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SIDIT’s CEO Luby Pow in her Vernon office.  (Photo: Contributed)
SIDIT’s CEO Luby Pow in her Vernon office. (Photo: Contributed)

Fighting our local Innovation Gap

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By Devon Brooks

The Conference Board of Canada reported earlier this year that once again, Canada got failing grades for its achievements in innovation. Overall we came in at 14 out of 17 in innovation, generating an overall grade of ‘D’ as measured in 12 different indicators.

It is not that we aren’t coming up with any new ideas though: our highest grade among those dozen indicators was a ‘B’ for scientific articles. Our gap lies between the ideas generated and taking them to market. Even outside of the hi-tech science end there is simply less chance that any entrepreneur in Canada will successfully take an idea to market or onto the international stage than in most of our economic peers.

Back in 2004 the Okanagan Partnership was created to build on the idea that innovation comes from “clusters” of businesses that, through a gathering of related support industries and experts, help to grow the industry and each other, even if they are competitors.

This idea of clusters is part of the essential node of like-thinking people who are credited for creating the Silicon Valley cluster in California and other areas of research and innovation.

One of the factors limiting our ability to develop and take ideas to market is the ability to finance them.

This is where the Southern Interior Development Initiative Trust (SIDIT) comes into play. It’s mandate is to support “economic development initiatives that will demonstrate long term measurable economic benefits with the Southern Interior.”

CEO Luby Pow, who came from what she calls the conventional banking sector, describes one of SIDIT’s purposes this way: “We come into the picture when they finish research and development and are going into commercialization.”
Formed in 2006 with a one-time $50 million grant from the government of B.C., SIDIT put together a three-year plan that began in 2007, but recently released a new plan to take it to 2013.

Money will go into the projects that have the most promise, but SIDIT’s board has specified 10 sectors where the bulk of its money will be doled out.That will amount, in total, to $7.5 million per year for projects in one or more sectors among agriculture, economic development, energy, forestry, mining, Olympic opportunities, pine beetle recovery, transportation, small business and tourism.

Those sector titles, especially economic development, are so broad that almost anything could, in theory, go into them.

Pow says there was a shift from the first three years to the second. “We’ve moved away from trail creation and beautification projects to something that can be proven to be sustainable.”

The organization fills a needed niche for entrepreneurs with ideas that are simply not yet bankable. She explains, “It’s very difficult to get financing on intellectual property-based companies because there is no collateral to secure. They want real assets.”

“For conventionals [lending institutions] once a cash flow is established they will lend, but until the cash flow is established they won’t take the risk.”

SIDIT is not a copy of Community Futures, the BDC or any other government funded organization supporting entrepreneurs with loans even though making loans is part of its mandate.Instead it has a specific geographic focus, and it does finance some nonbusiness ventures, including some educational initiatives. It also collaborates with those other lending institutions and others like community foundations, the B.C. Innovation Council, several postsecondary education institutes, Western Diversification, credit unions, some “enterprising” nonprofits, the Okanagan Innovation Fund and conventional banks.

Another difference, says Pow, is that SIDIT does not have, or want, a lock-hold on its clients. “Many financial institutions won’t share their information for fear of losing the [client] company, but we aren’t proprietary at all.”

So if a company does well, and other lenders want a bigger piece of the action, they are welcome to take the business away. This means that SIDIT will get its capital (with profits) returned sooner, providing the other lender with a new customer.

For entrepreneurs this is a positive sign indicating they are less risky and therefore eligible for lesser interest rates. Pow notes, “Interest rates are based on risk and our deals are substantially riskier.”

The SIDIT board includes five provincial appointees, all from within the mandated area and eight elected politicians. Then there are two regional advisory committees, one for the Okanagan and another for the Columbia-Kootenay.

One of the companies SIDIT has helped is VeriCorder Technology (digital media recording and editing). In SIDIT’s 2010 Annual Report VeriCorder CEO Gary Symons wrote, “SIDIT funding and support has been the single most critical development for us in our transition from a startup company, to a company generating real revenue.”

Vineyard Networks is another. The company received vital recognition from Network World magazine this year, which named it one of 10 startups to watch, the only Canadian company on the roster.

Pow says the company is already enjoying tremendous success. “They’re [Vineyard Networks] still very early stage, but to get a $2 million purchase order in your first year is huge.”

Others include SST Wireless, the Pryme Group, Delta C Technologies and Golden Timber Frame.

Another aspect of SIDIT is to provide funding for established companies to jump to the next tier. Whether it is a new company, or it’s funding to take one to the next level, Pow says, “It is patient capital.”

The money comes with a few strings attached: those that receive these funds must create the companies and the employment within SIDIT’s area of operation. This too feeds into the idea that clusters of innovation must be built if these kinds of enterprise are to grow here.

As Pow acknowledges, once SIDIT loans are paid off the businesses are free to move. “We do anticipate that as some of these companies are sold and our debt is extinguished they could go elsewhere.”

It’s just that that isn’t in the plan. After all they can only get the money if, she says, “They have to show they can generate the funds to keep it going without government support.” Hopefully it means they can keep the companies and employment growing here.

And help jump Canada’s innovation gap.

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