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I had the opportunity to attend a session this morning at City Hall regarding Innovation and the knowledge based sector in Ottawa. The session was well attended and there were probably 30ish folks representing a number of different groups around the table doing a SWOT (Strength, Weaknesses, Opportunities and Threats) exercise. There was one gentlemen (whose name I didn’t catch) sitting at the end of the table that made an interesting comment. It went something like this;

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“I would rather have one well funded organization doing ED than spreading things around and giving everyone peanut butter.”

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Here are my thoughts on peanut butter. First of all I like peanut butter. Peanut butter has plenty of protein which is great for building muscle. Peanut butter is relatively inexpensive, a jar can make a lot of sandwiches and if times are tough peanut butter can go a long way. I like peanut butter and personally my preference would be to have an equitable system where everyone gets to share.

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Interesting to see what comes out of this SWOT review. In a recession we need to be thrifty and peanut butter for everyone sounds far more appealing than more Twinkies and cupcakes for the pudgy kid.

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Cheers,
Ian Graham

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I read in the Ottawa Citizen yesterday that the defence for the Momin Kawaja terror trial has staked their case on the following premise; the defendant didn’t realize he was making electronic detonator devices for the fertilizer bombs to be used in UK terror bombings. In fact he thought the detonators were going to be used by the Afghan insurgents to kill coalition forces in Afghanistan.

I don’t get it; somehow supporting terrorist causes in Afghanistan is better, makes you innocent or less of a terrorist than plotting to kill civilians in the UK. Either way a terrorist is a terrorist whether plotting to kill innocent civilians or supporting terrorist organizations that is at war with our country.

I hope that the prosecution has its act together and is able to present a solid case. Although with the only other convicted terrorist (Inderjit Singh Reyat ) in the country granted bail I am concerned about our countries ability and conviction to combat terrorism through the left leaning legal system.

Cheers,
Ian Graham

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How can governments encourage risk taking and entrepreneurship?

It sounds simple enough and it probably is, reduce the risk of taking the entrepreneurial leap and more people will jump in. I have a number of suggestions on how to encourage leapmanship (entrepreneurship).

Eliminate tax on withdrawal of RRSP contributions to start a business.
Interest free working capital loans.
Reduce or eliminate the tax on first year salaries.
Improvements to the Canadian Small Business Financing loan program.

I am sure there are many other opportunities to improve the environment to encourage entrepreneurship.

Cheers,
Ian Graham
PS, HAPPY St Patricks Day!

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What is the Solution?

The solutions start with making funding available where it is needed. The greatest need, in my opinion is those early stage companies (pre-seed and seed). Companies in Ottawa that have previously received funding are getting follow on rounds. Companies looking for that first bit of cash to get going are struggling. One of my favourite quotes (not necessarily in a good way) “But all of the good companies are getting funded.” That is a wonderful point of view if you hold the purse strings to a limited amount of cash and start-ups are beating a path to your door. If you are working hard and trying to get going there is a totally different perspective.

MOST IMPORTANT - There needs to be a fund(s) for pre-seed and seed capital of significant enough magitude to meet at a minimum 50% of the demand. Ideally it would be a combination of government and private money. All levels of government need to work together to build the knowledge infrastructure.

There is NO such thing as a free lunch. The entrepreneur and start-up must have some skin in the game. Building a business on someone else’s money is too easy. If you want to breed a lean and hungry model for innovation it is essential that the entrepreneur contribute financially to the enterprise. I am a firm believer that there needs to be risk sharing and that everyone MUST contribute financially. Having too much easy money is just as bad as having none at all. Too much money results in corporate obesity, lean is healthier and more motivated.

Merit based administration of the fund is essential. The three principles for administration should be; open, transparent and meritous. These are the same principles as Carleton Universities open source centre of excellence.

The solution could be as simple as 1, 2, 3. Establish a fund(s), have a merit based system for awards and ensure all stakeholders share the risk.

Cheers,
Ian Graham

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Who gets funding?

