Industry Committee on June 19th, 2012

[John Carmichael, Conservative, Don Valley West, ON]

Thank you.

Now, to that, when you talk about the different levels of being buttoned-down, does the fact that a patent application might not be completely buttoned-down provide you any additional flexibility in terms of refining what appears to be a good idea, a good direction, and give you the ability to then develop it to a better-refined solution?

[David Harris Kolada]

What I would say is that the more buttoned-down it is, and the clearer we can see that they have a freedom to operate and a market that they can attack, the more likely it is we are going to fund them, number one, and the more likely it is we'll be able to fund them in a greater amount and attract more capital from the private sector.

If you have a fairly small market that you can address, that's not interesting to us. We're motivated to deliver the benefits to Canadians in terms of the environmental benefits and the economic benefits. So the bigger the bang for the government's buck we can get, the more interested we are. If it's a very niche market where there are a lot of competitors that have potential patents out there that they may bump into, that makes it less interesting for us.

In terms of what we can do inside the project, that really is a function of the other members of the consortium and a variety of other factors, rather than specifically the status of their patents.

[John Carmichael, Conservative, Don Valley West, ON]

That makes good sense.

You mentioned that Canada is the second location for registration of IPs. Is the U.S. first, in your business?

[David Harris Kolada]

Absolutely, far and away; it's considered the gold standard.

[John Carmichael, Conservative, Don Valley West, ON]

Yes. We have heard that before. I just wanted to verify it.

What about Asia? What's happening in Asia with clean technology? Are we starting to see growth there, or is it still a ways away?

[David Harris Kolada]

There is huge growth in Asia in everything, so absolutely there's a massive market for clean technology. I think it was in 2010 that China surpassed the U.S. as the number one region for investment into clean technology. They are the global leaders. They are aggressive. If you look at their latest five-year plan, it's pivotal. It's a central pillar to how they are going to be managing their economy—or how they manage their economy. It's actually quite insightful to see the amount of money they are investing into it.

The risks still exist, though, in terms of bringing North American-developed IP over to those regions. I'm thinking that's where you're going with your question. I think they are more manageable than they were, but there is still a long way to go. There are significant risks entailed in that.

Maybe I will stop there. I am trying to keep my answer concise.

[John Carmichael, Conservative, Don Valley West, ON]

I apologize for not bringing the rest into the discussion, but I'm just curious about this.

When you talk about developing Canadian-owned...and you mentioned to one of my colleagues earlier that naturally we want to keep Canadian-developed and Canadian-owned IP in Canada. Where do you see that going in terms of what this government can do to better facilitate that commercialization and enhance the likelihood of keeping Canadian-developed IP in Canada, keep it Canadian-owned?

[David Harris Kolada]

That's a great question.

[John Carmichael, Conservative, Don Valley West, ON]

I guess that's too big.

[David Harris Kolada]

There are a variety of things, some of which we've touched on. The one that we haven't touched on is supporting the venture industry. To the extent that there are Canadian-based venture firms that can support Canadian companies, which they typically do because they're close to home, that will help. To support them at all the different parts of the ecosystem is critical. We're an important part at an early stage. We hand off to the venture guys, and if there aren't the venture firms to fund them at the next stage, they'll get funded by foreigners and they'll be more likely to leave.

[The Chair, Conservative, David Sweet]

That's great.

Thank you, Mr. Kolada. I'm sorry, I need to be more assertive on this now.

Now on to Mr. Stewart, for five minutes.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you, Mr. Chair.

Thanks to the witnesses for all their information today.

From my perspective, you all seem to be pushing for closer ties between universities and industry. That seems to be a theme that's emerging here, and I'm asking you to help me understand the balance that you're seeking or what might be appropriate. In terms of just focusing a bit, I'd like to think about a single professor in a university and how they are supposed to use their time.

Traditionally it's been that the professor teaches or publishes in academic journals, essentially, and all that information that they publish in academic journals is open for public consumption and for companies and other academics to look at and evaluate. A lot of this is built into the tenure structure, which is, of course, very hard to renegotiate. In fact, it's one of those sacrosanct parts of a university. We've had presidents and vice-presidents in here saying that they don't want to touch it with a ten-foot pole, because first of all, you would have faculty leaving, especially the high-priced faculty, who would leave if you messed with their tenure structure.

Research grants traditionally were established to maximize academic freedom, and this, in a way, attracted high-priced talent to universities. They could get big grants, they could look at whatever they wanted to, they would publish that and make it open to the community. And this may or may not have had a commercial application. That wasn't necessarily something they cared about that much and it wasn't essentially their job. Their job was to teach and to publish. So it was very much focused on the choice of the researcher.

But now the granting system is changing a bit. It's moving away from that. We see a decline in discovery funding, which encourages academic freedom, and it's more toward pushing academics toward collaboration with industry.

If we're thinking about a single professor in a university who has to decide between teaching and publishing in journals, and now is looking at industry collaboration, which is going to take time away from one of those two core functions, I'm just wondering how you see what should be sacrificed. Should it be the teaching side or should it be the open publishing side? Because that's what's going to happen.

I will leave that open to all of you to decide.

