Posted on | April 16, 2010 | 4 Comments
I saw it coming.
Now it has happened.
As foretold in my recent open letter to Prime Minister Stephen Harper, the National Research Council (NRC) of Canada’s Industrial Research Assistance Program (IRAP) has again abruptly halted accepting new requests for support. Unfortunately, IRAP program suspensions are becoming regular annual affairs.
Only back in business for just a couple of months now, this innovation support program’s shutdown comes only days into the Government’s and IRAP’s new fiscal year that started April 1st. Why you may ask? Well, the straight answer is: they quickly ran out of money once again because of Federal Government under-funding.
What Happened to the Money?
This may seem surprising because the Government of Canada’s March 4th Budget 2010 said how they were, for a second year now, confirming a C$100 million investment coming from the Canada Economic Action Plan (CEAP) to be made through NRC-IRAP which would “help the Government build a competitive advantage for Canada based on excellence in science and technology”. But, given the aforementioned development, I suggest that this C$100 million in funding is either fictional or it’s being siphoned off to pay for Government overheads or social infrastructure costs like Universities and government departmental and affiliated organizational payrolls. The result is that this announced (but maybe not to be spent) funding will not, therefore, make its way into the bank accounts of small and medium sized business (SME) where it could have supported new wealth and tax base creation R&D.
Canada’s Federal Government Under-Funds SME R&D
In comparison to the US, Canada’s Federal Government declared support for SME R&D is half what it should be. This is because, as Canada is 1/10th the size of the US in terms of both population and GDP, our spending here should be C$200 million, not the above mentioned C$100 million, for the US Federal Government website reports “their Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs award $2 billion to US small high-tech businesses” every year .
From my own first hand experience, and from second hand stories I have heard, I know NRC’s IRAP program is vital to many of the early stage innovation companies in Canada. From their ranks will come our technology superstars of tomorrow. That is, if they can find a way to survive until then. And in today’s post-Great-Recession tough business climate, NRC IRAP support today is all the more vital.
Description of NRC IRAP
For those companies that qualify and are judged of sufficient potential to get approved, IRAP offers refunds up to 75% of incurred project R&D costs for a three year period to a maximum of $500,000. Eligible IRAP refundable expenses are those internal and external R&D project-related costs that include employee salaries, materials, laboratory and consulting expenses, but no travel or capital expenses. To be considered for funding, businesses in southern or urban Canada must have no more than 500 employees whereas no workforce size restrictions are applied to companies in remote communities.
Interestingly, the grant and tax credit application assistance firm INAC Services Limited of Guelph Ontario reports that IRAP discourages SME companies from hiring consultants to help them prepare their IRAP applications even though neither English nor French is the first languages for approximately 80% of all Canadian business owners.
Based on INAC’s experience with IRAP common practice, they expect this program’s 250 employees will only start taking in new proposals again in December, some seven months from now. For those deemed best qualified and most promising, they will have to hold on somehow until NRC gets more program money at the beginning of the Federal Government’s next fiscal year, which starts April 1, 2011. Of course, that is unless someone in Ottawa opens up the Government’s purse sometime earlier (not much chance of that I fear).
What Should You Conclude & What Should You Do?
What should we take from all this? I suggest these are your take-home conclusions:
- Canada’s Conservative Party doesn’t really care about stimulating innovation, particularly if it is in non-natural resource industry sectors;
- Canada’s Conservative Party doesn’t really care about encouraging SMEs to be more successful, grow or increase employment; and
- Canada’s Conservative Party doesn’t really care it they spend $25 million to have 250 IRAP program employees sit around doing nothing much for 9 months each year.
If you care about this situation, I suggest you support my March 19, 2010 open letter appeal to Prime Minister Harper. To find it, use the following link:
> Dear PM Harper: Help SME Business Now!
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Article by –Tony Johnston
© Blog.TonyJohnston.biz & Compass North Inc. 2010
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April 18th, 2010 @ 1:13 pm
Canada’s IRAP R&D Program Runs Out of Money | Biz Money Matters |…
I warned Canadian SME business this was coming and now it has happened: NRC R&D Support Funding Program IRAP has run out of money! To find out why and why that’s not right, read……
April 22nd, 2010 @ 1:05 pm
Follow-on comment submitted by Zale Tabakman,
Speaker, CopyWriter, Entrepreneur on Apr 22, 2010 at the LinkedIn People Living In Toronto Group News Discussion page:
with all do respect – big deal
100 million is a small amount of money
it’s 100 one million dollar projects or 1000 one hundred thousand projects
100,000 is nothing I know personally twenty companies that could irap qualify
and that twenty minute drive from my house
if the companies are good they r better off with risk capital and sr Ed with loans for financing. irap is cheap money but it’s not good money because it doesn’t force the companies to act like companies it makes them act like people who feel wlfare is an entitlement rather than a helping hand through rough times
ouch – I bet I just made some enemies
zale
> My Reply Comment was:
Well Zale, you may not care but our Provincial and Federal Governments sure do.
