic burden of
participants. While interviewees understood that a federal funding agency would want to
have a clear sense of how their money is being spent, many recommended that future
program design should give close consideration to streamlining the process to include just
what reporting and administration is absolutely necessary, in order to reduce the burden on
participants (Gauthier et al., 2016).
There is an interesting dynamic at play regarding the administrative capability of the CAIP
recipients. We found evidence suggesting that the administrative and technical resources
available for CAIP-funded programing was closely correlated with that of the recipient
organization and its size. Running a linear regression demonstrated a positive correlation
between the amount of funding allocated through the CAIP program and the recipient
intermediary’s ability to access and spend that funding successfully (See Figure 6).
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Figure 6: Linear Regression of Gross Funding and Per Cent of Funding Accrued in
Year 1
This pattern would seem to indicate that the size of the innovation intermediary plays a role
in their ability to put CAIP funding to use. With a greater size comes a greater institutional
capacity for administration and stakeholder relations. This gives larger innovation
intermediaries a greater ability to accrue CAIP program funding, and perhaps even to
influence the expenditure and reporting criteria that govern this funding. This raises the
possibility that funding of innovation intermediaries is allocated in a sub-optimal manner or
that smaller innovation intermediaries are disadvantaged for funding due to reasons other
than performance.
Improvement in Funding Accrual Rates – Learning or Distortion?
There was a clear difference in participant uptake in the CAIP program between year one and
year two, which merits further consideration. In year one, over 38 per cent of the allocated
CAIP funding for that year was not paid out to participants, a number which decreased to 8
per cent in year two. (See Figure 7) Naturally, it was in the interest of both CAIP participants
and the public administration to use all the funding that was allocated to the program, which
points to a problem in the program’s initial roll-out.
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Figure 7: CAIP Participants Funding Allocation and Spending (2015-2016)
CAIP Participant
2015
2016
Allocation
Spent
Allocation
Spent
BC Technology Industry Association
$1,500,000
$972,148
$1,850,000
$1,397,690
Bioenterprise Corporation
$530,990
$70,860
$380,400
$379,955
"Biomedical Commercialization
Canada Inc. "
$225,397
$225,397
$225,146
$225,146
Canada AcceleratorCo Inc.
$132,252
$132,252
$132,105
$132,105
Centre d’entreprises et d’innovation
de Montréal
$500,000
$202,011
$875,000
$875,000
Centre for Drug Research and
Development
$2,325,421
$2,325,421
$2,322,833
$2,322,833
Communitech Corporation
$2,060,446
$908,066
$2,058,153
$1,798,153
Corporation Innocentre du Québec
$500,000
$311,203
$854,825
$854,825
Invest Ottawa
$1,647,884
$1,304,745
$2,366,051
$1,895,468
PEI BioAlliance Inc.
$768,313
$330,000
$863,986
$863,986
Propel lCT Inc.
$483,930
$217,403
$655,305
$655,305
Ryerson University
$2,267,577
$1,170,668
$2,265,054
$2,265,054
The Governors of the University of
Alberta
$1,279,556
$659,383
$1,278,132
$1,278,132
The Next 36
$581,178
$200,214
$580,532
$238,960
Wavefront Wireless
Commercialization Centre Society
$2,010,472
$1,384,675
$2,205,935
$2,196,678
MaRS Discovery District
-
-
$350,000
$350,000
Total
$16,813,416
$10,414,446
$19,263,457
$17,729,290
Per Cent of Allocation Unspent
38.1%
8.0%
This raises questions about the success of the program’s design and administration, such as
whether the significant amount of unused funding in year one is indicative of an initial
mismatch in expectations between CAIP participants and administration. On one hand, the
dramatic increase in utilization rate could be attributed to these organization learning how to
operate more effectively, but on the other, it could ultimately be an indication of
shortcomings in program design and execution.
One potential scenario could be that the CAIP funding has unintentionally had a distortive
effect on recipient organizations. Indeed, if participants were not able to accrue a significant
portion of the available funding at the launch of the program due to its operational
requirements for spending, their dramatically enhanced ability to accrue this funding in year
two might indicate that participants made structural adjustments to their operations that
would permit them to more closely meet the program requirements. This very real possibility
raises further questions about the degree to which these spending requirements have produced
optimal spending patterns and operational practices, a theme which recurred throughout the
interviews undertaken in this study.
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Measuring Success
One of the goals of this study is to examine how different stakeholders in the
incubator/accelerator space define success. Do the managers of the incubator/accelerator,
their client firms and their funders all define success in the same way or are there differences
in objectives of the different stakeholders surrounding innovation intermediaries? For
example, could it be that funders looking for job creation, while client firms are looking for
revenue and global market share?
The CAIP cohort of innovation intermediaries and their stakeholders of use a wide range of
non-comparable metrics for judging success, which range greatly in sophistication and
reliability. One of the outcomes of the CAIP initiative was that it spurred a burst of activity
within the wider policy community about how innovation metrics may be improved and
standardized. In some cases, metrics that had been developed and put into use by CAIP
participants were adopted by other, higher-order, programs including within government.
This spurt of activity in turn helped to form the basis for new standards for innovation metrics
that one could expect would ultimately see wider use.
One of the most commonly employed metrics at the outset of CAIP was job creation. While
government stakeholders often prefered this metric over others, interviewees from innovation
intermediaries and larger businesses noted serious and potentially catastrophic flaws with this
metric. The most critical issue is that job creation cannot be equated with innovation,
productivity or improvement in competitiveness, which are the ultimate end goals of the
government’s policies to support innovation. In the single-minded pursuit of job creation,
government policies risk confusing a political objective with the actual causal mechanism at
the heart of innovation. “They (governments) are optimizing their policies for the wrong
metric” one interviewee explained. Another interviewee noted, “The number of people
employed is not a priority for how we measure our own success, but governments like it.”
Putting aside the issue of whether or not job creation is the correct success metric to employ,
the way job creation itself is measured also has serious flaws. For example, many job creation
metrics do not distinguish between full-time and part-time employment. Nor do they include
important considerations for pay or quality of employment. For instance, a business founder
drawing a starvation salary before going into bankruptcy be technically considered as a new
job created, but this could be hardly be viewed as a successful outcome on closer inspection.
If job creation is a necessary metric for political reasons, a prefered approach should also
include longitudinal considerations, such as measuring the number of person years of
employment over a specified multi-year period of time.
Other commonly used metrics, especially by those in receipt of public funding, are those that
track the amount of capital attracted, either as a gross total, or as a ratio to each dollar of
public investment capital. Many of these so-called “leverage metrics” (i.e. $5 raised for every
$1 of public funding) were popular among elected officials and some innovation
intermediaries, but again, closer inspection reveals significant analytical flaws. For one, this
16
approach does not offer equivalency across industries that have different time horizons for
growth and profitability (e.g. pharma vs. software). Furthermore, different leverage metrics
were perhaps over-extrapolated in order to demonstrate local job creation that resulted from
the attraction of capital. A multiplicity of confounding variables also makes it difficult to
determine true causation, raising questions about how much of the employment created is
meaningful, or how much of the investment measured is truely “new” investment versus a
miscounting of existing investment.
A more constructive metric for assessing the effectiveness of innovation intermediaries
would be to assess firm survival and growth, a metric which several interviewees had
attempted to put to use in their operations with varying degrees of success. However, in order
to measure firm survival and growth effectively, one would need to establish a system of
tracking the fortunes of companies after they leave the incubator or accelerator, an activity
which, for many, would prove prohibitively resource-intensive. In fact, while many
interviewees admitted that longitudinal data about graduated firms’ health, sustainability, or
potential bankruptcy would be the most valuable metrics from an evaluation standpoint, such
data was least frequently collected or used. It was especially rare that this information would
be sought after a firm had graduated from an innovation intermediary.
Most intermediaries interviewed either did not follow up with graduated firms as a matter of
practice, or had not arrived at a process for continuous follow up that satisfied their
operational and reporting requirements. Of those who claimed to follow up with graduated
firms, the majority suggested that the process for doing so was ad hoc and unsystematic,
sometimes consisting of little more than checking to see which businesses were still in
operation or maintaining a live website. Only one of the innovation intermediaries
interviewed in this research claimed to follow up in a regular and systematic way with
graduated firms, but even this exceptional case had some obvious methodological flaws.
