The federal innovation ministry is concerned about the “failure” of the country’s publicly funded startup accelerators and incubators to support themselves without government help, and about whether Canadians are getting a return on that public funding, according to an internal government document.

The small-business branch at Innovation, Science and Economic Development Canada (ISED) laid out the concerns in a March briefing note prepared for associate deputy minister Paul Thompson that proposes revising how the federal government supports accelerators and incubators. The Logic obtained the document through an access-to-information request. In a section laying out the challenges that such startup programs encounter—despite “a high level of support” from the federal government—ISED lists “a failure of [accelerators and incubators] to develop models that do not rely largely on continued support,” a “weak brand” within the investment community, difficulty supporting operating expenses, misaligned incentives that cause “trade-offs” between delivering services and pursuing government funding, and “remaining questions” about the return on investment to the public.

ATIP officials redacted sections of the note dealing with proposed revisions to the funding model.

Asked to comment on the document, a spokesperson for Innovation Minister François-Philippe Champagne referred The Logic to ISED. In an emailed statement, ISED spokesperson Yara El Helou said Canada’s accelerators and incubators “are a critical part of the start and scale journey of many promising young technology companies,” saying the department is helping the sector measure its performance through a program originally announced in the 2016 budget.

Despite the challenges ISED identified, the federal government has announced millions of dollars in new spending for the sector.

ISED is preparing to spend $90 million over two years on a program called ElevateIP, proposed in April’s federal budget, to help accelerators and incubators give startups expert help on intellectual property. According to another document ISED circulated among stakeholders earlier this month seeking their input on the program’s design, which The Logic obtained via a source, the department is considering using the funds to provide accelerators and incubators with access to specialists who can help client firms develop intellectual property strategies.

On Thursday, FedDev Ontario, a federally funded regional development agency, announced $2 million in spending to relaunch programs at Toronto’s OneEleven tech accelerator. On Friday, the federal government announced that part of a $400-million suite of programs aimed at addressing systemic barriers to the success of Black business owners will go to fund an incubator in Vancouver and an accelerator for Black Francophone founders in Ottawa, Gatineau and Montreal.

Jim Balsillie, a former co-CEO of BlackBerry who has since become a leading advocate for a national intellectual property strategy, told The Logic he’s alarmed ISED is forging ahead with its plan to administer the ElevateIP program through accelerators and incubators, despite concerns that they’re being incentivized to seek government funding rather than deliver and measure results, as laid out in the briefing note.

“I’m very, very concerned,” Balsillie said, adding that intellectual property services should be delivered by “experts, not rent-seeking troubled institutions.” 

Others have raised concerns that are similar to ISED’s about public accelerators and incubators. A 2015 study by the Waterloo, Ont.-based ​​Centre for Digital Entrepreneurship and Economic Performance found the sector does not track data on outcomes in a standardized way, making it difficult to evaluate their effectiveness. In January, a much-discussed post by Shopify’s Alex Danco argued that incubators and other publicly funded assistance to Canadian startups are doing more harm than good by incentivizing companies to focus on concrete milestones instead of open-ended growth.

Krista Jones, founding executive of the Momentum program at the MaRS Discovery District, which supports high-growth companies, said she hears differently from the startups she works with. She said the program gets consistently good feedback from clients, with net promoter scores that are high and improving.

Jones said she thinks accelerators and incubators have an important role to play in helping startups with their intellectual property strategies. 

“We’re conveners of people and we’re networks,” she said. “The government realizes we’re a good buffer in figuring out how to direct some of the resources that come in.”

Whether the benefits of Canada’s publicly funded incubator and accelerator system are worth the costs is a difficult question to answer.

The ISED briefing note contains the current value of active contribution agreements with accelerators and incubators across the country—but it’s redacted. The document states that it amounts to “significant support.”

Sunil Sharma, managing director of Techstars Toronto, which is entirely privately funded, said he would prefer to see the government redirect funds away from accelerators and incubators and towards other indirect measures that would make Canada attractive to founders.

“We would be better off as a country to have that money spent on tax reductions, on investment in cities, and on the conditions that allow startups to flourish,” Sharma said.

With files from Murad Hemmadi in Ottawa