Funding Innovation

Top 5 sources of product development funding and support for Canadian innovators.

Comments Off on Funding Innovation February 23, 2011
by Treena Hein

11-feb-janfeb-funding-innovation-360While it’s all well and good to say, “Be Innovative,” any company that has traveled down the long, often murky road of new product development knows innovation has a price tag attached. For Canadian SME’s in today’s economy, betting the business on a “maybe” can involve more risk than reward.

However, Canadian businesses don’t have to bear all the risk alone. In fact, it’s safe to say there have never been more resources available to Canadian companies to help them make their innovative ideas a reality. The following is an overview of five options available to help both start-up and established firms secure funding and support services, as well as how to best to access each type of assistance.

The mandate of the National Research Council of Canada Industrial Research Assistance Program (IRAP) is helping SMEs with the goal of generating profits through development and commercialization of innovative, technology-driven new or improved products, services, or processes. Based on the company’s profile and needs, IRAP can provide advisory services, technological expertise, as well as financial assistance. Instead of an application process, companies contact one of IRAP’s 240 Industrial Technology Advisors as a first step.

“These highly skilled individuals assist clients through every aspect of the innovation process, from concept to product, providing technical and business advice, referrals and other innovation services as needed,” says IRAP Director General Tony Rahilly. “They are experienced mentors.”

As the process proceeds, IRAP may invite a funding proposal from the company, followed by an assessment of business, financial and management capabilities; potential to achieve the expected results; and technical aspects of the project. Based on the findings, an agreement is reached, which details the project objectives and activities being funded, as well as the conditions of contribution, the expected results and conditions for payment. “Money is provided on a cost-incurred cash flow basis,” Rahilly says.

Financial support may also be provided by IRAP’s Youth Employment Program (run in collaboration with Human Resources and Skills and Development Canada).
“We also have small funds available for feasibility studies and investigation of markets where companies work in partnership with community agencies,” notes Rahilly.

2. Business Development Bank of Canada
BDC is a Crown corporation that helps SME’s grow through providing financing, venture capital and consulting services. Spokesperson Geoffrey King says there are several reasons why BDC is one of the best choices among lending institutions for companies seeking to develop innovative technologies or processes.

“We specialize in commercial financing with highly flexible solutions which are structured to protect cash flow,” he says. “BDC also has expertise in financing for intangible investments, such as innovation, R&D, mergers and acquisitions, and market expansion.” He adds that chartered banks will ask for tangible collateral before lending large sums of money for developing innovation, but they may lend a smaller amount in conjunction with BDC.

King notes that, through its venture capital division, BDC actively seeks opportunities to invest directly in technology companies, or indirectly in technology-related funds.
“We are open to examining start-ups and will go the extra kilometre to evaluate intangible assets. We do both seed deals and are present at later stages of development,” King says. “We can provide more lending flexibility than other banks, including variable payment structures, the possibility to defer capital payments and mixed or subordinate financing.”

3. Sustainable Development Technology Canada
The SD Tech fund is aimed at supporting the late-stage development and pre-commercial demonstration of clean technology solutions focused on the current priority areas of natural resources, clean energy, agriculture, and soil & water. “In addition, SDTC’s SD Business Case’ reports (see website) should be used to identify additional priority investment areas,” says SDTC Director of Applications Zoltan Tompa.

The application process is “stage-gated” to ensure that applicants are given timely feedback and can invest resources accordingly, notes Tompa. In the first phase, companies submit a Statement of Interest. Those that typically receive strong consideration include a clear description of how the technology is innovative from an environmental, economic and technological perspective; a compelling argument that explains how the proposed technology can augment or replace the competition in the marketplace; and a good summary of the anticipated environmental benefits.

“Applicants also must have secured strong consortium partners that have demonstrated expertise in commercializing technology,” Tompa says. To help applicants, SDTC has produced a two-part ‘Statement of Interest Webinar’ available of the fund’s website.

A limited set of applicants are invited back to submit a “detailed proposal” for the second phase of deeper evaluation. “The detailed proposal demands an even greater emphasis on path to market and commercial viability,” Tompa notes. “The project, financial and marketing capabilities of the proponent and level of commitment from consortia partners are also evaluated in an onsite due diligence visit.”

4. Scientific Research and Experimental Development (SR&ED) Tax Incentive Program
One of the largest programs of its kind, SR&ED is a federal tax incentive program that encourages Canadian businesses of all sizes and in all sectors to conduct R&D in Canada.

