Innovation Policy

Superclusters await funding six months after winning $950-million innovation bids

Navdeep Bains, Minister of Innovation, Science and Economic Development announces proposals under the $950-million Innovation Superclusters Initiative in Ottawa. FILE: Thursday, February 15, 2018. THE CANADIAN PRESS/Fred Chartrand
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None of the $950 million in government funds has been issued to the five winning entrants in the Canadian government’s Innovation Supercluster Initiative. However, the British Columbia-based Digital Technology Supercluster said that it will be ready to launch its first round of projects as early as October, pending negotiations with Ottawa.

Last year, the government held a contest for the initiative that fielded 50 applicants, which were narrowed to nine finalists in October 2017. The five winners were announced in February. The government will allot between $125 and $250 million to each supercluster, which must be matched at least dollar-for-dollar by industry.

The federal government said that establishing the industry and research hubs will grow Canada’s economy by $50 billion in the next 10 years and create more than 50,000 jobs. Some expert critics heavily doubt that claim.

Funding submissions from the winning organizations, whose CEOs spoke to The Logic, are being reviewed and approved by the Treasury Board.

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For example, B.C.’s Digital Technology Supercluster was approved in late August, but cannot receive funding until it reaches its “contribution agreement,” which sets out objectives, eligible activities, eligible costs, reporting obligations and expected results for the superclusters with the government.

Sue Paish, CEO of the non-profit that oversees the Digital Technology Supercluster, told The Logic that it has nine project proposals it is assessing, a handful of which it will take before its inaugural board meeting for approval later this month, whittled down from 21 expressions-of-interest made in April.

“The other guys in the other superclusters know we’re going hard like this and it’s very deliberate,” she said.

Talking Point

  • It’s been six months since the federal government announced the winners of the $950-million Innovation Supercusters.
  • So far, none of the superclusters have received funding from the Treasury Board; they first need to finalize agreements with the federal government.
  • The B.C.-based Digital Technology Supercluster believes it will be first out the gate and could launch projects as early as October.

Paish and the CEOs of the other non-profit organizations that oversee the four other supercluster initiatives—Saskatchewan-based Protein Industries Canada, Nova Scotia-based Ocean Supercluster, Quebec-based Scale.AI and Ontario-based Next Generation Manufacturing—are optimistic that the contribution agreements will be finalized in the next month or two.

In a statement to The Logic, Innovation, Science and Economic Development (ISED) spokesperson Hans Parmar said the exact details of the contribution agreements “will be worked out in the coming months.”

The allocated amount that each supercluster receives will depend on how much money they request and the government’s own economic opportunity assessments. Parmar said the funding submissions being reviewed by Treasury Board should be finalized “in the coming weeks,” and that the funding timeline is “as usual with any large-scale commercial partnership transaction.”

Timeline

After Innovation Minister Navdeep Bains announced the five winning supercluster bids in February, many observers thought they would be able to immediately hit the ground running, said Frank Hart, interim CEO of Protein Industries Canada.

But the logistics of bringing together the various federal players and representatives from the supercluster groups for an initial two-day meeting took longer than expected.

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“It took almost until mid-April to get that meeting set up,” said Hart. Final due diligence templates from the federal government arrived the next month.

“The idea was to get all of those completed by the end of May and get in to the June Treasury Board cycle,” said Hart. “But nobody made it, there was just too much uncertainty over certain terms.”

Hart said it took “a good chunk” of June for the superclusters to go through the final hoops—which included ensuring commitments of the major, well-moneyed companies that were part of the bids—and due diligence filings were all completed by early July. “We did make a lot of progress in June and July. I think we’re in good shape now,” he said.

In late August, the Protein Industries Supercluster finalized its Treasury Board submission, and Hart said it will go for approval later this month.

Jayson Myers, the CEO of Next Generation Manufacturing, said it has completed the submissions required by Treasury Board to get approval.

The manufacturing supercluster is now working with consortia that have made project proposals, and aims to its first round of projects selected in time for the signing of the Contribution Agreement.

Scale.AI, the Quebec-based AI supercluster, has some partners already engaged in pilot projects, “even though the superclusters aren’t ready yet,” according to interim CEO Tristan Mallet.

Another CEO said, to their understanding, Scale.AI had received Treasury Board approval for its funding submissions last month, though Mallet only said, “We’ve been asked by the government not to communicate too much on that front, but we’re moving fast on the Scale.AI front.”

Matt Hebb, interim CEO of the Atlantic Canada-based Oceans Supercluster, said his organization hasn’t finalized its first round of projects yet, but that companies are identifying common interests and how much in co-investments they are willing to commit to in different areas. Oceans is aiming for a total co-investment of $300 million to $400 million between government and private sector partners. Hebb said the supercluster is “aiming to be active on preliminary projects this calendar year and to be fully operational by the end of this fiscal year.”