3
B) Policy Considerations
Measurability
The wide range of success metrics employed and the inconsistency in their use raises serious
concerns about the degree to which innovation intermediaries’ impact can be reliably
measured. While reliable measurement would seem conceptually possible, there are very few
successful examples in practice. Of the few successful examples which do exist, none could
be said to be comprehensive in their scope. Even in cases where accurately measuring and
attributing the impact of public investment is possible, there remain unanswered questions
about the effectiveness of these investments. Indeed, there is reason to suspect that even the
best metrics only capture a small portion of the necessary information required to pass
judgment on an overall funding program like CAIP.
3
Unfortunately, in this case the longitudinal collection of data was a relatively new initiative of the innovation
intermediary making the results of little value to the present research.
17
Another issue is the degree to which the execution of the program itself has the potential to
distort the relevant metrics for measuring the program’s success. Critics of these kinds of
supports for business innovation argue that valuable initiatives elsewhere are no longer being
funded because private capital is being steered towards government-led initiatives; a
phenomena also known in the economic literature as “crowding out”. This distortionary
phenomena could be further exacerbated by government programs which require recipient
innovation intermediaries or firms to leverage private capital as an eligibility requirement for
public programs. These structural consideration undermine the neutrality of measurement
mechanisms which claim, for instance, that a program was able to attract a certain amount of
private capital.
Many of these metrics also do not sufficiently capture distinctions that pertain to the quality
of services being offered by the innovation intermediaries being; a factor which contributes to
a relatively low quality of service in some cases. Some interviewees felt that the quality of
service provided by publicly-funded intermediaries is generally inferior to that which is
provided by fully private players. In a similar vein, the much increased availability of
innovation intermediaries resulting from increases in public funding was viewed to be
problematic in and of itself. Some venture capitalists suggested that the increased volume of
innovation intermediaries ultimately disrupts normal market signals that investors use to
make business decisions, thereby muddying the waters of capital markets.
In one specific example, the exponential increases in the availability of “pitch training” for
entrepreneurs was critiqued since this form of training does not tangibly improve the
investability of the firms receiving the training. If many people are able to “pitch” well, it
makes it more difficult for many less savvy investors to determine which companies are
inherently good or worthwhile as prospective investments. One VC claimed to actually
specifically avoid investing in firms that had spent time in accelerators, “because their pitches
are formulaic and don’t address the real issues of how well the entrepreneur understands the
business and their customers.”
A common theme raised by the innovation intermediaries themselves who were interviewed
was that the innovation intermediary’s capacity for monitoring was often the biggest
determinant of which success metrics the innovation intermediary would employ, rather than
the inherent value of the monitoring itself. This made the adoption of certain flawed metrics
much more common than other metrics that are arguably superior. Metrics specifically
mentioned in this context included: counting the number of companies graduated or in
residence, the amount of support services offered by an innovation intermediary itself,
successful exits, and the volume of capital raised. These are all input metrics that have little
to do with business success; but they were used simply because they are easier to measure
and not because they are more comprehensive. Other measures which would be significantly
more useful from a policy or evaluation standpoint were used less frequently because of
technical barriers that would make them prohibitively resource-intensive.
18
A general concern with metrics arises from some indications that success stories were being
tracked with much more rigor than were failures. Part of this is technical; it is easier to follow
the activities of a company achieving massive success than it is to follow a company that is
struggling or has de facto failed. Another consideration is of course that success stories are
much more useful for the marketing and branding of innovation intermediaries than are its
failures. While from a program design and policy perspective, failures are at least as
instructive as successes, they are likely to be under-reported because the reporting agents
have little incentive to do so. The lack of attention to failures by the intermediaries and their
funders is a significant, and disturbing, finding.
Interactions with Government
Many interviewees noted the difficulty in interactions with government including long
timelines and wait times, obscurity in regulatory and program details, and a difficulty in
accounting for all government programs and supports for which their business might be
eligible. One interviewee suggested that the government create a singular portal that
convenes government resources to make them more accessible to external users: “it really
comes down to consolidated funding, a central hub. Ok, you are a start up, go here. There are
a lot of missed opportunities (due to lack of awareness).” One solution which is being piloted
is Innovation Canada, which was introduced in Budget 2016 to house all of ISED’s industry
funding programs in a simpler and more transparent structure.
Innovation Canada includes a Clean Growth Hub to address the government’s focus on clean
technology; the Innovation Superclusters Initiative, a $950M program to support five
technology superclusters; Innovative Solutions Canada, a $100+M procurement program
involving 20 federal government departments and agencies that will provide funding to
support the creation of innovative solutions by Canadian small businesses (a pilot modeled
after the US SBIR program); and a Strategic Innovations Fund, with a budget of $1.26 billion
over five years, that consolidates and simplifies ISED’s sector-specific programs, namely the
Strategic Aerospace and Defence Initiative, Technology Demonstration Program, Automotive
Innovation Fund and Automotive Supplier Innovation Program. Stakeholders seemed to
suffer from a low awareness of Innovation Canada, although it should also be noted that
Innovation Canada’s efforts were fairly recent at the time of interviews.
Similar observations were made about the absence, or more accurately the lack of awareness,
of a whole of government perspective on innovation policy. Several stakeholders suggested
that relevant government programing was designed in a vacuum and suffered from a lack of
harmonization and integration with one another. Again, this falls within the mandate of the
relatively new Innovation Canada, suggesting that prior consultations have raised this issue
and that government has begun to act upon this feedback. Although awareness still seems to
be generally low on the basis of the interviews conducted in this study, one innovation
intermediary described a break with past challenges and marked improvement in recent
19
times, stating “The type of interactions that I’ve had with government on the policy and
political side, I’ve been impressed in the last 6 months... Things are improving, but there’s a
lot to be done.”
A range of stakeholders bemoaned the lack of shared vision for innovation intermediaries that
afflicted all manner of institutions related to innovation, including public sector partners.
Some stakeholders suggested that government programs tend to reward and validate existing
successes, rather than providing supports to unproven initiatives that are most likely to be
truly innovate and are likewise in greatest need of public-sector financial support.
Interviewees holding this view tended to base these shortcoming on a perceived culture clash
that existed between private and public sector values. Many private sector stakeholders claim
to have a high risk tolerance that is at odds with government culture, which they characterize
as marked by risk minimization and avoidance.
Indeed, innovation as class of activities is almost universally defined by a propensity to take
calculated risks, which in turn feeds into the culture of stakeholders which adopt mantras like
“fail often” and “win big” which sometimes sets in opposition to the values of the public
service which seek to minimize risk. However, the belief that this risk tolerance is
fundamentally at odds with government has been challenged by some (Mazucatto, 2015) with
the idea that state-led entrepreneurial activity (such as U.S. government’s use of military
spending) can support the development of general purpose technologies in a way that the
private sector could not. This is to suggest that the state may have a significant role to play in
de-risking some elements of innovation, but it may first need to overcome some of the
obstacles of risk-aversiveness in the culture of public administration.
When asked about the advantages of innovation intermediaries versus other policy measures
for supporting innovation - such as tax credits, the trade commissioner service, direct funding
to companies etc. - most innovation intermediaries signaled they worked in concert with other
policy interventions; not in competition. One interviewee used the analogy of a high
performance sports team, “This question is almost like, ‘should we spend more on equipment
or coaches?’ We obviously need both.” Another interviewee made a similar suggestion,
noting that the question of innovation intermediaries versus other policy measures supporting
innovation is “not an either/or (proposition), it's an both/and (one).” A third interviewee
suggested that “All of these (policy) measures are necessary because they interact with
different stages of the (commercialization) process.”
Concentration of Resources
Most interviewees mentioned weaknesses in the innovation intermediary space generally, but
felt that their own institution's contribution was exemplary or exceptional. That said,
interviewees highlighted a large variability in quality of intermediaries which itself poses a
problem for coherent policy approaches to innovation intermediaries. One interviewee
attributed poor quality to lack of selectivity in accepting client firms. “When you keep access
20
to services open to any start up, just about anybody jumps on board. It lowers the quality you
are able to offer to the lowest-common denominator. With this in mind, it's of little surprise
that startup industries have a bad reputation, because it's a jungle out there!”
