Back in rosier economic times the Alberta Innovation Voucher program was an afterthought. A flush government pushed it through so they could point to it and say "See, we're trying to diversify our economy."
Despite the economic downturn the first round of innovation vouchers came out in April and the second round will come this fall. Let's look at the dollars and how they were spread around. (Unfortunately the list with all the company names is down but the Alberta government says you should be able to find the list here)
179 total vouchers equalling $5.23 million were handed out to 24 communities. Calgary got the lion's share of vouchers with 47.5% with Edmonton second at 32.4%. Edmonton's number is slightly misleading, if you include the vouchers handed out to bedroom communities Sherwood Park, Spruce Grove and St. Albert that number climbs to 36.8%. I've attached a pie chart below.
When you divide up the vouchers by industry the Information and Communications sector was the clear winner with 40.2% of the vouchers. It's a bit of a surprise that the Energy sector came in third behind Bioscience. Again I've attached one of those convenient pie charts.
The information in those pie charts comes from here. There were two types of vouchers handed out. $10 000 and $50 000 vouchers.
Now that we've got the numbers out of the way let's hear from the entrepreneurs who actually got there hands on them.
Lorand Szoijka is the president of Just In Time Resources (JITR) and he received a $10 000 innovation voucher. A stipulation of the innovation voucher program is that you have to spend money with what the Alberta government calls "approved vendors" (PDF). Calgary Technologies Inc. (CTI) is one of those approved vendors. It's a business incubator that works with entrepreneurs to help them grow their companies, typically in the high-technology sector, you know, stuff you can patent.
Szoijka went through CTI and used his $10 000 voucher on marketing. He wanted to refine his company's message to potential customers. Of course it's not as simple as that (what government program is). This is from the CTI website.
Vouchers may cover at maximum 75% of the total eligible project costs. The voucher recipient must be able to pay a minimum of 25% of these costs. For example, in the case of the $10,000 voucher, to redeem the full value, the total eligible project costs must be at least $13,335, with the recipient paying the project costs over the $10,000 covered by the voucher. At any rate, the voucher will only cover 75% of project costs up to the maximum value of the voucher. Quote from here
While it's a bummer that the voucher doesn't actually cover the whole cost of anything Szoijka was impressed with the application process. He spent a total of eight hours applying for the voucher and said, "for a smaller company this is the way to go. Compared to other processes this is a breeze."
He's interested in applying for the $50 000 voucher and he "hopes the government expands it."
Derek Ball is the CEO of Tynt, he received a $50 000 innovation voucher. An experienced entrepreneur and one who has received a lot more than $50 000 from programs like AVAC, he definitely had a take on the innovation voucher program.
In his innovation voucher application Ball spelled out exactly what he needed, help with his Amazon server costs. They approved his application but Amazon was not on the approved vendor list. He had to pay Calgary Technologies who then ended up paying Amazon for his server costs. Not the most efficient process.
"The whole approved vendor list needs to go away," said Ball. "It's this obtuse and inefficient process especially for the amount of money involved."
"I'm happy that the government is supporting this but if it's only 50K they have to make it easier."
I talked to Marie Cusack, the Public Affairs Officer of Advanced Education and Technology but she didn't have much to offer besides a "There's always room for improvement," and that they were "streamlining the website to make it easier for companies to get what they need."
I understand where Ball is coming from, great idea but definitely lacking in execution. For a government as myopic and badly run as ours it's good to see baby steps in the right direction. However in forcing entrepreneurs to deal with "approved vendors" you limit the exchange of ideas and money that could take a good idea and turn in into the next big thing. When these "approved vendors" aren't specialists in helping web companies like JITR and Tynt grow and instead you force CTI and TEC Edmonton to play ring-around-the-rosie with what entrepreneurs really want to spend their vouchers on you waste needless time, energy and money.
No one has ever come out and said why the "approved vendor" list came into being but for far too long the government has defined "innovation" as patents and licensing technology. You can see it in TEC Edmonton's mandate to “help navigate the commercialization process – transitioning science solutions into business opportunities” and in unofficial conversations I've had with CTI employees where they're only looking for high-tech, patentable ideas. It is an unfortunate tendency of our government to define innovation in such a narrow fashion. To quote Mack Male;
"Quite simply, TEC Edmonton has been ignoring software startups for nearly a decade now. Why does this matter? If we want to move beyond our current energy-based economy to nurture and capitalize on the incredibly smart and talented people we have in Edmonton and Alberta, we need to start paying more attention to software. That’s where innovation is happening and value is being created."
