Crossing the Valley of Death with Mitacs
Crossing the Valley of Death with Mitacs
In an ecosystem that mostly fails to commercialize academic technology, Mitacs stands nearly alone as an enabler of Canadian technology commercialization.
The Valley of Death is a general expression for the gap in funding that exists after a technology has been matured past the point it makes sense for academic exploration using public grants, but while it is still too immature for industry funding through established companies. In Canada, this is particularly pronounced: while Canadian academic research is highly productive (as measured by papers and patents published) compared to the rest of our G7 peers, very little of that translates to economic benefit in the long term, largely due to Canada’s inability or unwillingness to support technologies beyond the stage of patenting.
In an ecosystem in which government-funded innovation supports mostly fail to achieve long-term economic results, Mitacs stands alone as an effective publicly-funded enabler of Canadian technology commercialization. Not only is Mitacs the cornerstone of Canadian deep tech in its own right, it also underpins many emerging programs aimed at addressing these challenges.
In this article, I present the problems being addressed by the Mitacs Accelerate Entrepreneur program, providing practical guidance on securing funding through the program from within a startup company, and on navigating potential conflict of interest pitfalls that arise while straddling the divide between academia and industry. Finally, even though my experience with and opinion of this vital program is overwhelmingly positive, I also provide my reflections on how the program could be improved.
The Valley of Death
Most technology coming out of universities is at a Technology Readiness Level (TRL) of 3 or 4 at the point it is patented by a university. From here, most of it never leaves the valley of death, instead suffering one of three ignominious fates:
It may simply not be developed further and get lost in the noise of academic publishing without any industry interest. If the technology was ever patented in the first place, it is eventually dropped, and quietly enters the public domain. Most Canadian universities have a catalogue of unlicensed patents in search of a licensee, but a lack of comprehensive public search capability and no budget for marketing these assets makes discoverability virtually nil. The discoverability problem is starting to be addressed through an ad-hoc collection of initiatives like Action Potential and TandemLaunch. If you know of others in Canada, please link me to them in the comments.
It may be snapped up on the cheap by a large industry player, usually American, and left to collect dust on a shelf as part of an IP moat rather than being translated into a product. The university collects some nominal licensing fees for a few years that collectively represent a tiny fraction of the cost of developing it, and further development of the technology stalls permanently. Avoidance of this exact situation is the raison d’être for the Bayh-Dole act in the US, but Canada generally does not an equivalent means of ensuring that publicly-funded patents are actually used by licensees. Universities rarely include clawback clauses in their licenses, and do not have the resources to enforce them in any case.
In rare cases where a match is found to an innovator willing to take on commercial development, the technology is taken to Boston or Silicon Valley for further development due to a relative lack of domestic funding to support development.
The minority of Canadian technology that survives this gauntlet and begins commercial development faces another immediate challenge: finding development capital. On the public side, I’ve written extensively about the various failings of the initiatives whose mandate involves support at this stage: SR&ED requires commitment of capital upfront without any guarantee of reimbursement, IRAP requires whatever the ITA in question decides they require but usually $500,000 in revenues or a full-time-equivalent employee count larger than two, and, with handful of praiseworthy exceptions, most other supports require variations on short-term economic benefit metrics that are completely divorced from the realities of deep tech development. On the private capital side, the risk appetite among the vast majority of Canadian VC firms is simply too low to get involved before the technical risk has been removed. While there are exceptions, they collectively deploy nowhere near enough capital to address the gap.
Faced with investors who do not have the stomach for technical risk and a government that does not understand technology commercialization before TRL7, Canadian innovators are left with few options.
The Light Between Two Tunnels
Mitacs has been carrying Canadian innovation commercialization on its shoulders for years. Among funding sources appropriate to carrying Canadian tech from TRL 3 to 7 that is accessible to industry players of any size, it is the longest-running program of which I am aware that actually understands deep tech development. Here, I will focus the discussion on the Mitacs Accelerate Entrepreneur program, since this is their main program intended to assist Canadian technologies cross the valley of death.