Right now the answer is a handful of people per year. The point of this post is more along the lines of who are the BEST people, assuming there is a pool of money, to be judging what start-up gets the cash from a fund made up of matching contributions from private and Federal, Provincial or Municipal governments.

This is part of the challenge with the current funding mechanisms. For angels and VC the decisions, and rightly so these are private funds, are made by a select group of individuals. The challenge with this method is that the individuals probably have specific domain knowledge and while very qualified to judge some opportunities are less versed in others. The municipal, provincial and federal funds are administered by government organizations that maybe do not understand early stage business cluture,  the technology or the business model.

In my opinion the best way to be able to select who gets funding is based on the merit of each individual application, as judge by a broad volunteer committee of peers, business, technical and academic panelists. The committee and administration would be performed by the private sector who maintain and administer the fund while meeting certain investment criteria as established by the feds and or province.

If a fund were established the BEST people to evaluate the proposals would be a volunteer admission board (of assorted domain experts: business, technology and academic) that rate and rank proposals based solely on merit. Idealistic perhaps but, in my opinion also easily achievable and at no cost to the fund because the admission board is volunteer.

Plenty more to say on this topic, but that is for another post.

Cheers,
Ian Graham

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Where should the money come from?

Knowledge based start-ups that need funding in Ottawa for the most part are under the VC bar, in other words the opportunities do not meet the $100M revenue in 5 years benchmark. This means that we have to think of new and innovative ways to get funding to entrepreneurs because the pools (more like puddles) of risk capital that are available are not appropriate sources. This essentially means that pools of risk capital need to be created made available and administered. Either that or the existing sources of funding need to re-think how they evaluate opportunities, unlikely.

The money ideally would come from the private sector with matching contributions from all three levels of government. You can think of developing these funds as the building blocks for knowledge based infrastructure, much the same as is done for transportation infrastructure. Typically all three levels of government contribute to projects like the Strandherd Bridge and Ottawa Congress Centre. Governments should be involved in facilitating the formation and matching contribution to seed and pre-seed funding. The Industrial Research Assistance Program sets an excellent example for how to leverage private funds with matching contributions. The best vehicle I can think of to facilitate pre-seed and seed funding is the LSIF or a similar program. Premier Dalton McGuinty if you are listening and interested in building the Ontario knowledge economy re-instate the LSIF with the focus on pre-seed and seed funding.  I suspect the proposed Ontario Venture Capital Fund will be great for follow on rounds (Series A and later), in which case it misses the mark, but a similar fund for early stage companies would be more beneficial.

I know the current Ontario Provincial Government is surveying manufactures for ideas on how to rebuild the manufacturing sector and a similar survey on how to rebuild the knowledge sector would also be a good idea. The desired result of the survey would be actionable results oriented initiatives.

Bottom line is that knowledge infrastructure is equally if not more important than physical infrastructure, however, none of the levels of government; Larry O’Brien and City of Ottawa, Premier McGuinty or Prime Minster Stephen Harper seem to get it.  Funding for knowledge based infrastructure is essential and all but ignored. It all starts with building on the base of the Entrepreneurial Hockey Analogy pyramid and fixing early stage (pre-seed and seed) funding.

cheers,

Ian Graham

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What is funding available today?

Here are the sources of for innovation funding that I am aware of available to early stage entrepreneurs in Ontario and more specifically Ottawa. I intend to be highly Blogmatic in my assessment of these opportunities and the information presented is to the best of my knowledge. If you are familiar with these sources of innovation funding please feel free to correct any misconceptions I may have. Let’s start with the level of funding closest to the Ottawa entrepreneur.

OCRI I have heard through the grape vine has a fund called the globalization fund. If this is true, it is one of the best kept secrets in Ottawa. Who gets funding? How do you apply? Does the fund actually exist or not? Inquiring minds want to know.

