Ontario government to reduce funding to MaRS, Communitech and Invest Ottawa incubators

Prime Minister Justin Trudeau makes a funding announcement at the Communitech startup space in Kitchener, Ont. on Tuesday, April 16, 2019. THE CANADIAN PRESS/Christopher Katsarov

Following an announcement by Prime Minister Justin Trudeau on Tuesday allocating $52.4 million over five years to MaRS Discovery District, Communitech and Invest Ottawa, two of the incubators said they’re expecting funding cuts from the province. A senior provincial government source confirmed to The Logic that all three will see a reduction in funding.

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A confidential government report obtained by The Logic shows there was concern in Ottawa as early as summer 2018 that Premier Doug Ford’s government would reduce or eliminate funding to the three marquee tech incubators.

In the report prepared for Innovation Minister Navdeep Bains in August 2018, federal officials warn that it isn’t just incubators on the chopping block. All members of the Ontario Network of Entrepreneurs (ONE), which contains more than 130 institutions, could also face cuts.

Talking Point

Following Prime Minister Justin Trudeau’s Tuesday announcement of $52.4 million for MaRS, Communitech and Invest Ottawa, two of the incubators told The Logic they’re expecting funding cuts from the province. The federal government is concerned cuts could affect all of the Ontario Network of Entrepreneurs—of which there are over 130 members—according to documents.

The report was prepared for Bains in advance of a phone call with then-newly-minted Ontario economic development minister Jim Wilson.

“Cancellation or reduced funding to the ONE network may also result in increased funding requests to ISED and its portfolio partners,” reads the report. ONE members span the province, from the Innovation Factory in Hamilton to the Launch Lab’s satellite office in Belleville.

The provincial government official—who was not authorized to speak on the record due to the sensitive nature of the negotiations—said that all three incubators would see reductions in funding, but that they won’t be as severe as the incubators fear.

Yung Wu, CEO of MaRS, said that Ontario’s economic development ministry will have a budget reduction, and MaRS is expecting “to carry our share of this reduction.”

“We are currently working with the Ministry to understand specific impacts to program funding that we expect will be rolled out in the upcoming weeks,” said Wu.

Iain Klugman, president and CEO of Communitech, said that he wouldn’t be surprised by cutbacks from Queen’s Park.

“We expect to get a small reduction, keeping in line with the province’s approach to their fiscal situation,” said Klugman.

Sonya Shorey, vice-president of communications at Invest Ottawa, said her organization does not anticipate any reduction in provincial funding.

Bains echoed the concerns from the government report in a phone call with The Logic, describing the Ontario government’s economic strategy as one of “cuts and austerity.”

“We think now is the time to build these partnerships, because other jurisdictions are doing that, as well,” said Bains.

“This investment today with Communitech, MaRS and Invest Ottawa reflects that vision. And if the province, unfortunately, chooses a different path, that’s to the detriment of Ontarians, and economic growth and jobs, and we don’t support that vision.”

Asked if the provincial government intends to reduce or cancel funding to any members of the ONE Network, Sarah Letersky, communications director at Ontario’s economic development ministry, said, “We have had frequent, constructive conversations with the tech sector about creating the conditions that will allow companies to scale and grow. Their recommendations have since informed our approach to the sector, in the context of Ontario’s fiscal situation.”

“We haven’t noticed any hesitancy from the provincial government to co-invest, and in fact – both the provincial and federal governments were very interested in making sure that the other level of government was also investing,” said Klugman.

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Other jurisdictions, meanwhile, are struggling in the wake of the Canada Accelerator and Incubator Program (CAIP) funding drying up. The federal government’s $52.4-million announcement comes two weeks after the CAIP ended. The six-year federal government program allocated $100 million to 15 incubators and accelerators across Canada, the majority of which are based outside Ontario.

Jill Tipping, president and CEO of the BC Tech Association—which received funding under the CAIP—announced on Tuesday that the organization would be closing its 6,000-square-foot Cube tech hub in Vancouver on May 17 because it couldn’t secure adequate federal and provincial funding. CAIP funding ended on March 31, 2019, and Tipping said that while the association received adequate notice from the federal government of the program’s ending, it couldn’t secure funding from the provincial government to fill the gap left by the CAIP.

“We used to get $2 million in federal funding; going forward, we get $750,000. I can’t make $1.25 million appear overnight. Maybe I could if I was in Ontario, apparently,” said Tipping. British Columbia’s Ministry of Jobs, Trade, and Technology did not reply to a request for comment by deadline.

Communitech has significantly increased its lobbying of the federal government since Ford became premier in June 2018. Earlier this year, the organization lobbied a number of key figures, including John Knubley, deputy innovation minister; Justin To, deputy chief of staff and director of policy to the finance minister; and Jason Easton, chief of staff for Small Business Minister Mary Ng.

Klugman said the uptick in federal lobbying was not prompted by a concern about a potential reduction in provincial support.

“Both of our federal funding agreements (CAIP and CECR [Centres of Excellence for Commercialization and Research program]) were expiring this year – so the main topics discussed were on the agreement that was announced today, as well as an extension of our CECR agreement,” said Klugman.

MaRS Discovery District has increased its lobbying since Ford’s election, as well, but also said the escalation had nothing to do with concerns over a reduction in provincial support. In 2019, MaRS lobbied Chad Hartnell, director of operations of the Privy Council Office’s Innovation Hub, and Simon Robertson, director of policy for Minister Ng. MaRS also registered two new lobbyists in March and April, respectively.

Between 2015 and 2018, with Kathleen Wynne as Ontario premier and Trudeau as prime minister, the two Liberal governments worked closely on tech investments. During that time, 33 co-investments were made with funds from the federal government’s FedDev Ontario and the Ontario government’s $3.2-billion Jobs and Prosperity Fund (JPF).

“Cancellation of JPF may result in increased pressure on FedDev to provide direct support to stakeholders in key areas where the JPF was most active – manufacturing and transformative technology partnerships,” reads the report prepared for Bains.

Premier Ford promised to cancel the JPF during his election campaign. However, he still spent $130.7 million out of the fund in 2018, though none of that went toward any of the announcements this week.

On Monday, Bains announced $500,000 for the Northwestern Ontario Innovation Centre in Kenora. The Ontario government did not participate in that announcement, or in Trudeau’s $52.4 million on Tuesday, where the prime minister apportioned $18 million to Communitech, $17.5 million to MaRS and $16.9 million to Invest Ottawa. The funds are part of a new Scale-Up Program meant to help 30 Ontario firms reach annual revenues of $100 million by 2024.

The three Ontario hubs that received funding on Tuesday will use it to provide a variety of services to hundreds of companies including market intelligence, public relations, talent programs and coaching and advisory services. They will not select specific companies that they think are on track to hit $100 million.

“We’re not going to choose 30 companies, but rather by building the funnel of scaling companies, and providing significant support to them – we (all 3 hubs) can help 30 companies to reach that target,” said Klugman.

The three hubs and their regional partners currently work with about 2,000 “high-growth and scaling firms with the potential to achieve $100 million in revenue,” said Shorey. “A sustained focus on this cohort of scaling firms will produce the next generation of anchor companies.”

During Tuesday’s announcement, the prime minister said the program will create 18,000 “high-paying middle-class jobs” and $11 billion in revenue, while simultaneously attracting more than $4 billion in investments. The Prime Minister’s Office directed questions on how the numbers were calculated to Bains’ team, who did not provide an explanation for the calculations by deadline.

With files from Jessica Galang and Murad Hemmadi