To that end, many interviewees felt that Canada’s innovation ecosystem would be well-
served by a contraction in the number of entities working in the incubation and acceleration
space. Many believed there to be a glut in the number of innovation intermediaries, with
many small and ad hoc players operating in this space – sometimes of dubious credibility –
who make implausible claims about their contributions to Canada’s economic performance.
This propensity to exergeration was suggested to be especially pronounced with regards to
incubators specifically. According to one interviewee: “The incubation space is too crowded,
much too crowded.” Several interviewees argued that the government should induce a
consolidation of innovation intermediaries, instead focusing on a small number of highly
competent actors– a proposal not unlike the initial rationale for CAIP itself.
While perhaps there is merit to the idea that Canada’s incubation and acceleration framework
should adopt a more concentrated funding model, it's worth noting that this argument is also
self-serving. Interviewees’ proposals to contract and concentrate funding for innovation
intermediaries cannot be taken at face value since most interviewees advocating for
consolidation insisted that their model was among the better ones. Furthermore, their
selection by CAIP would suggest that they would stand to benefit from a greater
concentration of government funding. That is not to invalidate the idea of consolidation in the
number of players and concentration of funding, rather to suggest that any action in this vien
requires a cautious approach.
There were similar comments regarding the geographic footprint of Canada’s innovation
intermediaries. CAIP participants tended to prefer a focus on maximizing potential firm
growth and innovation, with comparatively little concern for job creation in rural or
economically depressed areas. While interviewees tended to empathize with the
government’s need to disperse incubation and acceleration capacity regionally to improve the
equitability of access and promote balanced job creation, they generally disapproved of
anything that might resemble “artificial equitability”. Most interviewees supported a focused
approach on growing successful firms rather than the more politically motivated goal of job
creation and regional economic development.
Another issue interviewees raised is that the existing policy framework does not adequately
distinguish between needs and types of services required in different regions and clusters,
especially rural vs. urban regions. “In Rimouski, you need supports but are not operating in
the same market segment as people let's say in Montreal who are trying to create the next
billion dollar company” one interviewee suggested. In this sense, smaller clusters can become
over-supported at the expense of larger clusters although the larger cluster require more
supports because they are in more direct competition with global forces. “It's almost that
there should be two levels of funding, one for the regions and one for the national or global.”
21
the interviewee continued, “There has to be something for the local coaching etc. But
businesses within Canada should be able to move to wherever their advantage is.”
Globalization and Exports
Interviews suggested that policy designers, politicians and the public at large often view
supporting companies involved in global markets as a means to improve Canada’s export
balance. Yet most start-ups and scale ups that were interviewed take for granted this
integration with global value chains as a basic prerequisite to success. Indeed, questions
surrounding global value chains were included in all interviews and very few organizations of
any type suggested that business plans aiming at integration into strictly local, or national,
value chains were a serious consideration. Nearly all firms interviewed were looking
globally, or seeking integration with a localized segment of what was ultimately a global
value chain.
To put it otherwise, there was a near consensus among interviewees on the fact that firms and
innovation intermediaries should focus on the global, to the point where it's mention borders
on tautology. One policy expert suggested that this (perhaps) redundant attention to a global
outlook is a uniquely Canadian phenomena, “We speak with counterparts in Europe and
elsewhere, and for them “going global” or being “born global” is obvious. It doesn’t need to
be stated. Canadians seem to be the only ones still talking about this as if the alternative is
even an option.” This seems to point to a disconnect between the policy community and
practitioners; practitioners being fully aware of the prevalence of being “born global” and the
policy community advocating for it in the abstract.
In most cases where interviewees did focus first on a domestic or local market, it was in the
context of a first customer or early partner whose operations just happened to be domestic,
almost by coincidence, perhaps driven by convenience. Many client firms felt that having
interactions that were primarily domestic was a matter of chance more than it was a matter of
condition or conscious strategy. Indeed, many other companies indicated a similar situation
but one where their first customer happened to be international; their Canadian business
operations effectively being limited to R&D and a head-office. In this sense, the location of
first customers or partners being inside or outside of Canada would seem unlikely to indicate
a significant trend, although perhaps a larger sample would yield different results.
Local conditions were generally not emphasized as important by interviewees, especially
innovation intermediaries. When probed further, suggesting that they could define “local” in
a manner which made the most sense to their operations (i.e. municipal, provincial or even
national), most respondents gravitated towards a theme of locality which closely resembled
industrial specializations or clusters. By that definition, “important local conditions” often
included post-secondary institutions - for their human capital - geographic features, like the
oil patch, or the regional VC community. Those with a relationship to tech and software were
22
also likely to identify local quality of life as an important condition, much in line with the
well known “Creative Class thesis” (Florida, 2002).
C) Interaction Among Innovation Intermediaries
Policy Isomorphism and Sharing Practices
CAIP participants regularly discussed among themselves various metrics they used and
participants often adopted one another’s practices for supporting innovation. A key part of
CAIP was thus its ability to facilitate this sharing and adopting of best practices among
participants. There are other examples of this policy isomorphism. The Province of Quebec
has followed CAIP closely with an eye to its successes and shortcomings. In April 2017, the
government of Quebec announced that it would be launching its own program for boosting
innovation intermediaries that is closely modeled on CAIP. In the words of one interviewee
<<C’est organisé de la même façon exactement, sauf pour quelque particularités Québécoise
et que les fonds sont strictement pour les nouveaux projets >>
4
Policy isomorphism among the innovation intermediaries themselves started early in the
program. After CAIP’s launch, the participants formed an ad hoc working group, conducted
by conference call, for troubleshooting elements of the program’s administration and
reporting system. “Initially, the calls were to solve technical issues but it quickly became a
place for us to gripe about all the program’s red-tape.” one interviewee said frankly. This
process permitted participants to present a united front to the CAIP administrators about what
elements of the program were posing the most challenges to participants, which in turn
helped CAIP administrators with their policy renewal and development.
Although the initial objective for the working group was to resolve administrative and
reporting issues, and indeed some participants stopped attending these meetings after their
original objective had been accomplished, the group evolved and became a forum for mutual
aid and improvement. “Once we got past the initial negativity, it became a great way to
compare notes and share best practices.” This pertained not only to the CAIP program
specifically, but to improvements in their approaches to innovation, acceleration and
incubation more generally.
Competition and Collaboration
The CAIP program brings to light some interesting dynamics of cooperation and competition
in the innovation intermediary space. On one hand, the majority of CAIP participants
regularly collaborate with one another for the exchange of best practices. As one interviewee
explained the network of accelerators brought together by CAIP, “The dialogue we have is
4
Trans. “It's organized in exactly the same way, except for some particularities of the Quebec system and that it
is for entirely new projects.”
23
amazing, one of the best parts of the program. Sharing best-practices etc. It makes synergies.
We can accelerate each other.” This cooperative element is generally regarded as a highly
constructive one that allows innovation intermediaries to improve and develop capacities
more quickly than would otherwise be possible.
However, to the extent that innovation intermediaries try to identify and attract the best
companies as clients, innovation intermediaries are technically one another’s competition,
especially for those which operate in the same industry sector. Interestingly, when asked
about their distinctiveness and potential competitors, without fail, every single CAIP
participant that was interviewed made the identical claim to the effect that “nobody is
operating in the same space as we are”. For the few CAIP participants that are the only ones
working in a specific industry sector, such as pharma or agtech, this assertion is more
plausible. However, if we include the entire community of innovation intermediaries in
Canada, then it is obvious that they do have competitors. Entrepreneurs looking for support
and mentoring constantly compare different intermediaries, both across Canada and in the
U.S.
Many of these organizations are regionally focused and perceive their mandate as building
the ecosystem in their region. To this extent, they do not compete with the organizations
focused in different regions. However, as discussed earlier, some interviewees perceive that
regional economic development is the wrong focus for successful firm incubation and
acceleration and that too many weak intermediaries are being funded based on that goal. In
this sense, even regional focus creates competition, whereby stronger intermediaries are
calling for consolidation and others are suggesting that regional economic development
policy be separated from innovation policy geared to growing robust, globally successful
Canadian firms.