You can confirm this by going to downtown Toronto and taking a look at the MaRS Discovery District building at College and University. Both the building and all the people working there have sucked up lots of Government funding to date. Additionally, consider how back in Feb 2008 the Federal Government’s Minister of Industry, Jim Prentice, made an announcement that they would be spending $163 million to establish 11 new Centres of Excellence for Commercialization and Research (CECRs) in order to promote innovation. Now, if they have been prepared to spend that kind of money on people and places to foster innovation, certainly you should not be grudge their spending money to encourage the people and companies who do the innovation.
And in view of all your ‘land of the free and home of the brave’ settler talk, maybe you should take time to read Malcolm Gladwell’s recent book “Outliers” and listen to Steve Blank’s “Secret History of Silicon Valley” presentation on YouTube at http://www.youtube.com/watch?v=ZTC_RxWN_xo . Once done, you will better understand why aspiring innovation companies need a bit of tax funded monetary encouragement to make business luck happen as they drive to help our country’s GDP, jobs, and wealth creation grow.
Certainly, we would be better off if these companies could raise their own risk capital. But due to our country’s small size and cautious nature, too little risk capital is available. That is why I have called on the Federal Government to extend the tax advantaged Flow-Through Share program beyond natural resources to encompass innovation tech sectors as well.
Zale, my bottom line is this: I suggest you back off with the harsh dismissive commentary or move to oil rich Calgary where attitudes like that fit right in.
April 23rd, 2010 @ 10:54 am
Follow-on comment submitted by Dan Wasserman, President & CEO at Corporate Growth Strategies LLC on Apr 22, 2010 via LinkedIn email:
Tony,
I like your open letter and the points raised therein. However, as a Canadian who has lived in the Greater-DC area for the past 11 years and well on my way back to Toronto, I have to take issue with you comparing IRAP with the SBIR down here.
My partner (Dr. D. Bruce Merrifield) created the SBIR and wrote the legislation. Based on what he has told me, it was originally designed to work like IRAP but became a funding tool for spin-offs from large corporations, centers of higher education, and government-run joint ventures. As such, very little gets to the SMEs.
However, I think the BIG difference, being a past recipient of IRAP money (for two different ventures) is that in Canada to be considered for virtually any type private funding an SME usually needs to prove they have the government’s support. In the USA, having SBIR money has no impact on whether a company will get angel, VC or bank funding. So, the loss of IRAP is a HUGE STRIKE against the viability of Canadian SMEs.
Perhaps you should add that to your letter, since IRAP is effectively an approval mechanism for overall SME funding rather than a component of it!
Also, as you identify in your blog and letter, the other area Canadian SMEs take a hit is in the dearth of money for marketing. That happens to be one factor US private financing DOES cover. However, for the past 18 months US finance is taking the cold war "duck and cover" approach.
Finally, if you are aware of any companies looking for a strong senior BD leader, right up to a marketing-oriented CEO, let’s link-up.
Dan
> My Reply Comment was:
Hi Dan,
Thank you very much for your message and the insightful and positive commentary sent. I particularly liked your point about how getting IRAP support is viewed as critical substantiation for prospective Canadian SMEs investors. That is an excellent observation and oh so valid.
Good luck with your move back to Toronto. Once you have settled in, lets connect over a coffee and search for synergy or how I can help.
Cheers,
– Tony
April 23rd, 2010 @ 11:23 am
Follow-on comment submitted by Dylan Persaud, Managing Director at Eval-Source in Toronto on Apr 22, 2010 via LinkedIn email:
Tony,
This is no surprise seeing the way money has has been stolen from eHealth, Gun registry, OLGC and list goes on. What you say makes total sense and that may be the problem for the government to implement it.
We are a technology company that was going to try to apply for for an IRAP grant. As we have innovated a system called the Tru-Eval method. This is a system that allows organizations to pick the best enterprise business software for their company. O well. Contact me for more details if interested, we think its pretty cool. We are on the organizational advocacy side so we don’t drink any of the vendor cool aid.
> My Reply Comment was:
Hi Dylan,
Thank you for your supportive commentary. I took a look at your Tru-Eval website and I found it looked well done. The challenge I would think is that there are a lot of similar sites offering much the same basic information which would make finding a way to stand out a challenge. Would morphing your offering into a more-client-customized / more-touch-oriented consulting service help do you think? Maybe people with enterprise business software selection needs would value having more one-on-one help from your company to get through the process of needs evaluation, comparison of alternatives and recommendation development? Just a constructive thought hopefully for you to consider.
Regards,
Tony Johnston