Some recommendations for the Southwestern Ontario Development Fund

Consultations start this week on the Ontario government's proposed Southwestern Ontario Development Fund, with public meetings in Owen Sound on Thursday and Windsor and St. Thomas on Friday (with St. Catharines on the schedule next week and Guelph the week after that).

Rather than continue my previous post, I thought I'd rearrange my followup as answers to some of the questions asked in the government's consultation paper. In comparison with the Eastern Ontario Development Fund, I'm hoping we see lower caps, wider distribution of funds, fewer pre-set barriers for applicants (especially since they are primarily used to exclude smaller, younger companies), and an evaluation that goes beyond counting the number of jobs that applicants claim will be created.

Should the fund focus exclusively on providing direct support to businesses? Should some funding be provided to community organizations?
There should be funding for both businesses and community/regional organizations. The fund should be a catalyst for economic prosperity, which will be driven by businesses achieving success in the marketplace. That's how they will attract money to their communities and create sustainable jobs. Therefore businesses should the beneficiaries of the funding, but that will not always be best achieved through direct support. Resources can be leveraged to benefit a range of companies through programs and services run by community/regional not-for-profits.

Should two funding streams be available? That is, one for community, regional economic development and industry associations, and the other for businesses.
Whether the funding for those organizations is formalized as a separate stream or not, both types of applicants will have to make the case for the economic value of their proposed projects and justify the level of funding sought.

Should the Fund provide only grants, or should there be a mix of grants and loans?
Funding to regional not-for-profits should be grants. With businesses, the optimal mix will depend on the structure of the fund. If there is a large cap on project funding and the recipients are a relatively small set of established companies receiving sizable investments (not the recommended approach), then a lending program would make sense. On the other hand, if the cap was set low, with funding spread over a larger number of recipients, including high-potential early-stage businesses, that would be a better fit for a straight grant program. Loans, in many cases, will require lengthy pay-back periods and leave the fund open to being evaluated on how much has been repaid instead of what has been achieved.

What is an appropriate amount of project funding support by the province?
$20 million is a reasonable starting point. At that level, demand will greatly exceed supply, which should lead to some strong projects being funded. That will demonstrate the value of the fund, which could then be used to justify larger amounts of funding down the road. With anything much less than $20 million, a development fund would no longer be the most effective use of the money.

Should funding from other [government] sources be allowed?
Yes, subject to a ceiling for the percentage of total project costs paid from all sources of government funding. That ceiling could be 100% for projects headed by not-for-profit organizations.

Should there be funding caps?
Yes. The strategy should focus less on trying to pick a small number of winners and more on having several irons in the fire—still looking to back winners to some extent, but with a lot more picks. A cap of $125,000 for grants is high enough to make a difference and low enough that the funding can be used to help a wider range of potential job and regional wealth creators, greatly improving the odds of sustainable success.

How many jobs must be created (direct or indirect) by the project to be eligible for funding?
There's no need to set a hard-coded floor for the number of jobs to be created. It's not an entitlement program and there will be far more applicants than recipients. If the case for the proposed project isn't strong, it won't be funded. If the case is strong, then it shouldn't be rejected solely because it failed to meet some arbitrarily-selected target.

In addition to job and investment targets, what other metrics should be considered when evaluating proposals?
Regional economic prosperity will be driven by the market success of companies in the area. Job creation is an outcome of that success. (Jobs may exist temporarily in anticipation of future market success, but they can't be sustained and will vanish without it.) The economic value to a region of that success goes beyond a simple job count and includes many other factors—all of which could be legitimate points of assessment in evaluating proposals.

For example:

• Business prospects of the company/opportunity for continued growth
• Likelihood that future company growth would be in the region
• Value of the jobs created—salaries, prospects for career development
• Fit with regional economic development priority areas
• Fit within regional value chains
• Extent to which the profits of the business and the value of the enterprise remain within the region
• Ability to capture locally the value of revenue generated outside the region

Along with economic value, other factors that should be considered include:

• Capability of the recipient to execute the proposed project
• Impact of the project on the company/region
• Project is adequately described/scoped, priced

What should be the geographical limits for the fund?
The eastern border for the fund should be Haldimand, Brant, Waterloo, Wellington, and Grey. This is an area comprised of five single-tier municipalities, six separated cities, two regional municipalities (which include four cities) and nine counties (15 county-sized municipalities in total). In its own materials, Dufferin County identifies its location as South-Central Ontario and Simcoe County is even deeper into the South-Central region. Hamilton, Burlington and Niagara Region are part of the Golden Horseshoe region. These are both distinct from Southwestern Ontario. Every region could undoubtedly make use of a development fund, but this one is for Southwestern Ontario, a large area that's home to some of the highest unemployment rates in Canada. Boundary creep will only dilute the fund's effectiveness and make it less likely it will achieve its objectives.

