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The risks of being a nation of R&D junkies

As part of our ongoing series examining the ecosystem necessary to bring technology to market, we solicited this opinion piece from the dean of Ottawa’s technology sector, Denzil Doyle. We welcome comments on Denzil’s commentary.

By Denzil Doyle

Anyone who is involved in high technology in Canada would have to agree that the country has a very strong R&D lobby. Politicians and policy makers are bombarded with messages from both industry and academia on a daily basis saying that we need more of it, even though our incentives for doing it are already among the best in the world. And everyone in the debate is frustrated because they know that we are not getting the appropriate economic results from the R&D we are doing. As evidence, they point out that our economy is still too dependent on the sale of raw materials like lumber and minerals and that most of the technology that is developed for those activities tends to get developed elsewhere. They argue that if we were better at innovating, economic diversification would be automatic. And there is a broad consensus that R&D is the engine of innovation.

But a closer look at those incentives will reveal that they may be a little too focused on R&D and not enough on other things that go into the commercialization mix, like marketing (and particularly market research), selling, raising risk capital, and product management. The country’s two most popular incentive programs are NRC’s IRAP and SR&ED, but in order to use them effectively, a company must have a pool of its own cash to perform the other functions. And that money is hard to come by.

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Flow-through shares for technology companies

As part of our ongoing series examining the ecosystem necessary to bring technology to market, we asked the dean of Ottawa’s technology sector, Denzil Doyle, to weigh in on some of the critical issues facing technology companies. This is the first of Denzil’s commentaries and we welcome your comments.

By Denzil Doyle

During the past three or four decades, Canadian policy makers at both the federal and provincial levels have tried just about every trick in the book to finance technology companies, particularly those that are at an early stage in their development. In the early 1980s, we had the Scientific Research Tax Credits (SRTCs) that allowed technology companies that were not yet profitable to predict in advance what their R&D expenditures were going to be during a certain year and then effectively sell those expenditures to taxable corporations and individuals for use as tax write-offs. The troubles came about when the companies were asked to verify their expenditure to the tax authorities. Many CEOs and CFOs ended up in jail or spent years dealing with aggressive tax auditors.

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