That is is from his treatise on how to take Edmonton's tech community to the next level.
The whole program suffers from a case of schizophrenia. It's like they read the Y Combinator playbook on how to give early stage startups just enough money to keep going but ignored all the rest and continued with their dangerously narrow definition of "innovation". 10 and 50k is not a lot of money if entrepreneurs are truly developing brand-new-never-before-seen tech but if you're talking about early stage web companies where the barrier to entry is low then 10 and 50K is a lot. If the focus is going to be on giving early stage web companies a leg up then you've got to divorce them from CTI and TEC Edmonton as they are poorly equipped to aid those types of companies. Seeing as how more than 40% of the vouchers went to the Information and Communication industry it's a shame they issued vouchers instead of cold hard cash.
I'm not saying that the provincial government has to develop a Y Combinator Alberta for us but if you're handing out 10 and 50k vouchers all over the place perhaps some thought should be given to beefing up the innovation infrastructure. After all 10k at CTI doesn't exactly put Ramen Noodles in the cupboard.
Grade - D+ - Needs a lot of improvement but is a baby step in the right direction.
Did you get a voucher? How was your experience? What grade would you give the Alberta government for their innovation voucher program?
Excellent analysis and post, Duncan! I'd also be interested to know how much of the vouchers the receiving companies have actually been able to spend.
I didn't even bother applying for a voucher. Mostly because of the approved vendor nature of the program, none of whom seemed to do the things I really needed to get done ... I need money to do make things happen: pay for servers, google ad word campaigns, website edits, marketing pieces etc... kudos to Derek Ball for getting creative and working through CTI for this (but it is a sad statement that we've got to figure out workarounds to make this kind of program have a real impact). Not to mention, the $10K and $50K $$$ are very light for the work involved and for the # of really great technology companies in Alberta.
To take care of the "approved vendor" issue, it should really just be a valid receipt from an Alberta corporation ... so if I pay an SEO company to do some work, they have to be in Alberta. That stimulates the economy, right?
Frankly, the provincial gov't seems to be SOOOO out of step with the speed that entrepreneurs need to go, not only with the voucher program, but with technology investment in general. At the AVAC annual meeting in Edmonton in the summer, I discovered that something in the range of $15M that was promised to the Capacity Builder fund in 2009 was deferred until 2010. This news followed on the heels of the $3B stimulus that went into the gas industry.
B.C. has an technology investment tax credit. Alberta does not.
So ... a broken voucher program. Public financing available dried up. No tax incentives for private investing.
Is it any wonder that companies like Redwood (small company moved to Silicon Valley) and Intuit (big company moved from Edmonton to Mississauga) are finding better places to incubate and run technology businesses?
As Alberta's 3rd largest industry, the IT sector is a vital part of the economic engine we need to drive our provincial future forward, but it continues to remain an afterthought.
Stephen King, CEO
Mob4Hire.com
(come see us at the Banff Venture Forum :)
I completely agree with Stephen. We also looked at the voucher program and as a web-based company saw nothing that could benefit us. Rather then put hours of work in trying to get creative, we decided to just pass on it completely.
The one area that we could have used the Tech Vouchers was in non-technical aspects, such as marketing, product development and possibly enhancing our sales model. However, being on the front lines of digital media can organizations like TEC Edmonton or CTI really help us in these areas? To answer this bluntly - no.
Once again, I will advocate for the government to start putting these resources in the hands of the people on the front lines - the entrepreneurs and tech investors - and stop tying them up in bureaucracy and organizations that don't understand the new model of building tech companies in the IT space.
This is a great article Duncan, and the seed for a great discussion.
I believe the voucher program is definitely a step in the right direction, but if the motivation here is to stimulate the economy by helping Entrepreneurs build businesses then those spending restrictions must go.
If not protectionism, then what purpose does an "approved vendors" list serve? Is it to ensure that Entrepreneurs get value for their dollar? If so, then who's opinion of value truly matters? Furthermore; who is more motivated make that business succeed as a result of using those services? Is it one with a guaranteed pay check who's opinion of "an approved vendor list" has the potential to be politically swayed, or one who's maxed out his credit cards and is 1 month away from losing his house and being alienated by his investors unless he gets the job done?
