The Evolution of Business Incubator and Accelerator Policy in Canada : A Review of CAIP

5 minute read

It is a common misconception that good ideas and scientific breakthroughs will achieve commercial viability all on their own. In fact, the gap between discovery research and successful commercialization is so large and perilous that it is often referred to in the literature as the Innovation Valley of Death. Plugging this gap by providing commercialization supports at this stage when new innovations are at their greatest risk of floundering has thus developed into an important policy objective for successive governments. While some of these policies take the form of subsidies or tax credits and the like, it is increasingly common to see assistance for innovation come in the form of offices which themselves directly deliver support functions to nascent innovations.

Innovation Intermediaries

University-based technology transfer offices (TTOs) were arguably the first generation of these so-called “innovation intermediaries”, and they sought to provide technical support for innovators seeking to commercialize intellectual property. This proved helpful but insufficient, so beginning in the 1980s, research parks and business incubators began to emerge. Both were designed to provide innovators a physical site that would be conducive to innovation, often because they offered space and services on a subsidized or cost-recovery basis. While research parks quickly plateaued in number, the number of incubators has steadily grown from the 1980s to the present-day. Following the 2008 financial recession, there have also been an increasing number of business accelerators as well.

Incubators and accelerators share a great deal in common in that they exist to support nascent firms and innovators in growing to the point of commercial viability. Incubators and accelerators are often designed to complement one another, yet cover a range of services that can overlap. Accelerators, however, distinguish themselves by focusing on later stage firms and the attraction of investment capital. One might say that the real difference is a philosophical one; incubators seek to slow a nascent firm’s burn rate while accelerators seek to attract the investment capital that will allow the firm to escape the Innovation Valley of Death altogether.

CAIP Program

In 2013, as part of the Venture Capital Action Plan (VCAP) the government of Canada allocated $60 million (eventually rising to $100 million) to the newly established Canadian Accelerator and Incubator Program (CAIP) which sought to provide support for innovation intermediaries. The program took applications from incubators and accelerators who submitted proposals for how they would use the funding to increase their offerings (and the scope of their offerings) over the 5 year period of CAIP. In the end, 16 accelerators and incubators were awarded funding on the basis of this program, which will end in March 2019. With CAIP set to expire shortly, Budget 2018 proposed that the functions of CAIP be reassigned and shared among Canada’s regional economic development agencies (FedDev, ACOA, WEDC etc).

With the goal of informing the inevitable introspection on the CAIP program, myself and Jeff Crelinsten (The Impact Group) set out in September 2016 with the Munk School of Global Affairs Creating Digital Opportunities Project (based out of the University of Toronto) to conduct a comprehensive investigation into the CAIP program, its effectiveness, and the effectiveness of Canada’s system of innovation intermediaries more broadly. This two-year initiative included dozens of interviews, research into best-practices and painstaking comparative study of practices conducted in Canada and abroad. This is now complete and has been released is available to the public under the title “Accelerating Growth: Canadian Funding Policy for Innovation Intermediaries”.

The study suggests that CAIP has generally been successful, yet notes several issues or suboptimal practices associated with CAIP, including a heavy administrative component that substantially reduced the effectiveness of programming dollars. The heavy administrative requirements also raise questions about the degree to which smaller or less well-established innovation intermediaries (which may well be among the most effective) are able to compete for program dollars when considering their much smaller administrative capacity. Program participants also lacked a universally adopted metric for success, which meant that some results were uncomparable and many (if not most) lacked the type of clear, rigorous and uncontestable methodological soundness one would hope to see in such an program.

Innovation Intermediaries in Canada

While there is room for improvement in program design to help ensure that programs like CAIP are as widely accessible as possible to applicant innovation intermediaries, ultimately selecting a clear cohort of top-tier innovation intermediaries instead of spreading the funding as widely as possible was a wise choice in program design. The CAIP cohort ended up forming a defacto community of practice where ideas and thought leadership could be shared. There is little doubt that even wider policy isomorphism ensured and this knock-on effect should be encouraged and designed-for where possible. On the other side of the coin, interviews raised questions about the degree to which Canada is generally oversupplied with a large number of low-quality innovation intermediaries and a much smaller number of high-quality innovation intermediaries.

The study recommends taking action to carefully stem the ongoing growth in the number of innovation intermediaries, and ultimately to encourage a consolidation in the number of players. Above all, this cannot be done in a heavy-handed manner, since the absence of universally adopted success metrics makes worthy initiatives difficult to spot. Rather, future funding policy should be conscious of the increasingly entrepreneurial character of work, which renders greater numbers of firms officially eligible for incubation and acceleration regardless of whether or not they are able to successfully take advantage of these programs. In this context, program expansion to meet perceived demand may lead to oversupply and an overall diminishment in the quality of the average innovation intermediary.

Close attention to these kinds of factors in the age of shifting expectations about innovation, technological progress and the nature of work more generally, continue to strongly impact the effectiveness of innovation policy in Canada. Continuous reflection and evergreen policy renewal will be necessary to ensure that programs in support of innovation intermediaries (and to help bridge the Innovation Valley of Death more generally) continue to remain effective. Most importantly, all innovation policy in the 21st century should be guided by the principle that bigger is not necessarily better, and that targeted, accessible and competitive programs are best.

About the author

Mark Robbins

Mark Robbins

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