Investment Accelerator Fund (Ministry of Research and Innovation Ontario)The investment Accelerator fund was originally targeted at Universities only but has recently been opened up to the private sector. This is a $29M fund over an unknown amount of time. The payload of each grant is $250k to $500k which is ideal. The challenge with this fund is that if you do the math there are 58 – 116 available for the entire province. The probability of success is roughly 2% for an application. This is a step in the right direction but significantly underfunded. If you are looking for funding it is worth a shot.

Ontario Commercialization Regional Program and other programs (Ministry of Research and Innovation Ontario). The details of OCRP are not that clear to me, I think it basically means OCRI gets some money from the provincial government to do whatever it is that they do with the money they get. The $25M the photonics cluster in Ottawa recently received may be related to this program. Bottom line if you are a start-up looking for funding, move along there is nothing to see here. There is also something called OCIF which looks fairly new, however the catch is you need to be a research institute, in other words a University.  If you are able to find and partner with a University you may be able to leverage OCIF. Here is the guide to the program. They could do a much better job at promoting the Ontario provincial innovation programs.

Industrial Research and Assistance Program and Scientific Research and Experimental Development– Government of Canada. These are probably the two best and most efficient uses of government resources to support start-ups that is available today. I believe that funding is available from $0 to $500k in the form of matching contributions (there is that matching contribution again) for start-ups that are doing research and development. IRAP matches funds at the start of your project and SRED is a post project tax credit.  If you are a start-up and looking for funding I recommend you check it out.

The Canadian Small Business Financing Program. This is a good program and an excellent example of what governments and private industry can achieve together. This program is available to Canadian small businesses for purchasing assets, lease hold improvements and other capital equipment. The loans are from $10k to $250k with the government covering up to 85% of the risk and the borrower the rest. If you need capital for equipment or stuff check it out. This is definitely a good program and a similar one for working capital would be awesome.

BDC working capital is one of the few sources of where you can get a working capital loan. To qualify you need to go through a credit check procedure and be able to secure the loan, of course you also need a good business plan. That said there is some risk, however, if you are passionate about your business and serious about getting going this may be one of the fastest ways of doing it. If you are a start-up looking for working capital this is worth checking out.

What about VC and Angels?

As mentioned earlier VC are probably not the right people to be funding the early stage (pre-seed and seed) based on the current evaluation criteria. Angels are worth a shot provided you know them or have a warm referral. Keep in mind the bar is set high and you want to make sure your business is consistent with the type of investing they do.

Summary there is money out there, however, most of the pools are very shallow and the competition is fierce. Government support at any level, Municipal, Provincial or Federal is almost non-existent. If you want to take some risk you could secure more traditional financing from a bank that is another option. Bottom line is that the start-up community needs considerably more financial support than what is currently being provided. The Government of Canada just announced a $1B support program for small one industry towns. Think of how a similar program to rebuild Ottawa’s vibrant start-up community could be utilized with likely a far better economic ROI. ARGH!

Cheers,
Ian Graham

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Fixing the Funding Paradox will be a series of 5 posts. I have been very vocal about the funding paradox and the challenges it present to early stage entrepreneurs. In my opinion the Funding Paradox is a key issue preventing Ottawa specifically and Canadian companies more broadly from building a solid knowledge based infrastructure. Saying there is a problem is one thing actually doing something about it is even more important. It all starts with a desire to “gitter done”.  This series will be my thoughts on the current situation and more importantly on how to go about fixing the Funding Paradox. Once TheCodeFactory is up and running I intend to be an even more vocal political advocate for early stage businesses in Ottawa.

Admitting a problem exists is the first step in finding a solution. OCRI had a press release that actually alluded to the fact a problem may exist with funding. This is the first positive step I have seen from the organization in this direction and a change from their previous funding press releases that permeated the message going down but nothing to worry about. Here is a list of press releases from previous years, so don’t just take my word for it check it out for yourself (2002, 2003, 2004, 2005, 2006). The rationale for this sudden change in attitude is welcome. I could spend some time picking the press release apart, there are plenty of opportunities, but I won’t and instead will dedicate this series of posts to some thoughts on situation analysis and constructive solutions.