So, let's talk about one of my "approved vendors" and the value I get out of that. Now I'm just talkin' numbers here - no disrespect to any of those other "approved vendors" ;-)
One of my business advisors is Derek Ball. I find a lot of value there. For a cup of coffee I usually get about an hour of his time. Hell, he usually buys the coffee, but the odd time I insist, so let's say for round numbers, if I include both coffees and buy those ridiculous-pay with your credit card-Venti-Starbuck's-Caramel Macchiatos with REAL whipped cream, this is $10/hr.
Now let's consider one of those other "approved vendors" - again, no disrespect here. Conservatively, they'll charge me about $100/hr, and they probably won't buy me coffee. Or if they do, it's that watered down Dickson crap from the lunch room, brimming with Sugar Twin and coffee whitener that "may contain" a long list of unpronounceable ingredients.
Now let's say that I can get the same quality of advice from both parties (unlikely – Derek is top notch - but let's just say I can). With Derek, for $10K I can get 1,000 hours of his time and 250 gallons of premium, mountain grown coffee, handpicked by Juan Valdez. (The buzz alone is worth the price of admission.) With the other guys, I get 1/10th of that time and leave with, literally, a bitter taste in my mouth.
Mandating what services we buy is as absurd as mandating the market to buy our products. The market decides what has value so put these vendors to the same test. If they have value, then we WILL buy those services, and we WILL recommend them to our peers. If not, then kudos for helping us buy the services and/or products that do.
Now, the government may argue that if they don't mandate my spending, there is a risk that I might blow that voucher money on wine, women and song. Well, it's tempting, but not likely, and here's why. The voucher administrator is like my school teacher. My investors are like my parents. If my investors find out I got in trouble at school, "it's "nuthin' like the trouble I'll be in when I get home."
@Mark Rosenberger -- I'd love to see the expression on the face of the voucher administrator who sees "Coffee" listed as a $10K expense... Lulz. Really good points, though.
As someone planning to start up a few of those "Information and Communications" businesses, I don't really see how doing business through an incubator like CTI would be at all beneficial to me. My costs are webspace, bandwidth and promotion, and given that I use open source software for my projects, aiming at acquiring patents is not only counter-productive, it's against the ethos of the software I use.
The Canadian government uses protectionist measures similar to an approved vendor list when it gives companies financial aid, and the result is those dollars are spent way, way less effectively (See: Tied aid). I get the intent, but it just doesn't really work...
Err, that second last sentence should've read "...when it gives foreign countries financial aid," not "companies."
The innovation voucher program is flawed from the very foundation and although there are some good conversation points here, I don’t think the heart of the problem is being addressed.
The “approved vendor” list is a way for the provincial government to have their cake and eat it too. The top decision makers want to be seen as trying to support diversification, but their fear of not being re-elected is so intense that they won’t launch any new programs (like the voucher program) without hedging their bet. By creating an approved vendor list and forcing vouchers to be redeemed through them, our government has someone to point the finger at if things don’t go well. (They also have someone to take on all legal and financial responsibility if a voucher project goes sideways.) Those old enough to remember the 80’s & 90’s when the provincial government gave money directly to tech companies will also remember the result: Companies went belly up and tax payers got mad. Once bitten, twice shy.
Does this mean the voucher system is a complete write off? I’m not entirely convinced. Some approved vendors can actually do work for you directly while others have more of a middle man approach. I’m not an expert on the system, but from doing some reading on the government website and some vendor’s websites I found that you can contract a company from outside of Alberta to do the work for you. (And run it through one of the middle man approved vendors.) That opens the door pretty wide to allow you to find the right contractor.
But what about this middle man approach? Why can a voucher recipient only spend up to 75% of the face value? Well middle men gotsta get paid too. Granted, many of the approved vendors are organizations that receive funding from our government, but nowhere in any of the voucher literature does it say that they get money to administer the government’s voucher program. I’m pretty sure that the people at CTI and TEC Edmonton aren’t sitting around with time to kill just waiting for the government to launch a new program and ask them to step up and run it. (We could even ask Derek as he used to work at CTI?) I can only assume they are taking a cut off the top to cover their costs. Whether or not that % is reasonable is another debate, but again the flaw is in the fact that the government should be administering it themselves or at least paying these approved vendors directly and allowing the voucher recipients to get the full face value.
So to sum it up, the innovation voucher system is far from perfect, but a step in the right direction. Let’s hope that if the program continues there are some major changes on the horizon.
Not sure what you guys are complaining about!?!? Sure the voucher program is not perfect, but if I can get $13,000 worth of service for about $3,000 (e.g., a good business plan), I think it's worth (also tax free!). I think the 75% thing is actaully a TILMA regulation...
