Ottawa plans to boost spending on new tech from Canadian startups

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The federal government is looking to boost the amount it contracts out to startups as part of its attempt to spur on Canada's emerging technology sector and create economic growth.

Ottawa earmarks just $30-million of its vast $18-billion annual procurement budget to buy new technologies from startups through its Build in Canada Innovation Program (BCIP).

That is not nearly enough, according to Innovation Minister Navdeep Bains. "It's very modest and we can do better," he said in an interview. "This is something we're pushing very hard … I would like to see this in the budget."

Many Canadian startups say it's harder to sell to Ottawa than to foreign customers, who in turn ask why they haven't had any luck selling to their home government. Many raised that concern during recent government consultations on its innovation agenda, officials in Mr. Bains's Innovation, Science and Economic Development (ISED) department said.

"For a high-growth Canadian company that's trying to scale up globally, becoming a vendor to our own government can be a critical step in its growth," said Benjamin Bergen, executive director of the Council of Canadian Innovators, which represents dozens of emerging-technology companies.

"Current procurement approaches are geared toward big, established firms and [are] cumbersome and complicated for smaller firms to navigate."

Mr. Bains agrees. "We think the government can play a major role … to be a marquee customer [and] to help validate products and services to allow companies not only to succeed in Canada," but globally, he said.

Though he wouldn't disclose how big he thinks a new program should be, The Globe and Mail has learned ISED has requested up to $300-million from the Finance Department, which would come from existing procurement funding.

Government sources say vastly expanding what Ottawa buys from startups has "directional support" from Finance and ISED staff are working with other departments to map out the structure and roll-out plan.

"We want to demonstrate the economic benefit associated with how this can help high-growth firms [and] the fact this will create high-quality jobs," Mr. Bains said. "That's the primary objective … We're putting a lot of thought into program design."

The proposal is inspired in part by the U.S. Small Business Innovation Research (SBIR) program. It mandates 11 departments and agencies that spend heavily on outside research and development to earmark 3 per cent of those budgets (rising to 3.2 per cent in 2017) to fund feasibility studies and early-stage R&D by startups. Those bodies, including the Defence and Energy departments and National Aeronautics and Space Administration, spend a combined $2.5-billion a year through SBIR.

The 34-year-old program has benefited tens of thousands of early stage firms. More than 40 per cent of SBIR projects have been commercialized, with 40 jobs created for each $1-million awarded, a 2012 study by economics professors John Scott and Albert Link found. Among SBIR's most famous alumni are chip maker Qualcomm Inc., and cybersecurity firm Symantec Corp. Sweden, South Korea, Australia, the U.K. and others have adopted similar programs

Unlike BCIP in Canada, SBIR is a "demand pull" program. Participating U.S. government bodies identify problems they are trying to solve and challenge startups to come up with innovative solutions. Under SBIR, government bodies will fund up to $150,000 (U.S.) for a proof-of-concept study and up to $1.5-million for follow-on R&D. Many end up selling the finished product to government as well.

BCIP, by contrast, takes a "supply push" approach. Startups are asked to present technology that's almost ready to take to market, and BCIP in turn shops that to government departments. BCIP has inked 215 contracts with firms totalling $76-million since starting as a pilot project in 2010. Funding increases to $40-million next year from $30-million.

Experts including a 2011 government panel led by OpenText chairman Tom Jenkins have called on Ottawa to adopt an SBIR-like program here. In addition, Finance Minister Bill Morneau's Advisory Council on Economic Growth will also recommend expanding federal procurement from startups in early 2017, The Globe has learned.

Officials have tinkered with BCIP, making changes such as enabling entrepreneurs to apply any time, rather than once a year. Still, the program has had challenges as some government departments have made the changes necessary to support BCIP, said Desmond Gray, director-general of the office of small and medium enterprise within the federal public services and procurement department.

The procurement proposal is one of several elements of the government's innovation agenda. The government is expected to unveil further details in the budget early in the new year.