[Rob Annan]

I can speak just a little bit about the Mitacs experience with that. What you say is correct. There are a lot of demands on a professor's time. In addition to teaching and research, there are administrative duties; there are all sorts of duties. So there's no doubt....

We have found a lot of success in employing graduate students and post-doctoral fellows as that bridge. They're able to bring a lot of the expertise from the university system, have access to the supervisor for consultation, but then also move into the industrial space. It benefits the student, who gets this experience in networking, but it also serves as a link between them. That's really effective.

I'll also just suggest that not only is the funding system changing, but academia is changing. I come from academia, and even when I was there you could see that professors were much more ready to work with industry; they see it as a positive, generally. They're just pressed for time. In the same way, companies, especially start-up companies or small and medium enterprises, are also pressed for time, and I think the lack of time and ability have been a real pressure point as well.

That's where we have found that by having people who actually go out and try to match.... We have a matchmaking service, effectively, and we're very proactive about it. Everyone is keen. We have very few people who tell us no. But we actually help put them together; they don't just find each other.

[Clément Fortin]

From my experience as a university professor for 30 years, as a global picture my recommendation is that 40% should be teaching, 40% should be research, and 20% should be administrative. With regard to that 40% on research, one has to realize that discovery grants are very small. A starting discovery grant is about $20,000 per year, and the highest is around $50,000—sometimes it goes to $70,000. You would be able to support two graduate students with this.

With collaborative research, our average project at CRIAQ is about $1 million, and the highest one is $1.8 million. With the amount of money we bring to professors for doing good research, as I was saying earlier, you have to balance it between....

You have to see that the professors there have very good science; they publish in good journals. One of them from McGill was telling me recently that he went to a conference and people from Boeing and Airbus were there. It was a plenary session and it was full, because he was talking about real industrial results from his projects. His graduate students are superb and doing very well.

I don't see a contradiction, a dichotomy between research.... Of course, you need to keep a balance between push, which means ideas that come forward from the university system, and pull. That balance, to me, would be in the range of 80 to 20, or something like this. That would be a very helpful research system.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Fortin and Mr. Stewart.

Now on to Madam Gallant for five minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

Since the initial testimony I've been scrolling through the SDTC website, looking at the different program funding they have.

My first question is, what sort of money—in total or breaking it down—is the federal government allocating to these different programs?

[David Harris Kolada]

In our program we fund a project consortium in each case. The government money, which is the money we provide into that project consortium, is on average across our portfolio 33%. It's capped at 33%; in practice, it's actually about 29%. It's about a two and a half to one leverage within the project. That's in the SD tech fund, which is the $590 million fund that's been in place since 2002, with successive recapitalizations.

In the NGBF, the next-generation biofuels fund, it's similarly one-third government money through SDTC and two-thirds from the private sector in each case.

In the SD tech fund, we track follow-on financing that comes into our companies after our money, and we then see a further leverage of eight to nine times capital coming into those companies on top of our money. It's quite a significant amount of private sector money, which actually exceeds the two and a half to one, and then more money coming in afterwards.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

During the witness's testimony, he stated that the majority of the companies are bought out by U.S. companies.

[David Harris Kolada]

I believe that was Ms. Peters who mentioned that.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Ms. Peters, was that comment accurate?

[Avvey Peters]

It wasn't specific to clean tech, no. The stat I was referencing is in the Canadian International Council's report. It shows that of Canadian companies that are acquired, there's a large proportion of them that are acquired by a foreign buyer, which means that the intellectual property assets leave Canada.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

My concern is that the Canadian taxpayers are funding substantial amounts of money toward the clean tech sector—and other sectors, but specifically clean tech—and with the potential for them to be purchased by a non-Canadian company, that country then reaps the economic benefits of everything we've put into it. That's a rather large concern.

Have you looked at the results over time to see what percentage of these companies that you've funded have been retained in Canada?

[David Harris Kolada]

I don't have specific statistics I can quote to you at this time. We do track companies that are ultimately exited down the road. Typically that's well downstream from us. We invest at a fairly early stage, pre-commercial. Most of the companies that would be acquired would be acquired later on, several years past our funding.

As I mentioned in answer to Mr. Braid's question, we believe that in clean tech the likelihood of the companies and the assets and the employees staying in Canada is higher. We have seen that. We also see more of these companies going public on the TSX, so they remain independent, trade on the Canadian stock exchange. I believe 30% or 40% of the clean-tech companies listed on the TSX are SDTC-funded companies. That's an available financing mechanism that allows them to stay and to be independent.

We've seen very good success in terms of our companies being able to ensure the Canadian shareholders and the Canadian government reap the economic benefits through the funding to SDTC. Of course, the environmental benefits are global benefits, so whether they're commercialized by an independent company, all of whose assets and employees stay in Canada, or acquired by a foreign company and deployed, we believe those benefits continue to accrue.

Of course, the shareholders do benefit through M and A; that's an important part of the life cycle. If investors and founders can't get some exits, then they won't be able to start up the next company and start over again.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Apparently I only have 40 seconds.

I am interested in this literature and knowing more about the companies you have supported in terms of hydrogen production, combustible engines, or the fuel cell technology. Maybe I'll have another chance to ask that.

Thank you.

[The Chair, Conservative, David Sweet]

That would be best.

Mr. Harris, you have five minutes.