Sourcing- where the money comes from?
Situation Analysis - What is available today?
Selection - Who gets funding?
Solution - What is the solution?

Cheers,

Ian Graham

http://www.ocri.ca/email_broadcasts/newsreleases/012808news_e.html OCRI News Release

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The OBJ had an article today about OCRI wanting everyone to scream from the rafters that tech is back. National Capital Scan recently had a post regarding the bummerization of high tech in Ottawa. I thought an interesting counter point of view might be on the nummerization of economic development in Ottawa.

What is this nummerization you speak of? Well let’s say it starts when your head is buried so deeply in the sand (or perhaps elsewhere) that you ignore vital warning signs. You can think of it as hearing what people are saying but not bothering to listen or being highly dismissive and critical of those raising the alarm. You become a cheerleader and promoter rather than builder and economic developer. You dismiss important issues and economic fundamentals and focus on messaging and damage control. You measure success by inputs, head count and budget rather than outputs and results. While “be happy don’t worry” might make a great song it is not the tune you want your economic development agency singing during challenging times.

To awaken from nummerization is a bit like a recovering alcoholic. The first step is to admit that the problem exists and formulate a solution. The current wisdom is that tech is on the rebound (I tend to agree with that) and everything is great to say otherwise means you are a bummer. This is the same sort of messaging that permeated the entire period from 2001 to 2004, which I have heard referred to as the nuclear winter for tech in Ottawa. Tech may be on a rebound, however, why are Ottawa tech icons such as Terry Mathews saying unless something is done Ottawa won’t have a tech sector in five years. I wrote a post on this breaking news back in April (The elephant in the room). Denny Doyle often speaks of Ottawa becoming a branch plant town, just look at a number of the recent acquisitions including Cognos. These are warning signs that some change is necessary and you have OCRI saying everything is great lets look ahead. On the other you have; lowest VC funding levels in history (I wrote about this in my first post of 2007 and 2008), mergers and acquisitions turning company HQ into branch plants at an alarming rate and experienced executives plus grass roots raising the red flag. In response OCRI puts a favourable spin on each of these. What is needed is surgery not spin doctoring.

In my opinion it all starts with accountability. Who is OCRI accountable to? No financial statements have ever been produced for members to review, at least none I could find. The board of directors is 28 members, far too large to govern effectively. OCRI has received $1.6M from the City of Ottawa and program allocations from MRIO for OCRP and BMEP programs, what have the funds been used for? OCRI measures success by inputs rather than results, just take a look at the list of accomplishments on their web site. The amount of money you spend doesn’t necessarily equate to results or return, again I quote Tech Guru Denny Doyle.

Frankly I think we can and should be achieving far better results for or $16M in economic development dollars. I am not saying that things are bad, in fact in the past two years there has been a definite upward trend, however, I am saying we should and must do better.

Being happy and shouting from the rafters,
Ian Graham

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It is a very exciting time in the Blogmatic home. My son started College on Monday and it is great to see him interested and enthusiastic about higher learning. When he returned home after his first class in Political Science we had a chat about it. Anyway it turns out that his teacher espousing that yes in fact everyone is created equal. By the way this teacher was wearing socks and sandals. I started to reflect on what was being taught and believe that this is a flawed premise.

Are all people created equal? In my opinion, NO. Before you start hurling slings and arrows my way let me explain my point of view.

If all people were created equal then everyone would have the same skills and capabilities to start with. My personal belief is that people are more like snowflakes with no two exactly the same. Each person has certain gifts and challenges in their life that make them unique. If everyone was equal then putting a team together for a start-up would be a no brainer. The fact is you need to build a team that aggregates the skills and knowledge of a diverse group of individuals.

However, all people of Canada are entitled to the same rights and freedoms as guaranteed by the Canadian Constitution. Justice should be applied equally to all citizens of the country regardless of race, creed, colour, …

So while all Canadians are treated equally with respect to the law and rights we are not created equally with respect to skills and capabilities.

Cheers,
Ian Graham

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