High-profile ACOA program only receiving fraction of loan money back from tech firms
Published Sunday September 21st, 2008
HALIFAX - Six years after Ottawa announced $44 million in loans to 18 technology companies in Atlantic Canada from a highly touted innovation fund, only five firms have begun repaying money they owe and two companies are bankrupt.
Records provided under the Access to Information Act show four companies have repaid $1.35 million - about three per cent of the total owing - to the Atlantic Canada Opportunities Agency.
The fifth company, MDS-PRAD Technologies Corp. of Summerside, P.E.I., didn't reveal its repayment in the records, citing an exemption of commercial confidentiality.
Meanwhile, $3.2 million from the Atlantic Innovation Fund has been written off as uncollectable due to the collapse of Micro Optics of Moncton, N.B., and Mathis Instruments of Fredericton.
The cash being sent back to ACOA is one sign of how the program is performing. Loans only come due once a firm earns revenue from an invention.
The program's first recipients were announced with considerable fanfare in July 2002. When the program was first announced two years earlier, former prime minister Jean Chretien stated: "This is a new start on the new economy in Atlantic Canada."
Peter MacKay, the minister responsible for ACOA, has defended the program since the Conservative party took power from the Liberals more than two years ago.
When shown the agency's update, MacKay said, "I don't have to tell you these are mostly, without any exceptions I can see in this list, all files we inherited."
But MacKay also expressed mixed views when questioned about the fund's performance.
"I think we could do better, is the short answer," he said.
"I think all of these businesses and ventures are trying and there will inevitably be some that will make it and some that won't."
MacKay said he thinks the "vast majority" of the loans have been a good investment.
He described the fund as "a Godsend" to the region and said he will "absolutely" defend its continued existence if the Tories are re-elected on Oct. 14.
But Sunny Marche, a business professor at Dalhousie University in Halifax and a former venture capitalist, argues the results show firms are taking too long to make money and that the program should be reconsidered.
"I would describe Mr. MacKay as substantially more patient than I am as an investor. Yes, they have invested in early stage companies, companies that may not have much presence in the marketplace, but six years is a very long time," he said.
Marche, who spent five years as a venture capitalist in Alberta, said his firm started to look for commercial success after two years.
He believes ACOA should have received an ownership position in the firms, making it entitled to a larger payback from the few that became successful.
"I think this is a very expensive way to do economic development," he said.
Richard Gauthier, a spokesman for the Atlantic Innovation Fund, said critics should remember the fund was created because Atlantic Canadian research and development firms struggle to gain access to investment and receive less aid from Ottawa than firms in other parts of the country.
He said while the funds were announced in 2002, some of the companies didn't sign a contract with ACOA until early 2003, shortening the period of time they've had to develop their ideas.
He said research firms often require 10 to 15 years before they are able to achieve commercial success.
The agency's website points to several "success stories" among the repayments, most notably Ocean Nutrition Canada, which has repaid $931,105.
Researchers at the Nova Scotia company developed a way to coat fish oil droplets with protein and dry them into a stable powder that can added be to food.
On the other hand, Micro Optics Design Corporation, which developed a carving system for eyeglass lenses in Moncton, went bankrupt. Loh Optics, a German multinational, acquired portions of the Micro Optics intellectual property after the firm collapsed in 2003, and is using it in their own design.
Marc Savoie, the engineer from Moncton who helped create the patents, is now working for the firm in Germany.
Karen Spaulding, the president of Metaworks, a small software firm based in Halifax, said in her view, the fund isn't focused enough on getting products to market.
Her firm applied to the innovation fund in 2002 and was rejected. She managed to secure private investment to develop her firm's software.
"I remember the feedback from colleagues was that there wasn't a focus on revenue-producing outcome, and there was real advantage given to companies that recognized a partnership with an academic contributor," she said of the innovation fund.
She argues the program should focus less on how many academics are being hired, and look at how quickly a company can sell a product on the marketplace.
Other experts say more time is required for a firm conclusion on what has been one the agency's highest profile programs.
David Wilson, a vice president at a Halifax-based labour-sponsored venture capital fund, said one success may ultimately prove the fund's worth.
"Let's say Ocean Nutrition develops into a billion dollar entity. ... That one investment might repay, in terms of benefits to the region, all of the funding to those 18 companies," he said.
The records received from ACOA under the access request show the writeoffs and repayments dated to March 18 of this year, although Gauthier says that information remains up to date.
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