Harnessing Canadian Innovation: Looking at the MaRS Discovery District in Toronto

By Keith Edmund White, Editor-in-Chief

We all know the obvious:  the world, along with the technologies that make it run, is moving at a faster and faster clip.  As such, the governments of advanced economies are facing a common challenge:  how can they not only maintain the important mainstays of their economies, but also harness future technologies?  Today's press release from the government on Ontario shows one such model:  a government-funded nonprofit, MaRS DD, that provides funding and other business services to potential-filled early-stage start-ups.  CUSLI-Nexus explores how MaRS DD fosters innovative businesses in Canada, and if these innovation incubator/accelerator organizations can solve Canada's innovation challenge.

Yesterday the government of Ontario heralded its support of 12 innovative businesses, giving particular focus to a social responsibility start-up Better the World.  What’s most interesting about this news-release is how Ontario's provincial government went about supporting these tech ventures.  The government established a $7 million fund Investment Accelerator Fund (IAF), and then had MaRS (short for “medical and related sciences”) Discovery District (MaRS DD) administer this fund to worthy Canadian start-ups.  The non-profit organization, which was founded in 2005 and provides business services to science, technology, and social entrepreneurs, doles out grants up to $1 million to get early-stage start-ups up and running.  And the IAF also takes in funds from private sources.  As such, MaRS DD is an example of a public-private partnership geared to spurring tomorrow’s in-demand industries and technologies in Canada.  How’s MaRS DD doing?  Well in 2010 alone, MaRS DD has pumped over $108 million in capital for Canadian start-ups.

To get a sense of what MaRS provides to Canadian tech entrepreneurs, check out this article by MaRS CEO Ilse Treurnicht:

Every day, more than 2,500 people from the worlds of science and technology, entrepreneurship and business, as well as investors and the innovation community come to work at the 750,000-square-foot complex. And we’re still growing. By the fall of 2013, MaRS will more than double in size to become one of the world’s largest urban innovation hubs, commercializing research and accelerating the growth of startups in life sciences, ICT, cleantech and social enterprise. MaRS is also an active member of the Ontario Network of Excellence (ONE), a regional platform that supports the fast growth of technology ventures in over a dozen communities across the province.

So why is this particularly important to Canada, and what has MaRS DD accomplished?

First, MaRS DD is a important piece of protecting Canadian prosperity in the 21^st century.  As I discussed last month, today’s relatively rosy Canadian economic performance faces a long-term innovation challenge.  Now, that August post focused on the structural problems getting in the way of current Canadian businesses innovating their business practices (think making a widget 5 seconds faster), and not the ‘MaRS DD’ angle on innovation.  MaRS DD is doing the start-up slice of innovation:  funding new businesses that—if they succeed—will provide new products or ways to deliver in-demand services.  The end-result:  a start-up working at MaRS DD becomes the next big bio-tech or tech company, or simply gets bought-out from an established company, which—in turn—generates increased corporate profits.  

As such, business incubators like MaRS DD—based in a city with $1 billion in annual science and technology research spending are a small, but critical piece of building the Canadian economy of the future.  And, most interesting to me, it shows an attempt to combine the long-term funding capability of government with academic and real-world business expertise to create successful Canadian start-ups.

As to how MaRS DD is doing, it’s clear that MaRS DD is doing good work. MaRS DD has provided 900 research requests for companies and entrepreneurs, 13 market intelligent reports, and has created 600 jobs in 2010 alone.  A $7 million government expenditure to create 600 jobs isn’t bad (~$11,667.00/per job), especially if some of these then lead to either big start-up buy outs or permanent businesses.  So, it’s clear MaRS DD hasn’t been a waste of tax-payer money.  

But, the most interesting—and vexing question—is how one can analyze how a start-up incubator can measure its effectiveness.  Most start-ups fail; at least with government funding, we’re not forcing would-be entrepreneurs to be stuck paying back debts—and not trying to succeed again.  But judging a start-up incubator by the number of jobs created, while a key political indicator of success, has little—if anything—to do with whether MaRS DD is fulfilling a need the private sector can’t provide.  This is not to throw cold water on the project, as MaRS DD’s expansion and track-record of success shows that MaRS BB is a model for successfully spurring tech start-ups.   

But, to get a sense of start-up incubator/accelerator skepticism, check out Lyn Blandchard's article at Your Capital Edge:

This research led to a few broad conclusions: while there are plenty of startup success stories to provide anecdotal evidence of incubators and accelerators having success on a regional basis, there is no broad consensus on just how effective these programs are.

So, will MaRS DD—and similar organizations—solve Canada’s innovation challenge?  Ultimately, only time will tell.  But MaRS DD sure looks like a part of the solution.