Policy-makers have developed a range of tools for enhancing Canadian innovation, from research funding programs to talent development to business innovation support. A major item in the policy tool kit is the funding of innovation intermediaries: third-party organizations that support researchers, entrepreneurs and innovative firms. Many are affiliated with academic institutions and focus on supporting start-up firms founded by students and faculty. Others operate independently of academia and help entrepreneurs from the larger community.
To investigate the effectiveness of government support of these entities, we looked at two types of innovation intermediaries: accelerators and incubators. We conducted a two-year study of the Canadian Accelerator and Incubator Program (CAIP) with the Munk School’s Innovation Policy Lab. Our research involved in-depth interviews with managers of the funded intermediaries, their funders (governments and, in a few instances, private sources) and client companies.
Innovation intermediaries in the policy tool kit
Innovation intermediaries help entrepreneurs by offering commercialization support to research-intensive start-ups and scale-ups. While they are receiving a great deal of attention today, their emergence is generally dated to the early 1980s, when university campuses began to set up technology transfer offices (TTOs). TTOs sought to help researchers identify intellectual property (IP), establish ownership of it and try to license it or create spinoff companies with it. To fill the support gaps left by the fairly hands-off model of TTOs, research parks began to emerge in the mid-1980s, offering a physical venue where researchers could bring their discoveries closer to commercial viability, and literally in closer proximity to other entrepreneurs.
Yet innovators were still missing crucial ingredients to success, namely coaching and mentoring support for researchers on entrepreneurship, and access to investment capital. Incubators and accelerators filled this gap and share some common features. Both exist outside of government, providing technical support in entrepreneurship and trying to create pathways to sustainable commercial success, often facilitating access to capital. Incubators focus more on early-stage firms and capacity building while accelerators focus more on later-stage firms and growth, often taking an equity stake in their client firms.
Insights from CAIP
CAIP was launched in 2013 and was designed to fund the top tier of incubators and accelerators in Canada, supporting the growth of their operations and the expansion of their service offerings. CAIP funded a total of only 16 organizations for a five-year span — an interesting choice given that there were estimated to be 140 incubators and accelerators in 2015, and the number has grown rapidly in the three years since then. This selection of a few “winners” engendered dynamics that are worth maintaining in future iterations of incubator and accelerator support programs. For one, designing a program for such a small number of innovation intermediaries helped to promote a community of practice among them, where these organizations shared best practices and advice on a regular basis.
Selecting a smaller number of players provided benefits and challenges. On the positive side, when funding goes to only a small cohort of the best candidates, the amount of funding that each organization receives is enough to make a difference (as opposed to “spreading the peanut butter too thinly”). The strategy also helps to stem the frankly unsustainable increase in the number of innovation intermediaries in Canada. Several interviewees flagged the ever-growing number of innovation intermediaries as a source of challenges: the sheer number of intermediaries giving “cookie cutter” presentations in boardrooms has made it more difficult for investors to distinguish between promising and weaker firms; some intermediaries offered innovators support of low or inconsistent quality; and the crowded field led to a waste of resources. While most of the overexpansion is funded by other levels of government (and some private sector players), the federal government can and should continue to take a leadership position by limiting funding to a small pool of the best players.
On the negative side, our research indicated that CAIP’s application and administrative requirements were sufficiently burdensome that only larger players with a significant administrative capacity could adequately meet them. An unintended consequence was to effectively disqualify many of the smaller or newer players, while rewarding established institutions for reasons other than their effectiveness. This dynamic will need to be addressed in future policy, likely through a combination of reducing red tape, using advanced analytics to promote awareness and increasing program design elements that promote competitive dynamics among potential recipients.
The selection process dovetails with another challenge, namely a tension between two policy goals: regional economic development and supporting high-growth firms with global customers. Some CAIP-funded organizations felt their mandate was to support local enterprises, while others focused on finding firms that had the most potential to scale up into global powerhouses. Several interviewees recommended that policy-makers develop separate, though possibly coordinated, programs for each of these goals, which may fit well with the current direction of federal policy.
Taken as a whole, while there are some notable challenges with innovation intermediaries as an instrument of policy, the study also found numerous exemplars and success stories. While future iterations of CAIP can be tightened up and improved upon, programming changes in this domain should be done carefully so as not to throw the baby out with the bathwater.
With CAIP now approaching its preordained end date, the innovation policy community is abuzz with talk of what will replace it, if anything, and what policy in this space will look like.
Budget 2018 suggests that CAIP will not continue as a stand-alone program, but rather that its funding envelope will be administered through a shared arrangement between Innovation, Science and Economic Development Canada and the federal government’s regional economic development agencies (RDAs). This change in governance structure presents opportunities for policy improvement to address the shortcomings of CAIP but also to leverage advantages that come with a more regionally distributed approach.
One of the major findings of the research was related to the tension noted earlier between regional economic development goals and supporting high-growth firms. By trying to serve both objectives, CAIP conflated locally significant entrepreneurs who are in business for lifestyle reasons with the more elusive entrepreneurs building high-growth, R&D-intensive firms that seek global markets from the outset. Transferring much of the programming to the RDAs provides an opportunity to remedy this issue by ensuring that supports are properly attuned to local and regional conditions and reach the intended recipients, while coordinating efforts nationally to support the much rarer high-growth firms. This opportunity must be acted upon. This newly added regional dimension can also help improve coordination with other players in the innovation ecosystem and provide greater leeway for policy experimentation among the RDAs.
How government support of innovation intermediaries evolves is especially important in the context of the wider conversation about defining the state’s role in stimulating the economy and how to promote intelligent innovation policy in an era of rapid progress and economic uncertainty. Getting innovation policy right in this day and age is a ceaseless exercise in policy agility and continuous review. At present, it’s in the immediate wake of CAIP that exciting decisions are being made and judgments being passed that will ultimately steer the future direction of innovation policy in Canada. As the policy community continues to look forward, it’s worth giving close consideration to what has gone right and what has gone wrong with CAIP.
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