This competitive tension is reflected in an interesting evolution of CAIP’s mechanisms for
allocating funding amongst program participants. While participants each received a
dedicated funding envelope for their exclusive use, not all participants were able to use this
funding in each year. The result was a surplus of CAIP funds that were unassigned to any
particular participant. The existence of unassigned funding allowed participants to apply for
“top-ups” on the basis of successes in utilizing their initial allotments. Of course, those
applying for “top up” funding had already spent their initial allotment.
Those participants who were unable to match the CAIP funding, or who could not
meaningfully use the CAIP funding to expand their operations or offerings, essentially freed
up those resources for use by other applicants. According to one interviewee, this system was
developed by the participants themselves who took note of ‘slack’ and proposed
supplementary projects to administrators that would fit within the mandate of CAIP. In this
sense, it represented a reallocation of funds from the less successful CAIP participants to the
more successful ones.
24
This competitive dynamic was generally in line with the philosophical approaches of the
innovation intermediaries themselves, who view competition as key to successful innovation.
One interviewee explained in relation to CAIP funding that from their perspective, “Trying to
spread the money around to make everybody happy will get you nowhere. You need to pick
winners and let losers wither on the vine.” The overwhelming majority of innovation
intermediaries felt that this dictum applied equally to their client firms receiving their
support, as it did to the innovation intermediaries themselves.
Criticism of restrictive government requirements
CAIP funding recipients identified a number of restrictions placed on funding eligibility
(some felt they could not make a competitive application), spending (e.g.. on expansion of
offerings rather than regular operations) and the requirement that public funding be matched
by an equal amount of private funding. These requirements were most often mentioned by
CAIP participants as program deficits and similar features of other government programs
were similarly identified as problematic by non-CAIP interviewees. Interview results
indicated that these requirements were built into the program by central agencies and not by
CAIP designers specifically.
5
One result is that it becomes difficult to segregate responsibility
for different elements of the program design that have proven either effective or problematic.
CAIP detractors state that the reporting requirements are too onerous, the eligible
expenditures too narrow and the scope of possible action distortionary. To name one
example, the funding could easily be put to use for a new hire that would facilitate another
program, but it might not be allowed to allocate funds to existing staff or operations. One
innovation intermediary described themselves as in a difficult position stuck between
government and young firms, stating “Startups are dynamic, quite the opposite of the
bureaucratic processes which govern our funding.” Another innovation intermediary
explained, “There is a lot of administrative burden with government funding. Government
needs accountability, to be sure, but it's getting tedious. The amount of red-tape might soon
get to the point of being so onerous as to defeat the purpose...There is a big disconnect and
one that keeps us from being as nimble as possible.”
Policy designers counter that program participants will always push for less restrictive
requirements even in circumstances where they have already been minimized to the greatest
extent possible. In fact, one innovation intermediary quipped:: “government has to be able to
say ‘no’ to entrepreneurs. Entrepreneurs always ask for (more) money.” Certainly, there is a
compelling case to be made for reporting requirements, especially when government is
responsible for overseeing the disbursement of such large sums of money. Nonetheless, some
5
Specifically mentioned were the financing requirements of the Treasury Board Secretariat and the Department
of Finance, which apply to a wide range of programs, not just those limited to innovation intermediaries. It
should be further noted that the types of requirements are not unique to the government of Canada but are
common to many comparable government funding programs in other jurisdictions and at other levels of
government.
25
interviewees felt that CAIP was too onerous even when keeping these considerations in mind.
To quote one: “All the government funding comes with some sort of measurement
requirements, but CAIP might be one of the more demanding ones.”
One innovation intermediary outlined their idea of how a revised system would work: “If we
(innovation intermediaries) have demonstrated credibility, we should receive more flexibility
in return. In practice though it doesn’t work that way. We should be reporting on outcomes
and have a free hand to decide how that works. Especially since projects are often multi-year
and so things change. We need to change and amend agreements to match the
circumstances.” While this particular prefered approach may or may not be technically
feasible from the standpoint of the public administration, it is interesting to note that the “pain
point” for many innovation intermediaries is more about funding flexibility than the amount
of funding itself.
This call by CAIP funding recipients for more flexibility and their criticism of restrictive
requirements imposed by government could reflect disparities between the objectives of
practitioners and funders. Whereas government may feel the need for incrementality and
regional focus, practitioners want results for their client firms. For them, it doesn’t matter
where their clients come from or whether or not they represent a new type of client or the
beneficiary of a new service offering. Government requirements that limit an intermediaries’
flexibility in serving its client are particularly restrictive from a business perspective, where
financial success stems from having the best clients and an optimal number of them.
Interestingly, prior research
6
indicates a close association between the flexible use of
government funding and the number of government stakeholders that fund an innovation
intermediary. Innovation intermediaries that received funding from two or more levels of
government were likely to have much greater discretion over how that funding was put to
use. In other words, there is already a de facto flexibility in funding use that is afforded to
trusted organizations, in the sense that they have been vetted by multiple levels of
government. This finding is important and bears further research. It may be that the current
system disproportionately rewards those organizations that have greater administrative
capacity or familiarity with government, not necessarily those with the greatest capacity in
the core functions of innovation intermediaries. Or it could be that government funders are
attracted to intermediaries that are already successful. As one interviewee noted: “We had no
government attention before we were successful. They didn’t care, they didn’t want to see
us.”
Interviewees expressed other concerns about the underlying assumptions of the program and
how they translated into the program design. For one, “Government sometimes gets confused
between the difference between incubation and acceleration, seed and scale. Distinctly
different areas with different problems and solutions, they should be unbundled.” These
6
Forthcoming publication from the Impact Group.
26
issues point to the need for more clear methodological distinctions in program selection
metrics and in any future iterations of CAIP.
D) Start-Up and Scale-Up Perspective
The client firms of innovation intermediaries bring a distinct and valuable perspective to
policies in support of innovation intermediaries and the innovation ecosystem more generally.
Client firms were seldom aware of the nuances of the CAIP program or similar supports of
innovation intermediaries because they do not themselves interact with these programs. Yet
as direct users of the innovation ecosystem and clients of the innovation intermediaries, client
firms provided a valuable perspective on both the successes of the innovation ecosystem
generally and of innovation intermediaries more specifically. Client firms were asked about
their experiences with innovation intermediaries, their interactions with public policy more
generally, and what conditions, if any, would improve their competitive position.
Firms connect with multiple Innovation Intermediaries
Many client firms were found to be affiliated with multiple innovation intermediaries at the
same time, with one particular firm that was interviewed having being affiliated with as many
as four innovation intermediaries concurrently. From the perspective of client firms, this was
undertaken as a form of support system arbitrage, where client firms would utilize the “best”
supports available at each innovation intermediary. Of those client firms that had
relationships with multiple innovation intermediaries, a majority suggested that this was done
intentionally to take advantage of specialized offerings for each.
In that vein, it was not uncommon for a client firm to seek incubator support from one
innovation intermediary, training from another, and investment capital support from another.
Interviews with innovation intermediaries themselves seemed to recognize this phenomena,
with some innovation intermediaries specializing their support offerings in one area, and
referring client firms to the specialized supports of other innovation intermediaries as
necessary.
Given this prevalence of firms engaging concurrently with multiple intermediaries, it is both
conceivable and likely that successful overall outcomes from a single firm may be counted in
the output of multiple intermediaries. Firms that arbitrate between multiple innovation
intermediaries are likely to be counted separately in the success metrics of each innovation
intermediary. Outputs of innovation intermediaries are often reported in aggregate, rather
than being deconstructed in such a way that ensures that partial results are ascribed to partial
supports. As a consequence, there is a very real risk that successful firm outcomes are being
over-reported. Interestingly, some client firms seemed to be aware of this possibility as a
result of their interactions with innovation intermediaries.
27
There is also the possibility that successes are being over-reported across multiple levels of
government, with provincial and federal governments each claiming responsibility for the
same successful outcomes. For example, one firm could utilize supports from three separate
intermediaries, each of which is supported by both federal and provincial government
programs. In this case, the value of a successful exit could appear in official reporting a total
of six times instead of once.