How many employees should a company have in order to be eligible for funding?
An eligibility floor on the number of current employees isn't necessary since the proposals will all be evaluated in a competitive process for their economic impact. If a small company makes a more compelling case than a larger company for the value of its proposal, then there shouldn't be any arbitrary barrier to funding that project. For the same reason, there shouldn't be a floor on the number of years in operation. Some of the most exciting opportunities for economic value come from smaller, younger companies.

What priority sectors should the fund concentrate on for the region?
The priority sectors should be in-line with local economic development priorities. The fund should promote economic development across the entire region, which includes cities, small urban, and rural regions, each with distinct priorities. The fund should not favour one above the others.

Southwestern Ontario Development Fund: Challenges and decisions ahead (part 1)

Consultations—or at least “pre-consultations”—began last Friday for the Ontario government’s proposed Southwestern Ontario Development Fund (SWODF) to promote economic development in the region, modelled after a similar fund for Eastern Ontario created in 2008.

If passed by the legislature, the fund would provide $20 million a year to projects in Southwestern Ontario—an area that hasn’t been defined yet—with the goal of attracting and retaining investment, creating and retaining jobs, and promoting innovation, collaboration and cluster development.

Dalton McGuinty announced SWODF while on a tour of Digital Extremes in London and the bill was introduced the following day by Brad Duguid, Minister of Economic Development and Innovation (MEDI). Along with creating the new fund, the bill would also make permanent the Eastern Ontario Development Fund (EODF), which is currently a four-year program scheduled to end next year.

It’s only been a week since Bill 11—the Attracting Investment and Creating Jobs Act, 2011—was introduced and we’re already seeing some of the issues that the government—and the opposition parties—will have to wrestle with over the weeks and months ahead. Potentially opposing voices—rural vs urban, region vs region, sector vs sector—will all want to be heard as details of the proposed fund are developed.

Challenge 1: Who’s in and who’s out

One of the challenges will be establishing the boundaries of the fund. The map in the consultation paper—which MEDI emphasized was for illustrative purposes only—went as far east as Simcoe County, the area around Barrie and Orillia (Kitchener-Waterloo-Barrie is actually defined as an economic unit in many government studies, especially at the federal level), and also included the City of Hamilton and Niagara Region.

That’s going to be too big an area for a $20 million-a-year fund, so where should we draw the line? With money on the table, you’d have to think that borderline areas will be eager to make the case that they be included, but I don’t expect Simcoe and Dufferin to make the cut. Including Hamilton would significantly dilute the impact of the fund, and from the comments and actions of the government, I don’t expect that it will be part of the SWODF territory. Once you take out Hamilton, it’s difficult to include Niagara. That leaves Wellington and Haldimand on the eastern edge of eligibility, and that seems like a reasonable cut-off point.

Challenge 2: Urban vs rural

Outside of Hamilton, the largest city in the region is London. The EODF excludes from eligibility projects in the urban ridings of the City of Ottawa, but from the comments made by London mayor Joe Fontana at the first pre-consultation meeting, it’s clear that he fully expects his city to be eligible for SWODF (which looks like a safe bet, given the area’s high unemployment numbers and the fact that the fund was announced in London).

So the region will likely include the urban areas of London, Kitchener, Cambridge, Waterloo, Windsor, and Guelph and a large rural area spread out among at least 14 counties or county-sized municipalities (e.g. Chatham-Kent).

Urban and rural areas both need economic development, but their economic development priorities are very different. This is something I’ve had to work through at TechAlliance, which is now the ONE Regional Innovation Centre serving an area from Goderich and Huron County in the northwest to Norfolk County in the southeast. Across that region, most areas have no interest in pinning their economic hopes on medical devices and digital gaming—two of London’s priorities. On the other hand, you don’t hear a lot of discussions about agriculture in London (outside of Dave Sparling’s office, anyway), but it’s at or near the top of nearly everyone’s mind outside the city when it comes to economic development. Which is a segue to...

Challenge 3: Sector vs sector

Closely coupled with the urban/rural issue is the question of whether the fund should give preference to particular industry sectors. This was a concern raised at the first pre-consultation meeting by Stratford mayor Dan Mathieson, who also chairs the Southwest Economic Alliance (SWEA), which lobbied for the creation of the fund. He said that no single sector—and specified technology, in case there were any doubts—should receive a disproportionate amount of the funding.

Given that the two areas of growth and investment identified in the consultation paper were ICT and digital media in “Kitchener-Waterloo” and London, it seems like a legitimate concern. The paper also says applicants should be aligned with priority sectors and lists advanced manufacturing, science and technology, and food processing as three examples. It doesn’t ask if certain sectors should be favoured, it asks which sectors the fund should concentrate on.

