The Economic Impact of the. Centre for Commercialization of Research

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1 The Economic Impact of the Centre for Commercialization of Research Executive Summary Prepared for Centre for Commercialization of Research Prepared by: in association with September 2012

2 Executive Summary Introduction In 2012, the Centre for Commercialization of Research (CCR) sought to expand the scope of its impact analysis beyond an assessment of its effect on commercialization capacity and company performance to include the economic benefits that arise from its intervention. To this end, CCR engaged Nordicity and The Evidence Network (TEN) to update its annual impact analysis and assess the economic impact of CCR. The following report prepared by Nordicity and TEN: provides an estimate of the financial and operating performance of CCR-supported companies; summarizes the impact that CCR had on this performance; estimates the contribution that CCR-supported companies made to the Canadian economy; and, uses the results of the client survey and impact analysis to attribute part of this economic contribution to CCR and thereby also estimates CCR s specific contribution to the Canadian economy. Background: Canada s innovation gap In recent years, a large share of Canada s economic prosperity has been tied to the extraction and export of natural resources. According to the federal government s 2011 expert panel report, Innovation Canada: A Call to Action, however, in the long-run, growth in labour productivity i.e., growth in the value of the goods and services produced by a given hour of labour is the only way to ensure income growth and higher standards of living. Innovation is one route to this all-important productivity growth. First and foremost, innovation requires a commitment to research and development (R&D). Indeed, the Canadian government has long recognized the importance of basic and applied R&D, and has responded by implementing a comprehensive set of funding programs and tax incentives. While the experimentation and discovery associated with R&D are vital to innovation, the emphasis placed on R&D by policymakers often ignores the fact that much of the economic benefit from innovation can only be realized through effective implementation of new products, processes or business models: that is commercialization. Commercialization involves a host of businesses activities that must come together to convert a new product into a marketable product. Whereas R&D requires creativity and scientific rigour, commercialization requires skills or corporate capacities in financing, sales and marketing, networking, human resources and operational management, and intellectual property (IP) management, to name just a handful. Without support for commercialization, the federal government s investments in R&D risks being effectively stranded. CCR s role in the innovation ecosystem CCR plays a direct role in addressing Canada s innovation gap by supporting the commercialization of publicly-supported R&D through a variety of intervention channels ranging from business advisory support, to financing intermediation, to direct funding and financing. The Ontario Centres of Excellence (OCE), in partnership with Canada s tri-agency Networks of Centres of Excellence (NCE), created CCR in Since its founding, CCR s mission has been to support Canadian entrepreneurs in the commercial introduction of leading-edge products, processes and services to various sectors. Today, CCR also aims to play a key role in building a Canada-wide commercialization network and in promoting a Canadian culture of entrepreneurship. CCR offers Canada s early-stage companies five key types of support: (i) Business Advisory Services, (ii) the New Entrepreneur Service, (iii) Commercialization Services, (iv) the Embedded Executive Service, and (v)

3 the Facilitated Access to Capital Service. CCR also supports commercialization initiatives through partnerships with incubators and other innovation intermediaries across Canada. CCR s product offering is designed to provide globally-oriented entrepreneurs and early-stage companies with what they need to take publicly funded research from an institutional setting through to global markets. By focusing on commerce and bringing the customer in early, CCR helps early-stage companies transition to businesses, thereby increasing the success rate of spin-off and start-up companies emerging from Canadian academia. By providing business advisory services on a wide range of issues, ranging from marketing strategy to product development to management of intellectual property, CCR helps innovative early-stage companies become investment ready and market ready. Since its founding, CCR has provided business advisory services to 992 Canadian companies; it has also directly funded the commercialization efforts of 86 early-stage companies. Summary of CCR s Economic Impact When the value of the economic benefits generated by CCR are summed and compared to its level funding of $12.9 million, we find that every dollar of CCR funding yielded $3.26 in economic benefits (measured in terms of GDP) across the Canadian economy. CCR s solid economic return on investment is a direct result of its economic impact. Between and , CCR intervention generated 840 cumulative jobs 1 in Canada and led to the creation of $42 million in gross domestic product (GDP). Results of economic impact analysis: net economic benefits 1 We use the term cumulative job in this report to refer to the number of workers multiplied by the number of years that they have been employed. For example, one person employed for three years is equal to three cumulative jobs. Three persons each employed for one year is also equal to three cumulative jobs. A cumulative job could be a full-time or part-time job.