The question of attribution for successes or failures is tricky. While every intermediary that
has touched a firm that is ultimately successful wants to claim responsibility for that success,
in reality most successful firms avail themselves of many different supports along their
development path. If they do succeed, the success reflects on the overall innovation support
ecosystem; just as firm failures do. Single attributions are difficult to demonstrate and may
actually not be relevant in the context of the overall ecosystem.
Nonetheless, intermediaries strive to claim responsibility for successful firms that have
passed through their doors. In fact, some intermediaries actually chase after successful firms
in the hope they might be able to attribute part of the firm’s success to their affiliation with
the innovation intermediary. Although this was never mentioned by innovation
intermediaries, some client firms reported that after they had achieved some significant
demonstrable success, they were subsequently approached by multiple innovation
intermediaries who were seeking some sort of marginal and superficial affiliation with their
firm. One successful firm reported that as they moved to their Series B funding round, they
began to receives non-stop recruitment inquiries from incubators even though it was clear
that the firm was far too advanced in its development to have any plausible need for
incubation space. Nonetheless, the firm’s success is what encouraged greater solicitation of
support services, an inversion of the relationship that is intended by policy designers.
Using the Offerings of Innovation Intermediaries
A surprising number of client firms expressed a lack of awareness of the functions, offerings
and capacities of innovation intermediaries, both generally and also in the specific case of the
innovation intermediary with which they shared an affiliation. Although the difference
between incubators and accelerators were generally clear in broad terms, the porous
boundaries between these types of intermediary was a source of confusion for many
interviewees. Many client firms were only aware of the supports that they were utilizing and
were unaware of the innovation intermediaries’ overall offerings. Some were aware of the
total package but suggested that only a small share of supports being offered were relevant or
useful for firms in their position.
With that said, most client firms interviewed reported satisfaction with the services of
innovation intermediaries and a significant share reported that these offerings were crucial to
their firm’s development. However, there was no clear pattern as to which services were most
useful to client firms since many firms were unsure and the sample size was too small for any
28
claims in this space to be systematic.
Interactions with Government
Client firms often expressed difficulty in interacting directly with government and potential
investors. Firms with longer time horizons for product development were most likely to
express concerns about their interactions with government whereas firms with shorter time
horizons for product development were most concerned with having quality interactions with
private investors. Innovation intermediaries were often deemed necessary to bridge the gap in
communications capacity; client firms often felt that could not communicate with
government because those communications would have to be prohibitively technical. In some
cases, this communications function with government was identified as the principal reason
for linking-up with an innovation intermediary.
When speaking specifically to interactions with government, client firms relayed that there
are a bewildering number of government support programs available which proved difficult
to navigate without assistance. It was challenging for them to understand which programs
may be relevant for their business type and stage of development. Many client firms were
unaware of the number of programs that could potentially be relevant to their operations. For
government support programs that they identified as relevant and useful, many expressed an
overwhelming difficulty in navigating application processes, eligibility criteria and reporting
requirements.
In many cases firms reported utilizing innovation intermediaries as supports when navigating
government programs and interacting with government more generally. In the words of one
interviewee, “Arms length innovation organizations like incubators and accelerators are the
most important part of the story in the innovation space. You can’t really work with
government directly. I fully realize that (innovation intermediaries) are government funded,
but they are not afflicted with the same problems as government.” This was one of many
critiques of government programs’ relative inaccessibility, which often centred around
themes of time constraint and slow response times that rendered programs often functionally
unusable by business.
Not only did clunky processes and high administrative requirements pose a problem for those
seeking to access government programs, but it also posed a problem for innovators seeking to
express their needs to government. As one entrepreneur explained it, “As a start-up/scale-up
company, I cannot spend time lobbying government. Not really. The incubator/accelerators
are my way of expressing my needs to government.” In this sense, many client firms felt that
innovation intermediaries were crucial portals for interacting with government and in some
cases, that they are fundamental prerequisites to receiving government support.
In spite of the value and capability that client firms often ascribed to innovation
intermediaries, as experts in providing supports to start-up and scale-up firms, innovation
29
intermediaries were inconsistently aware of the breadth, scope and requirements of
government programs which could be relevant to new firms. This inconsistency in
capabilities suggests a need for more training of intermediaries about government support
programs, including how to put them to use. The recent horizontal review of federal
government business innovation support programs is an important first step.
7
Seeking Investment Capital
With regards to private funding supports and the attraction of investment capital, client firms
similarly painted innovation intermediaries as being crucial nodes and portals for funding.
Unexpectedly, and in contrast to government support, this was less often the case from a
capacity standpoint than from a signaling standpoint. While many client firms undoubtedly
completed pitch training, some felt that it was not especially valuable to their business
success. Many felt that affiliation with an innovation intermediary was an important signal to
potential investors that their firm represented a viable opportunity, and one to be taken
seriously by prospective funders.
At variance with many of the claims of innovation intermediaries - which tended to portray
themselves and others as indispensable to the innovation and wealth creation process - a large
number client firms viewed innovation intermediaries’ facilitation of investment capital less
as a valuable training opportunity, and more as a rite of passage or form of signaling to
investors. That is to say, instead of them providing effective training per se, accelerators
effectively screen companies on behalf of investors. When asked about the value proposition
of innovation intermediaries, one intermediary explained that, “We tend to know if the
venture has been a good one. We understand the marketplace. We look at what the industry
needs, market pull signals, and we screen companies. “
This variance can help to improve the quality of investments being made while ensuring that
valuable endeavors are funded, to be sure, but it is important to ask the degree to which this
relationship may take on a disproportionate importance when compared to the services being
offered. There was some concern among those participating in interviews that association
with an accelerator becomes a necessary form of pre-qualification from the perspective of
many investors, a form of crude credentialism. While this may make sense from an
investment standpoint, it may lead to overstating the value of service offerings to
stakeholders at large, but funders especially. In this sense, while training from accelerators is
often closely associated with client firms receiving private funding, there may not be much
reason to expect this to be a cause-and-effect relationship.
If the training being offered by innovation intermediaries is not indisputably valuable to
7
Treasury Board Secretariat, “Inventory of Federal Business Innovation and Clean Technology
Programs.” https://www.canada.ca/en/treasury-board-secretariat/corporate/reports/inventory-federal-
business-innovation-clean-technology-programs.html
30
client firms, and indeed interviews with many client firms points in this direction, it may be
valuable to scale back their role to one of signaling and signaling alone. If innovation
intermediaries continue to be afforded a role larger than performing signalling, it is important
to understand and evaluate that expanded role on its own merits. The blending of the
signalling function with other operations makes it difficult to assess whether or not an
expanded menu of services for innovation intermediaries truly brings added value
commensurate with the additional expense of effort.
Some firms expressed that the proliferation of innovation intermediaries resulted in
somewhat of a risk avoidance on the part of investors. With such an expansion in the number
of client firms that had been in effect pre-qualified for investment by innovation
intermediaries, the pool of prospective funders would see their potential funding ventures
cluster around innovation intermediaries instead of being more broadly adventurous in their
selection. Some viewed this as tantamount to investor risk aversiveness. The idea that the
expansion in the number of innovation intermediaries increased investor risk avoidance, was
mirrored by interviews with VCs themselves. Investors indicated that the proliferation of
start-ups and scale-ups seeking funding made it increasingly important to pre-qualify
prospective opportunities to manage the flow of potential funding opportunities. and that
innovation intermediaries are a way of doing that.
Distortionary Pressures of Educational Objectives
The conflation of signaling with other functions, especially training, of innovation
intermediaries is evident among the growing number of campus-linked accelerators. The
often close relationship between these innovation intermediaries and post-secondary
institutions (and non-institutional funding for skills development for that matter) ensures that
educational objectives are often interlaced with funding eligibility. Many of these innovation
intermediaries may find themselves required to deliver educational outputs, which could very
well lie outside of their core competency, in order to remain eligible for their wider
operational funding.