Until a year ago, I’d lived all my life in Toronto, Boston and Waterloo and have primarily worked in the technology sector for more than 15 years. It turns out that not every area has much in common with those places. London should, and is ambling along down that road. But I’ve spent much of the last four months trying to find technology companies across the less urbanized parts of Southwestern Ontario, and it hasn’t been easy. They exist, but it often requires a different notion of “technology” and “innovation” than you can apply in places like Waterloo or London. The MEDI program I work with is explicitly focused on technology sectors, but it would be a mistake for SWODF to be so narrowly targeted.

Favouring some sectors over others is fine (I don’t expect we’ll see much of this money going to restaurants, for example), but the fund needs to accommodate economic development priorities across the region, and not just the sectors favoured by urban areas.

Challenge 4: Region vs region

I’m not sure that anyone’s going to say this in front of a microphone, but having lived in Waterloo for years, worked in London for a year, and spent the last year living in—and now working in—small urban/rural areas in Southwestern Ontario, I’ve seen first-hand that London is looked upon with suspicion by many of the surrounding municipalities and the entire area is wary of Waterloo Region. And with this fund, there’s a possibility that we may also have to deal with some additional areas that hardly anyone even considers to be part of Southwestern Ontario.

That in itself can make collaboration a challenge, but what could be an even bigger issue is that different parts of Southwestern Ontario have very different priorities. Sometimes it’s because their strengths are in different sectors, sometimes it's because they’re at different points in their development. London would love to have a facility like the Hub, but it’s not a priority for Waterloo Region because they already have one (two, really, with the Accelerator Centre). In other parts of the region, something like the Hub would make no sense at all, except maybe at a very different scale and with a very different focus (which would make it not much like the Hub).

Some see SWODF as a great motivator for inter-regional collaboration. And it should be. But there will be challenges in an area where some regions are cautious of others and where there are significant differences in priorities between regions. Many potential partners won’t have common priorities. Where there is going to be collaboration, it has to be toward priorities that are legitimately shared by all partners. What we don’t need to encourage are artificial partnerships awkwardly forced together for the sake of a funding proposal.

Coming in part 2: Who should get the money, and what kind of money should they get?

Added bonus for StartupCampLondon: eProf at Chinaccelerator

On top of the other items on the schedule at StartupCampLondon tomorrow (Thursday) as an extra added bonus, we'll have Trevor Koverko from eProf talk about his experience spending the summer at Chinaccelerator, a TechStars-network accelerator in China. eProf was launched by Western students earlier this year and helped by BizInc, the new student incubator at UWO.

So we have:

• Featured speaker: Roger Skubowius, founder of Reqwireless, a mobile apps startup that was acquired by Google
• Trevor Koverko of eProf on his Chinaccelerator experience
• Titus Ferguson and Adam Caplan from UnLondon to talk about the open data app contest using the City of London's 2012 budget data
• An opportunity to see the UnLab hackerspace, which is right downstairs from StartupCamp

That's all on top of the informal presentations from startups (just sign your name on the whiteboard when you arrive and you can talk about your idea or startup and get everyone's feedback), which are at the core of the event.

And we may still get to hear from Jaafar Haidar about his experience last month in having his latest initiative, Carbyn, featured on TechCrunch—although it's looking like Jaafar may be on the highway coming back from Buffalo and unable to make it.

WHEN: Thursday, October 27, 5:30pm
WHERE: Convergence Centre, 999 Collip Circle, London [Map]
Register here

StartupCampLondon this Thursday

The second StartupCampLondon this Thursday, October 27, starting at 5:30 at the Convergence Centre. If you've got a startup or an idea for one -- or just want to be part of the local startup community, you won't want to miss this informal "unconference."

The centrepiece of the event will be brief presentations from startups or prospective startups. If you want to get feedback and suggestions on your startup, just sign up when you arrive and you'll get a chance to tell everyone about your idea or company. They probably won't be shy about giving their opinions, but it's all friendly and fun.

Our guest speaker is area resident Roger Skubowius who will share his experiences of starting a mobile apps company that was acquired (very secretly, at the time) by Google. That was the deal that brought Google to Waterloo and from which it has grown its current development office. Roger will talk about what it was like selling to Google--and not being able to tell anyone about it.

We'll get an update from Jaafer Haidar on what it was like for Carbyn to be featured last month on TechCrunch -- one of the world's highest profile tech business news sites.

We'll also hear from UnLondon about the contest they're launching to develop apps for the City of London's 2012 budget process. There are thousands of dollars in prize money to be won (assuming the proposal is approved by city council on Monday night) and lots of cool startup services as well.

