“First, I want to reassure you that we did not take this decision lightly. This is a decision that is made by NSERC staff, independent of the peer review process. Every year we reject applications based on mandate ineligibility. This decision was based on … the NSERC Act.” Who said that “there has been mission drift for the granting councils”, when all their decisions are so firmly based on their original Act? But then, what to think of NSERC’s recent foray into business development? Was this also enshrined in the NSERC Act?
“It is in this context that your program was considered to be outside of NSERC’s mandate,” opined the NSERC staffer. The rejected application was submitted by a colleague in the department of Linguistics (You see, you are not alone!). The mathematically-based proposal was on the theme of characterizing communicative events in the signal domain, with a focus on testing and refining his signal processing algorithm for computing coordination through correlation map analysis. His cardinal sin was to mention its “anticipated significance in the social sciences and humanities i.e. predict changes to group behavior.”
So NSERC staff appear to be rejecting a scientific proposal for reasons based on its relevance to fields of study, that they don’t consider accounted for in the NSERC Act. But was the $300-million “Research Partnership Program” ever intended by the NSERC Act? Were recent actions heavily favouring proposals with an anticipated commercial impact ever sanctioned by the NSERC Act?
Would it have been a different story, had the applicant secured a letter of support from the Business Development Bank of Canada (BDC)? After all, Steve Jobs’ take on “innovation” was based on his conviction that Apple products induce “changes in group behavior”, albeit rational or emotional. The type of “marketing-based innovation” that we should all be doing and funding, according to the Dean of the Rotman School of Management. But we regress.
The story was first reported by fellow blogger Jim Colliander. The Business Development Bank of Canada seems to have used its somewhat allotted “Expand Your Sales” section of the Globe and Mail to advertise NSERC’s Engage program. Jim used the occasion to report on how far current NSERC practices are adrift from its original mission, a fact that was duly noted by the R&D Panel about all three of the research councils. What is remarkable is that the R&D panel also hinted at the mission drift of the Business Development Bank of Canada (BDC).
Indeed, the BDC is the Canadian government’s main arm to support small business with venture capital. This means the BDC is supposed to act where the traditional financial sector is not working well. Originally the BDC was to provide early-stage venture capital but the returns were reportedly not so good so they moved into later stage deals. The problem seems to be that the BDC has neither the capitalization for this nor the expertise. Here are the main recommendations of the R&D panel report on this front.
Recommendation 5: Help high-growth innovative firms access the risk capital they need through the establishment of new funds where gaps exist.
5.1 Start-up stage — Direct the Business Development Bank of Canada (BDC) to allocate a larger proportion of its portfolio to start-up stage financing, preferably in the form of a “sidecar” fund with angel investor groups.
5.2 Late stage — Provide the BDC with new capital to support the development of larger-scale, later-stage venture capital funds and growth equity funds in support of the private venture capital and equity industry. These funds would specialize in deal sizes of $10 million and above that are managed by the private sector and subject to appropriate governance practices.
The first recommendation is asking the BDC to get back to early stage financing and work with angel investor groups across the country to do this. For late stage, the R&D panel suggested BDC hold the funds but allow the private sector to manage the funding. The panel also suggests various methods of protecting taxpayer monies –motivated by schemes developed in Israel and other countries.
There appears to be a new strategic partnership developing between the Business Development Bank of Canada and NSERC, two organizations funded by government, which according to the R&D panel, seem to be equally adrift. The irony is that this new pact seems to be taking both organizations even further away from their original mission. NSERC is continuing to drift away from basic research and it surely looks like BDC is counting more and more on NSERC to provide early-stage venture capital, or is it research grants? OK! OK! the scale may be a bit off, but isn’t the thought that counts?