In these cases, two fundamentally distinct mandates have been lumped together
circumstantially; entrepreneurial training and capacity building on one hand, and investment
pre-qualification through signaling on the other. In other words, there is evidence to suggest
that the educational mandate may be ultimately distortionary; pushing a forced marriage
between related, but not bespoke, institutional objectives. Indeed, some client firms
considered their business a “summer project” that would complement regular educational
requirements, and in all likelihood the start-up would be scuttled at the resumption of courses.
Nonetheless, the starting up of a firm would, in a “summer start-up” situation, be measured as
an independent success, as would the education and experience itself; a misreading of signals
to be sure.
The conflation of educational and commercial objectives in these entities is facilitated by the
31
relative disengagement of the private sector, but there was also the suggestion that the higher
education sector has over-expanded its role and mandate. One interviewee noted that, “a lot
of the universities have an empire-building perspective” adding that this results in many of
them “wanting to own the programming” even while this may not be appropriate. In this
sense, certain innovation intermediaries may find their operations subject to a form of
university “mission creep” which incentivises them to take on a training role that is outside of
their core competency.
Another potential explanation for this muddying of objectives and outcomes comes from the
apparent failings of business education being provided to students and potential entrepreneurs
in universities. As explained by one interviewee, “The way in which business students are
trained is inadequate… (commercialization is) taught from textbooks that are 10 years old…
(business students receive) no training as to how to evaluate market opportunity, how to
engage.” These shortcomings push students to find their own experiential learning and
indeed, it is not uncommon for university entrepreneurship courses to encourage students to
interact with the university’s innovation intermediary.
Assessing Innovation Intermediaries
Innovation intermediaries possessed an extremely wide array of mandates and missions, both
in the variety of undertakings across the totality of intermediaries and also in the range of
objectives of individual intermediaries. This fact is generally celebrated as an indication of
the diversity of supports being offered to firms in the Canadian innovation ecosystem. A
more pessimistic perspective would consider whether this diversification was occurring at the
expense of specialization. Indeed, an organization, any organization, that is all things to all
people is at risk of promoting breadth over depth.
The dynamic of specialization versus generalization was sometimes the subject of strong
opinions among the innovation intermediaries interviewed. Usually, this took the form of
smaller, more specialized innovation intermediaries critiquing their larger, more generalist
counterparts. These critiques sometimes addressed the capacity for operational effectiveness
and on other occasions were aimed at the validity of the organizations themselves. A
multiplicity of operations tends to engender a multiplicity of cross appointments and funding
pools, which produces a degree of opacity that some interviewees found suspect. One well-
known initiative was critiqued as being a “real-estate play” disguised as an innovation
intermediary, for its propensity to be accompanied with new high-value building
developments.
A minority of client firms indicated a disconnect between the availability of funding and firm
growth, even though addressing this kind of disconnect was the original purpose of the
VCAP program under the auspices of which CAIP had been created. These firms expressed
concern with the equity stakes that they would be required to forfeit to investors in order to
secure additional funding. Diving deeper, the concern was that private equity was available,
32
but not necessarily working capital, which forces early stage firms into a disadvantageous
position. In wider terms, few client firms expressed concern with a lack of available funding
for successful high growth firms, something confirmed by innovation intermediaries
themselves. With that being said, many firms expressed that there were significantly greater
opportunities to attract capital in other jurisdictions, with Silicon Valley being often
mentioned as a best practice.
A striking result was the near uniformity in responses pertaining to potential markets and
relations to global value chains. Nearly all client firms, regardless of sector or size, self-
identified as “born globals” that would immediately pursue a growth strategy based on global
demand. Similarly, nearly all firms identified themselves as focusing on business to business
transactions, with the marginal exceptions being firms that sought to sell directly to
consumers as a complement to a product or service offered by another business. Most of
these businesses targeted for sales were themselves global, or at least multinational, in size
and scope of operations.
Assessing CAIP
At the same time that many suggestions were offered for improvement and critiques were
leveled against the CAIP program and its administration, only a small minority of
stakeholders critiqued the fundamental basis of government initiatives to support innovation
intermediaries. The overwhelming majority of interviewees felt that CAIP, while containing
some flaws, was a successful program and one that should be continued in some form or
another. Of those generally supportive of the program, a significant number were
emphatically supportive and did not suggest the need for major changes. The vast majority
however felt that the program required an in-depth diagnosis to upend various failings or
inefficiencies, and that the program merited effort at continuous improvement.
It is worth noting that there were relatively few elements of the program design where
stakeholders were in agreement about which changes would benefit CAIP and similar
programs. Some of these critiques contradict one another, but the majority simply focused on
different elements of the program that had relevance to themselves. Nearly all critics agreed
that the program would benefit from a reduction in red-tape, reporting requirements,
restrictions on the use of funding and general improvements in how program administrators
interacted with private sector stakeholders. Program designers were quick to point out that
these critiques are common to most government programs and therefore are not a specific
function of CAIP. Although far outside of the scope of this report, and even innovation policy
analysis itself, there is a clear appetite for improved government processes and interactions.
A small minority of respondents were highly critical of the program and the fundamental
basis under which it had been designed. These critiques centred around concerns for the
competitive mechanisms of such programs and their impact on innovation and economic
development. This included concerns that these programs generally reward the ability to
33
successfully interact with obtuse government programs rather than the ability to successfully
support innovation. More roundly, these interviewees tended to suggest that government
supports in these areas effectively amounted to a sophisticated variation of unconditional
support for intermediaries, or in other words, government handouts that fundamentally did
not reward the types of activities they set out to support. Although the term itself was seldom
used, these critiques could be surmised as concerns about rentiership, or rent-seeking
behaviour, among innovation intermediaries.
This minority of respondents leveled the criticism that those innovation intermediaries most
eligible to receive government support are often those that are the most risk averse and
incremental. The essence of the critique is that only large and established innovation
intermediaries would have the processes and administration in place to make them
competitive for government grants. Much to the same end, other interviewees suggested that
there is little diversity in the innovation intermediaries which win government support; that it
is always the same “usual suspects” that are awarded government funding.
It was seldom the large and most-well known innovation intermediaries who engaged in this
vein of criticism; rather this critique most often emerged in interviews with smaller players.
On one hand, this is perhaps to be expected. Indeed, those benefiting directly from a policy
inefficiency are unlikely to criticise the circumstances which give it rise. On the other hand,
this vein of criticism could also be chalked up to sour grapes, or the propensity to disparage
the more successful. A full assessment of this dynamic is beyond the scope of this research,
but in either case, the possibility of a policy inefficiency in this area is at least plausible and
thus merits closer attention from policy designers.
From a similar perspective, it is remarkable to note that only three of 16 CAIP participants
received under $2 million in funding through the program, and only one received under $1
million. This raises the question of whether smaller innovation intermediaries are viable in
the running for government programs at all or if they are effectively disqualified by the lack
of administrative capacity that comes with having a small size. Certainly, it is difficult to
imagine small and highly lean organizations having the excess capacity available to compete
in government funding processes. One interviewee even went so far as to suggest that this
presented a perverse incentive, that the smaller and leaner the innovation intermediary, the
more apt it is to do a good job and the less apt it is to successfully compete for government
support.
A surprise was the degree to which the CAIP funding had traveled. While conducting
interviews with the control group of intermediaries (those who were not part of the CAIP
program) it became clear that many organizations that were not directly participants in the
CAIP program have some association with its funding pool. This usually entailed a
partnership or cooperative relationship with an organization that was receiving funding from
CAIP. This suggests that the impact of CAIP on the operations of innovation intermediaries
may well have been much wider than had been intended at the outset.
34
E) The Triple Helix Model
The academic literature on innovation often speaks of innovation as following a “Triple
Helix” model where responsibility is shared in roughly equal measure between research
(universities), industry and government (Etzkowitz and Leydesorff, 2000). A recurring theme
across interviews among all stakeholders was whether or not the “industry” part of the triple
helix continues to shoulder a fair share of its responsibility for advancing innovation,
specifically large corporations and finance. Many in fact suggested that “industry” had ceded
much of its traditional role in the innovation process and that the slack was being picked up
by the remaining stakeholders, specifically researchers/entrepreneurs and government.