And if you haven't yet been to the UnLab hacker space, it's located right downstairs in the Convergence Centre so you can go take a peek at one of the city's most exciting initiatives.

Windermere Manor will once again be serving food and drinks. StartupCampLondon is co-instigated by UnLondon and TechAlliance and co-sponsored by The Research Park. We had a packed room at the first StartupCampLondon earlier this year, and we hope to see you this Thursday.

WHEN: Thursday, October 27, 5:30pm
WHERE: Convergence Centre, 999 Collip Circle, London
Map
Register here

Roundabout crossings and yield to pedestrian signs

Just a quick followup to a Tweet that generated a couple of questions. The Tweet included a link to a news story in London showing a roundabout with no marked pedestrian crossings, no yield sign, and suggesting that the City of London was powerless to do anything about it. That seemed odd, having spent the last several years living near one of the many roundabouts in Waterloo -- one that has both marked crossings and yield to pedestrian signs:

So, somehow Waterloo found a way to have marked crossings and pedestrian yield signs. They aren't always as effective as you'd hope they'd be, although it got better over time. I think everyone who lives near a roundabout has stories of drivers not yielding. But the marked crossings are there and the signs are there, and the news story in London made it sound like that was something that couldn't be done.

It really isn't the IP policy!

I'm going to have to get back to the Mike Lazaridis speech next time ... today's London Free Press had a big story on me -- very generous in its comments, which I appreciate (I'd provide a link but it's not online). There was one part, though, that has me attributing Waterloo's startup success to the university's IP policy -- which is not only something I don't believe, but something I've been trying to convince people for years is not the case (or, to the degree that it had an effect, is much less direct than the usual stories would have you believe). That was one of the key points I was trying to make in my last post.

The Free Press story correctly has me pointing out that very few of the startups we saw in Waterloo were built around the transfer of IP. In fact, I'd have a difficult time coming up with many startups in Waterloo that were based around technology that would have been institutionally-owned if the underlying research had been performed at a university with a different IP policy. That's the message I've been trying to get across for years because it's contrary to what a lot of people believe.

Unfortunately, at the same time, the story has me saying the policy was the "springboard" for the area's success, and that's giving it far more credit than I do. I think the IP policy was useful as one piece in UW's creation of an environment that was entrepreneur-friendly (along with co-op work terms, the attention paid to spinoffs, and other policies and practices that go back decades). But when it comes to actual startup creation or furthering the commercialization of IP, I've never thought that it had the effect that is often attributed to the policy in Waterloo. I don't consider it to be a significant direct contributor to startup creation and never have.

So skip over that part of the story. Maybe the part about me being a "very, very smart man" too. (Thanks Iain.)

No, most tech startups are not built around new university-based research discoveries

There's a cardboard version of where new tech companies come from and how to generate more startups that I've heard repeatedly over the years—including several times since coming to London.

It goes something like this: research at universities leads to new discoveries (usually patentable), and commercializing these new university-based discoveries is where most startups come from. While some of the more entrepreneurially-minded professors/researchers might build a company around these inventions themselves (especially if the university has an inventor-owned IP policy), often these gems just sit there waiting to be commercialized. What we need to do, therefore, to create more startups is have folks roam the halls looking at research discoveries and figuring out how to build new companies around them and get them funded.

Even in Waterloo, we'd often hear that version of startup creation—never from people who actually worked in the startup support community, but it wasn't an uncommon belief outside of that small group. Folks in government seemed to be particularly attached to these stories (and still often confuse research funding with commercialization funding, since they see the two as adjacent points on a line) and have made policy decisions based on these beliefs.

The problem is, only a tiny percentage of tech startups are created this way. It's not zero—tech transfer offices do a lot of work in this area—but it's less than 10. Which is to say that more than 90 percent of tech startups aren't formed through this process or anything resembling it. When you're looking to grow a startup community, this is not the process to focus on.

I've raised eyebrows a few times in London explaining to people that the overwhelming majority of startups in Waterloo aren't built around new university-generated discoveries. That's not the story they've been told, and they were all ready to have London follow the model that's been proven to be a success in Waterloo. Let's talk to researchers, find the new discoveries, give them some money and watch the magic happen—that's how you create great tech startups. Or so they think.

Except that it isn't the model followed in Waterloo at all. That's not where most Waterloo startups came from—or Toronto tech startups, or tech startups from any other tech centre I know. And it's not going to be how most of them are created in London either. Universities play a huge role in startup creation, but it isn't the one that many people believe.

Several years ago, Mike Lazaridis gave a talk on the commercialization of research that clearly and correctly identified the role of universities in the process—which also turns out to be the universities' primary role in startup creation, as well. People have fawned all over Mike in the years since (maybe not so much this year), but for whatever reason, his comments never really caught on. I'll give it one more shot next time.