Report: publicly funded tech accelerators create ‘lifestyle-type companies’


Are taxpayer-fuelled Canadian startup accelerators producing “lifestyle-type” companies without urgency to make profit?

A new report in the Globe and Mail by Montrealer Jacob Serebrin examined whether there could be too much government money going to programs that support tech startups.

Sunil Sharma, the chair of the board of the Canadian Acceleration and Business Incubation Association, which represents 13 organizations across the country, told the Globe that “it’s time to really take stock of how much funding has been put into supporting entrepreneurs in Canada and really measure it against the outcomes that we should have been able to show by now.”

Sharma, who is also a managing partner at Extreme Venture Partners, a venture capital firm in Toronto, said he “worries that incubators and innovation hubs are too focused on overhead – paying to provide startups with office space and mentorship, something that the private sector could do without government help.”

Private investors “may feel that this work is being done for them and that their involvement isn’t as needed,” Sharma told the newspaper. “I think a lot of people believe that the box has been ticked.”

Here in Montreal, the InnoCité accelerator program is an example of a tech accelerator funded by public money, mostly via the City of Montreal.

In 2014 I reported for the National Post about the crowded nature of the accelerator scene in Canada questioning the quality of mentors and how relevant the programs were in producing strong tech companies.

Serebrin said that discussions between the government and representatives from incubators and accelerators had been happening in the fall to bring about a “national performance measurement framework.”

Hans Parmar, a spokesperson for the Department of Innovation, Science and Economic Development even said that “If accelerators and incubators are successful in selecting and nurturing business ideas, incubated firms should generally have higher survival rates, grow revenues faster, employ more people and attract more capital than non-incubated firms.”

But Sharma is saying that we don’t really know this – and people are questioning what the real data would tell us.

MaRS, a Toronto-based charity and innovation hub, has come under fire in the past over how much of a return it was delivering from its significant government support. Serebrin wrote that MaRS has tracked standardized metrics for startups that go through programs affiliated with the Ontario Network of Entrepreneurs, an initiative created by Ontario’s provincial government.

Sharma retorted that these wide networks of government-supported programs has led to a lack of what he calls “authentic tech accelerators” – intensive, time-limited, programs that take an equity stake in participating companies.

Programs like that are more common in the United States, he said, but rare in Canada.

“Without that pressure environment and the quid-pro-quo of investment dollars and the responsibility that these founders have to their investors, I do worry that we are more likely to create a high number of lifestyle-type companies, where the sense of urgency isn’t there,” Mr. Sharma says.

Stephen Lake, Thalmic Labs’ CEO, said there’s too many accelerator programs both in Canada and around the world. Canada doesn’t need more, he told the Globe.

“What happens when you do that is you don’t get enough scale anywhere to really have a major impact,” he says. “So I think we have to pick the couple areas where we can be world class at, both geographically and in terms of sectors, and really double-down on putting significant resources into making those great.”

Sharma has long been a proponent of businesses that make money without taxpayer help.

Proponents of MaRS or any other publicly-funded startup hub will argue that startups need time, space and public capital to grow into great businesses that can hire talented people.

This writer cautioned the Kathleen Wynne government in an opinion piece for Techvibes two years ago entitled “Earth to Ontario: Life on MaRS is Not Sustainable.”

Just last month, the Toronto Police Service alleged that a former MaRS employee used his job as director of the “Collaboration Centre” to “defraud his employer” and “several service providers” of more than $970,000.

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