Indeed, the present balance of responsibilities in the start-up and scale-up community is
highly advantageous to industry, especially in comparison with traditional in-house models of
innovation and research.
Text Box: Innocentre - A Best Practice in the Triple Helix Model
Innocentre, headquartered in Montreal, uses a unique model whereby investors are also key
stakeholders in the non-monetary support offerings to scale-up firms. In addition to being
responsible for providing capital to Innocentre’s client firms, as well as to Innocentre’s own
operations, investors also sit on advisory boards, offer favourable non-market rates to client firms
for their services, and pre-qualify firms to receive support from Innocentre. On one hand, this
allows client firms to be afforded a quality of service they would otherwise not be able to afford on
the open market. “Entrepreneurs are fed up with paying for lawyers and consultants at $600 per
hour.” explains Pierre Nelis, Chief Operating Officer, and Innocentre bridges the gap between the
services that scale-ups need and what costs they can bear.
There is a mutual benefit to investors who are able to minimize risks to their investments with the
assurance that the client firms are receiving sound advice, while also recouping some of their costs
with these in-kind offerings. “They lend their marketing folks, their staff. This is an important
element.” explains Claude Martel, President of Innocentre. “For (investors) it's a way to show that
they are more than just money. (Client firms) could not succeed by doing it alone.” As a case in
point, one of Innocentre’s client firms explained how their relationship with Innocentre not only
provided them with a gateway to investment capital, but also the know-how to attain preferential
terms. As our report shows, access to investment capital is in many cases less important to client
firms than the terms of that capital.
When asked about how Innocentre measures success, Claude Martel was proud to point out that
Innocentre had attracted over $200 million in investment so far, but that's not all, “Aside from
capital, we care a great deal about the satisfaction of our clients, being of course both entrepreneur
and investors... Ultimately, the most important way we judge success is by repeat business.” Since
in this situation satisfied clients tend to be those who have had success in their business (through
growth in market share, profitability etc), client satisfaction proves to be an effective shorthand for
commercial success. In addition, Innocentre’s model is politically saleable since government
35
capital, especially from les Fonds Fiscalisés, must be employed towards locally significant
initiatives. Although there are no job creation requirements strictly speaking - an imposed success
metric which risks being distortionary- there is little doubt that these initiatives create local
employment desired by political stakeholders.
One of several remarkable features of Innocentre, this partnership model permits Innocentre to
reconcile the interests of all three members of the Triple Helix and assure deliverables for each. It
does this while avoiding potential cartelization by introducing competitive mechanisms internally
and cultivating a spirit of competition and entrepreneurship.
The current model centred around innovation intermediaries allows the private sector to
mitigate many of the risks and financial obligations associated with the expected mis-starts
and dead-ends of the research and development process. Rather than taking on the largest
share of the costs and risks of research commercialization, “industry” becomes involved later
and later in the R&D process once their risk has been further minimized. In essence, the costs
of this part of the commercialization process are effectively passed on in greater share to the
other two stakeholders of the “Triple Helix”. While this arrangement is advantageous to large
corporations and others in private industry, this is not a costless arrangement with many of
the financial burdens and risks of investment being transferred onto the other stakeholders in
the innovation process. One interviewee from an innovation intermediary expressed
frustration with this situation by demanding, “Where is the private funding that matches our
funding? Private capital needs to take some risk too!”
8
While some interviewee claimed that private capital has become impossibly risk averse may
well be overblown, it is nonetheless clear that the initial formulation of the Triple Helix
Model has evolved since its initial formulations. By many indications, large corporations are
relying less on in-house models and more on start-ups that are more nimble, and thus on third
party organizations which can facilitate their growth. An argument could be made that the
growth of innovation intermediaries phenomenon is a product of these new circumstances,
whether they be the open innovation model, dry powder accumulation in capital markets or
otherwise. Whatever the cause may be, the rise of innovation intermediaries would seem to
indicate that the Triple Helix Model has undergone a significant evolution.
This phenomena may be especially marked in Canada, where Higher Education Expenditure
on R&D (HERD) is one of the highest in the OECD while Business Expenditure on R&D
(BERD) component is comparatively one of the lowest (Crelinsten, 2017). This imbalance
has led Canadian governments to fund institutional research partners like universities to
provide commercialization support mechanisms (including innovation intermediaries of
course) as well as funding of applied research. This reliance on government-funded spinoffs
8
Although only a small number of interviewees mentioned this, there are in fact several examples of large
private firms actively engaging in the operations and financing of innovation intermediaries themselves. Several
innovation intermediaries of these kind were part of the sample, and other such arrangements have emerged over
the timeline of this research.
36
from research institutions has been widely unsuccess and the belief that technology will
necessarily yield business opportunity has proven false. New firms face an ever wider
innovation Valley of Death due to inability to meet business challenges.
Despite high levels of expenditures to support startups, specifically through HERD, Canadian
startups increasingly rely on the savings and deferred earnings of their founders to get to the
point of a successful exit or sustainable long-term growth. The increasing government
support of innovation intermediaries to furnish these fragile new initiatives with the necessary
non-market financial supports can be partly interpreted as being the result of the
shortcomings of the university-led system of entrepreneurship.
Public vs. Private Capital
When interviewees were asked more specifically about the relationship between capital
financing and firm growth, businesses were significantly more likely than other interviewees
to respond that the relationship was not linear; that the strong availability of capital financing
was not closely related to a firm’s ability to grow. Upon further investigation, it became clear
that the key factor at play for entrepreneurs is not to the availability of capital overall, but the
type of capital that is in abundance and the ultimate investment objectives of financiers.
Many entrepreneurs felt that the objectives of prospective financiers were often incompatible
with the objectives of their firms, and sought to make profitable returns far too early in the
firm life cycle.
As explained by one entrepreneur, “Most VCs are looking to invest for short-term and to
“flip” the company and make a bunch of cash…(you must) avoid that trap of being stuck
going from short horizon capital to short horizon capital.” One respondent stated the
relationship more bluntly, “We don’t want capital… VC is always looking for equity and we
don’t need that, what we need is a fair line of credit.” In other words, that there is an
abundance of investment capital chasing scarce opportunities but little real risk capital or
banking sector appetite for risk. Yet public capital allocated to innovation intermediaries is
not sufficient to fill this gap, suggesting that there is room to consider alternative policy
measures.
The relationship between the public sector and risk-avoidant behaviour viewed in the private
sector should be an overarching consideration for policy designers to keep in mind in the
development of future programs. Certainly, risk avoidant behaviour has the potential to make
innovation difficult, but to what extent should government intervene? Innovation
intermediaries and other public programs do not exist to eliminate risk for private sector
investment but rather to make risk more palatable. Where risk is too high to merit the realistic
returns to private capital, but the initiative would have social benefit such as increased
employment, higher investment impact or long term taxation benefits, it may make sense for
public funding to tip the balance in favour of continued investment. It is important that all
those in the Triple Helix not lose sight of the ultimate purpose of public funding, which is to
37
support the public interest.
Post-Secondary Institutions and Innovation
Many client firms had their early beginnings in a post-secondary institution, having been
student founders or building on the commercializable implications of research that had been
developed in the institutions. While this fact fits well with the standard narrative of research
commercialization (“from ideas to market”), it may not necessarily prove a causal
relationship. A large number of founders coming from post-secondary institutions cannot, by
itself, be taken as a confirmation that the institutions themselves are particularly conducive to
innovation. In fact, the Conference Board of Canada recently lambasted Canada’s post-
secondary education system for having much higher funding and attainment rates than peer
countries, with simultaneously lower education outcomes and graduate employment rates
(Lalonde and McKean, 2017).
At the core of the issue is whether post-secondary institutions actively make a contribution to
innovation rather than simply being associated with outcomes for which they fundamentally
bare little responsibility. When asked the degree to which post-secondary institutions
contributed to innovation, respondents’ assessments of these institutions were usually mixed
at best, although their opinions did range greatly depending on their experience. A
noteworthy share of interviewees held decidedly negative views about universities and their
role within the innovation ecosystem, viewing their effect to be neutral if not negative. As
one interviewee explained, “Don’t get me wrong, I believe in discovery and basic research...
but this whole idea of universities as commercialization engines… I mean, it is just not a
thing.”