Intellectual Property

With large corporations like Microsoft Canada involved in four out of the five bids alongside smaller companies, the superclusters will need to formalize the way they share the IP generated from projects.

Many small and medium enterprises (SMEs) have shown skepticism towards working with larger firms, according to Hart.

“There’s a perception out there, particularly with SMEs, they’re almost to a company a bit reluctant to share their plans because they think big companies are just going to take them and run with them, and steal their IP,” he said.

The Five Superclusters

Digital Technology – British Columbia

 

This supercluster has nine projects it is reviewing, and will seek approval for its first round of projects in late September at its inaugural board meeting. The organization said it is ready to launch its first round of projects in October, if a contribution agreement with the government can be finalized. CEO Sue Paish said, “We’ve been called by some folks in government a pathfinder.” Its IP strategy will allow partners to negotiate their rights on a project-by-project basis.

 

Protein Industries Canada – Prairies

 

This supercluster recently submitted its required documents to the government for Treasury Board approval. It’s requesting about $150 million. In addition to finalizing its search for a permanent CEO, the proteins supercluster is working to form an industry venture fund—it currently has a shortlist of candidates for the venture fund CEO, and said US-based funds with a strategic interest in plant proteins are interested in co-investing with the fund.

 

Oceans Supercluster – Atlantic Canada

 

This supercluster plans to launch preliminary projects by the end of 2018 and be fully operational by the end of the fiscal year. It hasn’t finalized its initial projects yet, but participating companies discussing the “magnitude of co-investments” they’re willing to commit to, according to CEO Matt Hebb. It is hoping to raise a combined $300 to $400 million from government and private sector partners.

 

Next Generation Manufacturing Canada – Ontario

 

The manufacturing supercluster has submitted its application for funding to the federal Treasury Board, has an initial IP protocol and said it is working to ensure its proposed projects will meet the compliance guidelines of the supercluster initiative. CEO Jayson Myers said discussions at the supercluster have seen traditional and newer stakeholders finding the potential to benefit from one another: “It’s not just manufacturers looking for technologies, it’s also technology companies looking to scale up and find manufacturing capabilities.”

 

Scale.AI – Quebec

 

Some partners at the artificial intelligence supercluster are already engaged in their own pilot projects, according to CEO Tristan Mallet, as a means of being better suited to working on future projects within the initiative. In July, Scale.AI members Tealbook and the Canadian Council for Aboriginal Business announced they are collaborating on an AI-powered platform that will help Indigenous entrepreneurs pick up procurement contracts.

However, he said, the supercluster initiative requires that SMEs be involved in all projects: “It’s just the fear that small companies tend to have working with bigger ones.”

Paish said foreground IP—or the intellectual property created as a result of a project—is being addressed in the contribution agreements.

The Digital Technology Supercluster, she said, is not predetermining that all members of a project have proportionate rights to IP or equal rights to foreground IP that’s developed.

“We are taking the view that the members of that project will negotiate how their foreground IP will be shared and then that’s going to have to be consistent with the expectations of the federal government,” said Paish.

Myers said, in the manufacturing supercluster, IP arising from projects will be shared among their participants, while its IP protocol will also protect the background IP that companies bring in with them.

He said this strategy will offer protection for companies that are entering in to projects, and also give them opportunities to license their existing IP to other companies as they collaborate.

Mallet said the Scale.AI supercluster is negotiating how to structure the IP that it will generate, noting that, because data ownership and sharing are front of mind, AI is “not a very traditional way of managing IP [strategy].”

“I think people getting together and sharing concepts and new ideas in different ways to solve challenges and sharing IP is—there’s a bit of organizational work in that and that’s going to be a big challenge for us, for all the superclusters,” added Hart. “But if we can do it, it’ll be a gamechanger for Canada.”

Meanwhile, at the Digital Technology Supercluster, a panel of 20 independent reviewers from Canada and abroad are reviewing the nine projects that could launch in October. They are scrutinizing the projects to ascertain that they will be globally innovative and not just new to Canada, to maximize their profitability and export value.

“[By late September,] we will have appointed our board, approved our first budget, approved our first cycle of projects and hopefully be close to if not completed our contribution agreement,” she said.

The B.C. supercluster was able to move quickly by getting advances from some of the private companies involved, said Paish, which allowed it to put in place an operational structure relatively quickly. It has been holding regular meetings since July 2017, involving anywhere from 25 to 40 companies, which have also allowed it to quickly define a code of ethics and dispute resolution process.

“We tried to address, as much as one can, potential cultural collisions through that workshop format and dealing with tough questions,” she said. “I won’t be able to tell you if it’s been successful or not until we get in to projects.”