Larry O'Brien

The best thing the federal government can do to help local tech startups obtain early stage financing is stay out of the way, says Larry O'Brien, president and chief executive of Calian Technologies.

While it's easy for Ottawa to say it will support early stage development, consequent programs get "so screwed up in execution that it never works that way and you're better off not doing it", says O'Brien.

Often, when Ottawa pours money into a program to aid early stage financing, the initial expense of launching and maintaining it far exceeds the economic benefit accrued by recipients, he says.

"That's just inertia. It's just heavy weight that the economy has to carry."

O'Brien's comments precede the federal budget, which is expected to be tabled on March 23. Judging from last month's throne speech, which laid out the government's spending priorities, the budget will contain plans to spend more on early stage financing, says O'Brien.

The throne speech pledged to build on the venture financing capabilities of the Business Development Bank, create access to capital for the commercialization of science and build on the experience of the National Research Council to help small firms "bridge the commercialization gap by providing the research and expertise that small business cannot provide on its own".

But the government could better serve industry by becoming "uninvolved" in early stage development, concentrating more on lowering tax rates and cutting capital taxes, O'Brien says.

"Less government is better government."

Nicole Loreto, director of public affairs for Industry Canada's Technology Partnerships Canada, says companies are often unable to develop new technologies, such as hydrogen energy production methods, on their own.

In fact, the department has received feedback from businesses that clearly states the government has a role to play at different levels, whether it's tax credits or assistance with R&D programs, she says.

"We see that need expressed by the number of applicants we get. For every one project we support, we have had to refuse eight or nine, on average."

Loreto lists Tundra Semiconductor, March Networks and Mitel Networks as beneficiaries of the Technology Partnerships Canada initiative.

Marlene Catterall, MP for Ottawa West Nepean, told the Ottawa Business Journal last week that Prime Minister Paul Martin is correct in identifying access to adequate early stage financing as one of two key obstacles facing small firms in Canada.

The other hurdle, she said, is commercialization of R&D.

"We've missed the next step of actually (turning) research into products and services," said Catterrall, echoing recent comments from a local task force on commercialization that presented its interim report last month.

The local task force, which included Jeffrey Dale, president of the Ottawa Centre for Research and Innovation, called for a national policy that would increase available private equity for investments in innovation. Such a policy could encourage money to go into early stage, VC, mezzanine and buyout funds, said the task force's report.

The report also called for the creation of an industry-driven "commercialization centre" to oversee the development of regional and industry clusters.