With regards specifically to the education being provided by post-secondary institutions,
interviewees generally appreciated the ability of post-secondary institutions to train for
technical skills in STEM fields, especially in those experiencing labour shortages, such as
software development. The value of business education was met with decidedly less
enthusiasm, with university business degrees in particular often being critiqued for being too
generalist and formulaic. Most innovation intermediaries felt that no degree of business
education was a substitute for experience and that regardless of prior education, the
entrepreneurship support provided by innovation intermediaries remained crucial. Some even
suggested that prior business education could be problematic, with students having to
“unlearn” overly hypothetical (theoretical) curriculum.
Research produced in the academy was generally viewed by interviewees to have low utility,
a result decidedly at odds with existing conceptualizations of the innovation model.
Responses from all stakeholders outside of the academy (client firms, innovation
intermediaries and other policy experts) generally indicated that academic research had little
real-world utility, and could be successfully commercialized in only a small minority of
circumstances. When asked about the value of university research, the response from
38
innovation intermediaries in particular was overwhelmingly negative. In some cases,
respondents indicated that having research experience itself was useful, but more as a way of
spotting particularly talented individuals rather than finding potentially commercializable
discoveries. Interviewees generally considered talent as the most important output from
universities, not research.
Innovation intermediaries made suggestions to the effect that a celebrated research profile
indicates a researcher with potential, not that they have produced research of value. In the
words of one innovation intermediary, “university research (in tech) spends all its time
reinventing the wheel or making incremental improvements on technology that was cutting
edge 10 years ago. That's how it works there. So when we see a researcher with potential, we
are interested in them, not their research.” Investors made similar claims, including one who
went so far as to suggest that the only commercially-viable research in universities is
commissioned by the private sector in the first place. All this would seem to indicate a
serious decoupling between HERD spending and actual research outcomes that desperately
needs to be addressed.
One interesting observation is that innovation intermediaries are on occasion pairing up with
post-secondary institutions for the sake of research infrastructure. Innovation intermediaries
often lack themselves the necessary funding to offer laboratory space for client firms, which
may ultimately prove necessary for future testing and ultimately commercial viability. In
several cases, universities or colleges provided agreements to share their lab space as
necessary. In others, innovation intermediaries and post-secondary institution took on shared
responsibility for this infrastructure, operating “tool libraries” for esoteric technologies and
the like.
6) Policy Recommendations
Policy designers must take a hard look at the propensity for the same innovation
intermediaries to continuously be awarded government supports. This tendency may
ultimately be indicate a systemic issue in innovation policy and may be a function of the
inability to effectively evaluate commercialization success on its own merits. To that end, it
may prove valuable to consider enhanced scrutiny for innovation intermediaries that
habitually receive large government support programs, instead of the current practice which
in many cases end up being the opposite. One prospect could be an escalating scale of
scrutiny that increases with the frequency or volume of government funding being awarded.
Another consideration would be for a comprehensive assessment of the totality of
government funding being received from all levels of government, rather than the status quo
where all funding contributions and their outcomes are evaluated independently of one
another. The recent horizontal review of the federal government’s innovation support
programs is an important first step.
9
9
Treasury Board Secretariat. “Inventory of federal business innovation and clean technology
39
Commerce is increasingly globalized and interconnected for a country like Canada, and
government policy and rhetoric has come increasingly to match this reality. For new firms,
scale-ups and innovation intermediaries, the reality of globalization is abundantly clear and is
being advanced by policy initiatives and firm-level action. Yet the importance of global
operations may be emphasized to the point of tautology. All innovation intermediaries and
firms interviewed recognized the importance of globalization and integration with global
value chains and production networks, so policy incentives for “going global” were often
viewed as redundant. Even firms whose operations, networks and finances were exclusively
local (a rare bunch to be sure) clearly recognized that their end markets would ultimately be
global.
All of this is to suggest that the continued emphasis on prioritizing global trade may require
some adjustment in programming in order for this policy to be meaningful and effective.
Certainly, global trade and integration will (and should) remain a priority for Canada, but the
changing nature of both innovation and globalization calls for a reassessment of the
instruments through which this is achieved. Preferential treatment and prioritization of firms
who sell globally according to preconceived notions of global integration may ultimately
privilege some firms, or whole industries, for reasons unrelated to the end objectives of the
policy. For instance, a canola innovator may find the supports available to them to be
inapplicable even while they may directly contribute to significant increases in Canadian
exports.
Certainly, this is a complex issue and one which is subject to changing circumstances. Suffice
it to say that the trade-focused supports being made available to start-ups and scale-ups would
benefit from closer study. One suggestion would be to create more “open source” government
supports which can be used in a variety of circumstances and foster a greater openness in how
organizations are selected for government support. Policies which continue to adhere to a
traditional conception of trade based on the exchange of finished products, rather than the
reality of global supply chains, are likely to experience diminishing effectiveness as trade
bypasses these outdated expectations. Further research and policy innovation in this area
could ultimately hoist the Canadian innovation ecosystem into a greater leadership position.
There needs to be a careful assessment of the de facto distribution of responsibility employed
in Canada’s Triple Helix model, as there are many indications that it may be misaligned. An
important clue would be to establish what proportion of innovation-oriented companies are
pre-revenue (sales) and remain that way without achieving sustained profitability. If the
overall body of start-ups and scale-ups is weighted heavily towards non-revenue firms that do
not achieve a commercial success, this is in part an indication that industry could be reaping
benefits of public support for innovation without making a commensurate contribution to
programs.” Government of Canada. 2017 https://www.canada.ca/en/treasury-board-
secretariat/corporate/reports/inventory-federal-business-innovation-clean-technology-programs.html
40
Canada’s innovation economy. While some might argue that it is normal for the vast majority
of firms to fail, the injection of public funding into this equation demands a greater degree of
responsibility for outcomes than a purely laissez faire approach to finance capital and
successful firm creation.
Government programs, especially in support of economic development, will often face
competing pressures for program effectiveness on one hand, and for equitable distribution
among constituencies and regions on the other. Donald Savoie’s recent work addresses this
issue, and while he speaks to regional development more generally, his observations also
speak to the regionalism affecting the distribution of federal support for innovation
intermediaries.
“Regional economic development is particularly vulnerable to solutions
looking for problems. Certainly, politicians representing low-growth regions
will always be on the lookout for solutions to what ails their region and ask
that something be done… It is scarcely an exaggeration to assert that, when it
comes to regional development, federal public servants have essentially
turned the steering wheel over to the politicians and said, ‘You drive and you
come up with the solutions.’ The result, as we have seen, is a series of
regional development agencies covering all of Canada and a policy that cries
out for coherence and clarity.”
10
Certainly the distribution dilemma has affected funding programs for innovation
intermediaries. The competing interest between the regional demand for development support
and the desire to help foster Canadian “unicorn” firms, was apparent in the CAIP program.
This was to the frustration of interviewees working in this space, and can reasonably be
understood to have limited the program’s effectiveness. This could be addressed in future
iterations with a bifurcation of funding, so that there are separate streams addressing the
regional component and the “unicorn” component. The federal 2018 budget suggests that the
program formally known as CAIP will likely be divided up and ultimately become the
prerogative of Canada’s regional economic development entities. Certainly, this presents the
opportunity to address the conflicting pressures of regionalism, although close attention will
nonetheless be required as this new programming is manifested.
Finally, work would echo Savoie’s call for increased coherence in economic development
policy in the context of innovation intermediaries. The most significant issue affecting
Canada’s supports for innovation intermediaries is its fractured nature, distributed decision-
making and overwhelming emphasis on responding to the incentives and needs of the
political level. This results in a situation which permits many to claim a hand in success while
being absolved of responsibility for failures. Indeed, far too many of Canada’s innovation
intermediaries eke out their existence on the basis of government’s shortcomings in the
innovation space; namely lack of customer service for start-ups and scale-ups and stifling
10
Savoie, 2017. 234-235
41
bureaucratic miasma. Government needs to exert leadership in this space so that the truly
remarkable innovation intermediaries have the supports they require, while the remainder are
permitted to fail, or develop a mission more appropriate to the needs of innovators.
42
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