Should Canada’s proposed SBIR-like program support early-stage startups?

Richard McAloney, PhD
Director, Technology Management & Entrepreneurship
Impact Centre, University of Toronto

Emina Veletanlić, MSc
Manager, Strategic Initiatives
Impact Centre, University of Toronto

As I read the Innovation Agenda¹ proposed by the new Federal Government last year, something jumped off the page at me. The policy mentioned an investment of $100 million per year for three years in the Industrial Research Assistance Program (IRAP) that would include the implementation of a Small Business Innovation Research (SBIR) program (see here for more information about the original initiative). ² I have first-hand experience with the SBIR program in the US, and I am optimistic about its potential in Canada.

As a recipient of several of these awards during my time working at a technology development firm in Texas, I saw the ins and outs of the program and just how it supports thousands of small companies doing incredibly innovative work. In the SBIR program, you aren’t just responding to solicitations for technology solutions from federal agencies (such as the Department of Defense or Department of Energy), the ultimate goals of the funds are to create commercial products and stimulate economic benefits for the country.

I returned to Canada to see how I could contribute to commercializing science and startup growth in the Canadian funding landscape. I joined the Impact Centre at the University of Toronto where I manage an entrepreneurship training program for researchers. The Impact Centre is about bringing Science to Society. Our focus is on training science and engineering students to commercialize their research and to turn discoveries in the lab into real products that benefit the world.

The Impact Centre has assisted over 124 teams since we launched our intensive training program in 2010. We have seen many committed and promising startups, struggling to survive through the earliest stage where money for founders’ salary is almost unheard of, and many depend on government funds to make it to scale.

In recent times, provincial support programs in Ontario have shifted to the matching funds model. Unfortunately, it isn’t always the best innovations that get support. In many cases, it’s the one that has the money available for matching; and for small startups, it’s usually only those with personal money to match that can apply for such grants. This makes it extremely challenging to support pre-revenue companies working on groundbreaking technologies that may take years to develop. Certainly, there are legitimate and deserving companies that have the revenue to match, but we’re missing many great technologies that just aren’t at the revenue stage but have tremendous potential.

To overcome these challenges, university-based companies in the sciences must either bootstrap or rely heavily on government programs to get them to the point where they can sustain themselves or look attractive for investment.

In the absence of concrete “bridge” funding that helps companies get through low cash periods, our Impact Centre team has developed initiatives to help startups navigate government programs capable of supporting them while the entrepreneurs are developing their technologies and growing their businesses.

For example, we have helped Impact Centre researchers and entrepreneurs receive 17 Grand Challenges Canada (GCC) “Rising Stars in Global Health” Phase I awards that have had a real and positive impact on getting them to the next level. GCC has a particularly well-developed funding model that supports the line items that individuals actually need most at this stage of development (including salaries) to grow a company and develop a technology that benefits the world.

I must note that the GCC program is somewhat similar to the SBIR program in that the Phase I award ($100K) is sufficiently large to help de-risk the technology further and ultimately lead to a commercial product. No matching funds are required for Phase I. This is further evidence that the proposed SBIR-like program would be a significant benefit to Canada, just like the GCC program has been for innovation in international development over the past 6 years. Having experienced the SBIR ecosystem in the US, I am certain that such a program would have an incredible impact on boosting leading early-stage science startups.

So, what would I like to see from this new program?

I like the SBIR model and am convinced it will work in Canada for established companies. Based on our experience, however, startups don’t usually access IRAP funding, which tends to support more mature businesses. But we cannot forget our early-stage science companies. We must carve out support for businesses that not only need it most but also are likely the most innovative and have the best chance of creating game-changing technologies without losing the most important metric: creating value to society.

Earlier-stage companies are crucial to economic growth and job creation. They embrace risks and work to generate new technologies that improve our quality of life. Startups commercializing science are an integral part of the future of Canada, but support in all guises (from mentoring to cash) at the earlier stages is critical. Hence, any policy that supports them during the formative years is a step in the right direction and represents an investment in our future.

It’s time for policy makers and governments to take some risks and open programs to earlier-stage companies without the need to match funds.

Such support programs are especially important now because the Canadian ecosystem excels at creating startups but struggles to scale them.

1) Link to piece on the innovation agenda: https://www.liberal.ca/files/2015/09/Promoting-innovation-to-create-jobs-grow-our-economy.pdf

2) Details of the US SBIR program can be found here: https://www.sbir.gov