“Because it’s a tax credit claimed after the work is done, it is critically important that companies start an SR&ED file before or shortly after beginning their R&D process,” says Todd Louie, director of taxation at Sheldon Milstein Tax Consultants Ltd. in Toronto. “In this file, keep track of all time spent in the process, details of methodology used, communications within and outside of the company pertaining to R&D, dated drawings, photographs, and anything else pertinent.”

To receive the tax break, “First of all, the company must demonstrate the attempt to create or even slightly improve upon a technological advancement,” Louie says. “Note that the tax credit is not based on whether it’s been successfully realized or whether commercial success has been achieved at the time of claim. It is about rewarding the attempt, and the size of company and resources available to it are taken into consideration.”

Companies seeking the tax credit must also show evidence of the investigation the company undertook in creating or improving the technological advancement – and the investigation must demonstrate technological competency. That is, suitably trained or educated individuals at the company must have taken a systematic and scientific approach to solving the problem. “For example,” says Louie, “this might have involved testing to what extent a certain component or material was found to be superior to another.”

Louie stresses that many companies wrongly assume that their R&D efforts won’t qualify for the tax credit. “Keep in mind that SR&ED is the largest single source of federal government support for industrial R&D, and what you are doing may easily qualify,” he says.

5. Provincial Programs
Ontario – The Ontario Ministry of Research and Innovation’s ‘Innovation Demonstration Fund’ accepts proposals for the commercialization and initial technical demonstration of globally competitive and innovative green technologies, processes and products.

According to ministry spokesperson Paul Gerard, applicants should attend to certain details to maximize success. For example, a clear understanding of the financial resources available to meet cash-flow needs is required, along with some competitive analysis of the applicants’ technology in relation to potential competitors and alternatives. In addition, applicants should ensure that their applications include a full description of the technical hurdles and risks associated with the pilot-scale technology demonstration, as well as data on previous testing that validates the technology and provides evidence that pilot-scale work is warranted.

“Some applicants are concerned about confidentiality and this is often why proposals lack the necessary substance to be successful,” notes Gerard. He says that while final, signed contracts could be made available under a Freedom of Information request, “there is a long process to determine what’s sensitive and what can be released.”
Over the next year, Gerard says the ministry would like to see more proposals in the areas of water and wastewater technologies.

British Columbia – BCIC (British Columbia Innovation Council) develops entrepreneurial talent and commercializes technology through start-up companies and partnerships between industry and academia. These include the BCIC-New Ventures competition ($300,000) and venture capital, among other options.

Alberta – Through the Energy and Environment Innovation Program, Alberta Innovates ‘Energy and Environment Solutions’, the province offers financial support to encourage collaborations within industry consortia and university/industry partnerships. It also supports individual inventors with smaller grants to help with engineering designs, building prototypes and securing patents.

Saskatchewan – Small grants through the SMART Program provide SMEs access to industry specialists who will find and analyze information on the marketplace and emerging technologies in order to help companies make strategic business decisions.

Manitoba – While not a source of funding, per se, the Industrial Technology Centre in Winnipeg helps organizations apply tools and practices to improve products, increase productivity and boost competitiveness. Among its resources, the centre provides engineering, technical and advisory services in the aerospace, transportation, health, energy, environment and general manufacturing sectors, among others. Services available include load and fatigue testing machines; data acquisition transducers and signal conditioners; environmental exposure and corrosion testing chambers; and a high performance computing cluster.

New Brunswick – The New Brunswick Innovation Foundation “Venture Capital Fund” offers financial support to high risk, growth-oriented businesses with a proven concept that’s ready to go to market. After passing an initial business plan evaluation, the fund becomes a minority partner in the start-up and stays involved in the growth of the company until it can liquidate its position.
The foundation also offers funding for applied research and development, defined as the point between proof of concept and commercialization. To qualify for either program, submissions should fall into one of six strategic industries, including advanced manufacturing; energy and environmental technologies; and value-added natural resources.

Nova Scotia – Innovacorp’s Technology Innovation Centre in Dartmouth is a ‘business incubation facility’ where technology entrepreneurs can access assistance to get their innovations to domestic and world markets more quickly. It offers business advice, referral services and access to other corporate commercialization resources.

Quebec – Under the Quebec Ministry of Economic Development, Innovation & Export’s “2010-2013 Research and Innovation Strategy,’ there are many grants available to start-ups and established companies for innovation R&D, technological intensification, marketing and more.