Transport Committee on Oct. 4th, 2012

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I have a question for all of the witnesses to answer as succinctly as possible. If your idea has a viable business case, why would the government need to help, and if your idea doesn't have a viable business case, why would the government want to help?

[Todd Habicht]

We do have a very viable business case, and the private investors have certainly been very welcome to our opportunity.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Why do you need government help for it?

[Todd Habicht]

It just comes down to the regulation on the sale of our product. We are able to sell it today but with the new ULSD standard, our market is limited right now to stationary diesel generation.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

You don't need a subsidy, a grant, a loan, anything?

[Todd Habicht]

Nothing, no. In fact, we—

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

You just need to get a change in government regulation.

Mr. Tarasco.

[Greg Tarasco]

The government funding is required generally to fill the gap or void left by an investment community that's not willing to take on risk in early-stage companies. While we prefer not to have government funding, it is necessary to fill early-stage gaps to get it to a stage where it's recognizable by industry.

Now, on that, at some point there should be a litmus test or a cut-off point that you can't keep going back to the well.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Right, I'll come back to that point in a second.

Mr. Hughson.

[Earl Hughson]

What we're experiencing in our new start-ups with technologies, as are many Canadian companies I'm talking to right now, is that there is a tremendous amount of funding to get Canadian technologies to the point where they're bookshelf-ready. There is a lot of commercial funding available once I get a purchase order from the customer, and there is this gap in between. Bookshelf technologies are sitting there and there is no commercial funding available to demonstrate.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

What I don't understand is, if it's commercial.... People always say, “Well, there is no funding for commercialization.” Why do you need government money for commercialization? Isn't that sort of counterintuitive? Commercialization is commercial. You make your money by selling the product, not by asking the taxpayer to provide it.

[Earl Hughson]

As I said, as soon as you can have a customer enter into a development contract and a purchase order with your technology, you're very good. There is this gap between having the technology proven and having it demonstrated that seems to be a hole for an awful lot of companies. It's crossing the chasm here. We leave at bookshelf technology, and that graph won't get you a second meeting with a car company until you do this demonstration. Once they're engaged, then commercial support is quite available.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

But if the technology in general is promising and the potential reward is there for the investor, why does the taxpayer need to get involved? Isn't that why we have investors?

[The Chair, Conservative, Larry Miller]

That's time.

[Earl Hughson]

Yes, it goes more to the friends and family search for investment. I think we could be an awful lot more productive in moving our technologies we've invested in to commercialization with a very small amount of focused funding for demonstration.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Watson, you have seven minutes.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair. Thank you to our panel of witnesses today. This is one of the better panels that we have constructed here, I think.

I have a few questions. First, in thinking about R and D models, university-led research, which is effectively the model in North America, Canada and the United States, hasn't produced major innovative technologies in terms of commercialization that bring revenue back for its use. I'm thinking of warfarin, which is a blood thinner, Gatorade, and voice-activated calling. Of the three, that's the most recent in terms of technology. The other two, of course, are decades old.

Look at the Fraunhofer model in Germany, for example, where for 30¢ on the dollar of government investment, the model has produced everything from MP3 compression algorithms to video compression; triple junction solar cells, which I think still hold the world record for solar energy conversion efficiency; E-Puzzler, which is a system, if you will, that will allow you to repiece shredded documents; and a number of other technologies that are all much more recently converted and that are commercialized into revenue streams in the hundreds of millions of dollars, cumulatively.

Do we have the wrong model in Canada for research and development as it relates to involvement with businesses?

[Earl Hughson]

I think so. I've worked with a number of universities.

As I mentioned, I'm just signing a licence agreement for some technologies out of Canadian universities, and I've contracted Canadian universities to do R and D for me in areas where I thought there was a viable product to commercialize. I've also worked with AUTO21 since its inception, supporting them in any way I could, because I think it's a good initiative to get industry and academia working together.

For example, when I first saw AUTO21 when it started many years ago, I asked for a list of the sponsored projects in automotive electronics. I know pretty well everybody in automotive electronics and I was interested to know what was being funded. There was a complete mismatch for all the programs that had been funded, which had great technical merit; there wasn't one company in Canada that was in that industry or space or product area.

Aligning, at least, spending money in areas where there are companies that can even potentially pick up the technology and commercialize it within their venue, makes an awful lot of sense, rather than developing technologies that are really being commercialized by companies in other places.

[Jeff Watson, Conservative, Essex, ON]

Mr. Tarasco, do you have a comment too?

[Greg Tarasco]

Yes, and this is multi-faceted. It's a great question, in that yes, the system is wrong simply because it doesn't address industry specifics.

To go back to Mr. Poilievre's question, this is wholly dependent on the industry, and the reason in the transportation industry that there's a propensity to use government funds is because the cycle is longer and you're dealing with the large industries that are slow moving in adapting.

[Jeff Watson, Conservative, Essex, ON]

In terms of the difference between the granting council model that we have here and the Fraunhofer Institute model, for example, is it overly simplistic to say one has a more bureaucratic mindset and the other has a more entrepreneurial mindset?

[Greg Tarasco]

It's not simplistic.

[Jeff Watson, Conservative, Essex, ON]

And that's just mindset, but in terms of its construction.

[Greg Tarasco]

That would be accurate. It's a culture, and you would be wholly accurate in that assessment. What you want to do is be a facilitator for entrepreneurs to get to the capital markets, or the commercialization. It's one and the same.

Capital is the lifeblood of industry and business, and they must have early access to that as soon as possible. Any measures that facilitate that would be great. Sometimes the challenge is.... We live in a bubble here in Ottawa, and we are fortunate that we have access and knowledge of all these programs; it may not be so outside of the city boundaries. However, I've met many entrepreneurs in my life who are just confused and perplexed by the complexities of government, and their first road, the first route—it's the culture—that entrepreneurs take to seed capital is through the government. That has to change. The notion that they first should seek money in the capital markets must be a cultural change.

[Jeff Watson, Conservative, Essex, ON]

One of the upsides of the way we've done research and development is that we've actually built a tremendous amount of university capacity, lab research capacity, for example.

How do we better connect, for example, small and medium-sized businesses into that infrastructure? Is the current model that we use here effective in connecting small and medium-sized businesses and what their research needs are into that type of infrastructure, or do we need a change there?

Mr. Habicht.