4 Nordicity and TEN s analysis used information gathered through the client survey to isolate the portion of overall economic contribution of CCR-supported companies that can be attributed back to CCR s intervention. In this respect, the analysis can be considered more rigorous than similar analyses of other innovation intermediaries, which may not necessarily have directly addressed the issue of attribution. Between and , the financing and business advisory support provided by CCR to earlystage companies engaged in the commercialization of innovative products generated $42.0 million in incremental GDP for the Canadian economy (Exhibit 1). This total economic impact included $17.5 million in direct GDP generated by CCR-supported companies, $8.0 million in spin-off GDP generated by supplier companies in other industries and $16.5 million in GDP attributable to the spillover impacts of the innovative products and processes developed by CCR-supported companies. Exhibit 1 Summary of net economic benefit of CCR, to (real 2011 dollars) Source: Nordicity analysis based on data from TEN survey and Statistics Canada In terms of total job creation, CCR s support of Canadian companies generated a total of 840 cumulative jobs within the Canadian economy (Exhibit 2). This total included 320 direct cumulative jobs in the companies supported by CCR (and at CCR itself), 160 spin-off cumulative jobs in supplier industries and a further 360 cumulative spillover-impact jobs. Exhibit 2 Total job creation attributable to CCR, to Source: Nordicity analysis based on data from TEN survey and Statistics Canada

5 Fiscal benefit analysis During the first three years of its operation, to , CCR intervention yielded a fiscal benefit for federal and provincial governments in Canada. The economic activity generated by CCR support yielded an estimated $13.2 million in federal and provincial taxes, or $300,000 more than the $12.9 million in funding that CCR received during those three years. In other words, CCR generated 840 cumulative jobs and $42 million in GDP at no net cost to the taxpayer. Financial and economic performance of CCR-supported companies CCR-supported companies including companies that received business advice and funding, and those that only received business advice but no direct funding attracted an estimated $140 million in followon financing in Approximately one-half of CCR-supported companies were revenue-positive in (i.e., their most recent fiscal year). These companies earned an estimated $170 million in revenue in , and $320 million in revenue since Global markets and exports are vital to the long-term success of Canada s small innovative companies. In , 60% of CCR-supported companies (that were revenue-positive) recorded export sales. Approximately one-half of these exporting companies earned over three-quarters of their total revenues from export markets. In total, CCR-supported companies earned export sales of $81 million. CCR-supported companies are also engines of job creation. In , they employed an estimated 6,300 persons, of which 3,800 were full-time workers. Between and , the commercialization activities of CCR s client companies supported 11,000 cumulative jobs. The vast majority of persons employed by CCR-supported companies are highly qualified personnel (HQP) with university degrees. In , 85% of the jobs at CCR-supported companies, or 5,100 jobs, were HQP. Since , CCR-supported companies have created employment for some 9,000 cumulative jobs for HQP. Although CCR-supported companies are in the commercialization phase of their corporate development, they continue to make significant investments in R&D. In , CCR-supported companies made an estimated $150 million in R&D expenditures; these expenditures accounted for approximately one-half of their total operating expenditures. Impact of CCR on the financial and economic performance of client companies The survey data indicate that CCR s commercialization support has an effect on both immediate and intermediate outcomes at client companies, regardless of whether the companies received funding from CCR or whether they only received non-financial services. The effect is most significant for client companies that received some type of funding from CCR. Funded companies report that, on average, CCR has a significant impact on their financing outcomes and some impact on their R&D linkages, business linkages and information and advice. Funded companies also report that CCR s commercialization support has a significant impact on their job creation and helps speed up their time-to-market. They also report that CCR support has some impact on their investment prospects, and their ability to win new customers and generate revenues. Evidently, the market performance of companies particularly funded companies is markedly improved through the services received from CCR. Recommendation for development of CCR commercialization support To improve the effectiveness of its commercialization support, CCR should continue to (i) develop offerings that help companies secure lead customers, (ii) expand the global networking component of its offering, and (iii) adopt a network-centric approach to commercialization support, expanding its Embedded Executive and Facilitated Access to Capital Services through strategic partnerships with regional innovation partners.

6 About Nordicity Nordicity is a boutique international consulting firm providing private and public sector clients with solutions for Strategy and Business, Policy and Regulation and Evaluation and Economic Analysis across four priority industries: Arts, culture and heritage Digital and creative media Information and communications technologies (ICT), and innovation Telecommunications and spectrum Nordicity has a long history of research and analysis of the ICT, and science and technology (S&T) industries. It has prepared numerous studies related to the economic development of Canada s ICT and S&T industries, including studies related to CANARIE, SchoolNet, Radarsat, photonics, medical devices, and advanced wireless services. Nordicity has also grown to become one of Canada s leading economics consulting firms for public- and private-sector clients in the ICT, telecommunications, media/entertainment and culture/content industries. Nordicity was founded in Ottawa in It now also has offices in Toronto, Vancouver, and London, UK; with clients across North and Central America, Europe, Africa, and Asia. For more information about Nordicity, visit About The Evidence Network The Evidence Network (TEN) provides assessments of the impact of innovation intermediaries on companies, drawing on its expertise in innovation intermediary management, technology commercialization, research on innovation intermediaries, and impact assessment. TEN entered the market in 2009 and has rapidly become known for its sound methodology and robust approach designed to determine the impact of intermediary services on the resources and capabilities of companies, and the impact on companies performance in the market. For more information about The Evidence Network, visit