Monday, May 08, 2006

Panel provides refreshing perspective on commercialization in Canada

I wasn't expecting much from the report of Canada's Expert Panel on Commercialization, published a couple of weeks ago. The group was put together by Industry Canada under the previous government, and I was anticipating yet another report full of ivory tower wonk-speak on commercialization.

Frankly, I had good reason to be skeptical. Whenever governmental groups or think tanks discuss commercialization, they usually completely miss the point that it's all about creating innovative products that succeed in the marketplace. If these groups aren't superficially discussing far-too-tidy concepts like "technology transfer" and "receptor capacity" that should have been retired from our lexicon over a decade ago, they're usually providing some useless 30,000-foot-high analysis of the wonk's favourite chimera -- Canada's productivity gap. Policy makers seem to eat that stuff up with very little critical thought.

But the Expert Panel surprised me. It integrates products and market demand into its definition of commercialization, and acknowledges that it is "fundamentally a private sector activity." It sees universities as a vital part of developing commercialization capabilities, but without making the common error of treating them as if their purpose is to create commercializable technologies.

It's a refreshing perspective, and one that I hope policy makers will listen to.

The Expert Panel's first recommendation is the creation of the Commercialization Partnership Board (CPB). We should have someone looking at these issues on a continuing basis, and the Expert Panel emphasized that the CPB must be rooted in the marketplace and led by someone from the private sector. A good proposal, as long as those principles are followed.

After that, the recommendations are divided into three categories: talent, research, and capital.

Under talent, other than proposing that Canada should do more to attract skilled people to the country (okay), the recommendations only address students and recent grads. This doesn't go deep enough into the issue. There's a wealth of people in Canada with expertise useful in commercialization, but improving access to this expertise isn't addressed in talent section of the report. The role of service providers and other entrepreneurs offering commercialization services is hardly discussed at all.

The Expert Panel wants to provide an incentive to companies to hire people with research capabilities (in science, technology, or business) -- especially firms in industries that don't commonly hire people with those skills. It proposes the creation of fellowships that would significantly underwrite the cost of hiring a student or grad. "Reduce the risk by allowing firms to 'test the waters' and discover the value ... [of] highly qualified workers" [Boy, what a pompous label that is. Does that make other employees unqualified or not-so-highly qualified?]

Students and recent grads are not commercialization experts (and so, in fact, are under-qualified workers ... maybe we should go with that tag). We hope many of them will develop that expertise over time, but it's not something you receive with your degree, or that comes from having taken a course.

The Expert Panel may be placing students and grads in an unfair position where the weight of demonstrating the value of "highly qualified workers" falls entirely on to them and their inexperienced shoulders. Students can do a lot, but when you target companies that are skeptical of the value of these employees and, therefore, require a government subsidy to pay for them, you're setting students up to fail with some unrealistic expectations of what they can achieve.

And every student or grad who gets hired by one of these companies because of the government subsidy is taken away from whatever company they would have worked for without the financial assistance. We need to see more discussion around what firms would qualify for the program and what impact this could have on those that don't.

Providing help to start-ups and small companies is at the heart of two of the three recommendations on research. (The third -- proposing the creation of a $250 million-a-year "commercialization superfund" -- isn't described in enough detail for me to comment on.)

The Expert Panel wants to help start-ups at the proof-of-concept or proof-of-principle stages, and recommends increased spending on IRAP, an Industry Canada initiative that has delivered a lot of value to early-stage companies. Good idea.

Another proposal would see the government make it easier for small companies to receive market research and marketing support -- something that is definitely needed.

In the section on capital, the Expert Panel wants to improve access to angel financing, something that has long been a challenge. It suggests the creation of government-funded community-based funds that would co-invest with angels. That could be an excellent idea, and it's similar to something I've been trying to create with Communitech (except I was looking at getting VCs to provide the funding).

I think the Expert Panel puts too much faith in angel investment networks -- which have largely been a flop in Canada, and I'm skeptical of how effective they've actually been anywhere (whenever someone does a story on angel investment groups, they always talk to the people who run one ... who amazingly always have great things to say about them. But ask entrepreneurs and VCs, and you'll get a very different view, and one that I now lean toward).

The Expert Panel would also like to see the government change the tax laws to encourage foreign investment, and wants a review of how well the Canadian VC community is meeting the needs for expansion capital.

A lot more needs to be done to refine these recommendations -- which come with a very heavy price tag of $1.1 billion a year (which means they're unlikely to be implemented anytime soon -- the new Industry Minister says he's looking forward to reviewing the recommendations). But this was a significant improvement over what we've seen in the past.