Mitacs Accelerate is structured as a grant to an academic lab in partnership with industry, providing fund matching to the company to conduct R&D in the academic lab by paying some or all of the salary of a researcher. The Accelerate Entrepreneur program further requires that the industry partner be a startup company commercializing the results of the funded research. Eligible researchers include Master’s and PhD students, postdocs, and recently (within 2 years) graduated research associates. Successful applicants get a 1:1 funding match up to $15,000 for a 4-month work term, with $7,500 coming from the company and $7,500 from Mitacs, though there are variations on these numbers. The Accelerate Entrepreneur program takes this further, requiring that the intern be a founder of a startup company that serves as the industry partner. The money flows from the startup, to Mitacs, to the university, and finally to the intern. The intern is formally an employee of the university, a detail that has significant implications that will he discussed shortly.
The value of this structure is many-fold: It enables new startup companies to access wet lab space through the partner lab instead of renting it, a resource that is non-existent or prohibitively expensive in most of Canada. It provides the building blocks of a means to handle intellectual property (though some additional work is required, see below). It provides a clean framework to manage the conflict of interest that could otherwise arise if they were getting paid through public research funding while building a for-profit entity using the resulting research. Finally, it provides at least 1:1 leverage on every dollar spent by the startup on R&D, allowing scarce resources to go much farther than would otherwise be possible. This makes it possible for academics seeking to become entrepreneurs to pay the bills during the early stages of building a company.
Application
The application process is similar to any other academic grant, for which you should budget about a week of work to full out and at least another few days for the collection of a very large number of signatures. Applicants must use the provided application template to give a detailed description of the research to be conducted, the expected impact both academically and economically, and an account of benefits to Canada, including timelines, milestones, expected deliverables, and detailed budget. Multiple Mitacs interns can be included in a single application, which can span multiple internship units of 4-6 months. The application must be supported by the industry partner, the academic lab hosting the intern, and a representative of the university, usually from the tech transfer office.
Most Canadian research universities have a Mitacs representative on staff to assist with the process. In my experience they are an excellent resource and are very happy to provide detailed guidance in navigating the complexities of the program, and I encourage applicants to engage with them early in the planning stages, as the first time goping through the application process can be daunting.
Once submitted, the application goes out for peer review. the reviewers are simply asked to assess the scientific merits of the proposal and the bar is low in the sense that the only real requirement is that the plan be scientifically reasonable. This process can take some time. While Mitacs tries to turn around decisions within 8 weeks, I have seen the review process extend for up to 16 weeks depending on the volume of applications, so budget accordingly. The review process itself is largely a formality: as long as the proposed research is reasonable, all of the required questions in the template have been addressed, you have the support of the university, and Mitacs budget remains for the fiscal year, you can expect a positive decision.
Once successful, the company contribution comes due in 1-internship-unit chunks at the beginning of each internship unit. You may receive an invoice from Mitacs before receiving a positive decision. Don’t panic, it is simply an automated system being overzealous and you can safely wait to pay it.
If the cashflow problems that so often plague early stage startup companies do not permit payment of the invoice on time, it is possible to pause the research until such time as the invoice is payable and then to resume, though this circumstance should be flagged as early as possible with the Mitacs representative supporting the application. There is also no penalty for canceling a Mitacs project part way through (except loss of the remaining matching funding). On the other hand, it is difficult to apply for project extensions, which cannot exceed a single additional internship unit. Because of this, it is usually worth applying for long projects involving as many interns as can be justified. Bear in mind that different classes of intern have different lifetime maximal internship unit counts, though even this is flexible if circumstances justify it.
Application timing should be strategic and deliberate. Beyond simply planning for the potentially long review times, it is not uncommon for Mitacs to near the end of the fiscal year with money unspent. In these circumstances, Mitacs has historically funded grants at a 2:1 or even 3:1 match, extended the maximum value of an internship unit to $20,000, or a combination of all of these, in order to quickly spend extra funds. These offers more often appear toward the end of the fiscal year in my experience (January to March, since Mitacs follows the government fiscal year). On the other hand, waiting carries the risk of Mitacs running out of funding, and will usually result in longer review times. Keep up to date with your Mitacs representative and budget months ahead to plan out the timing of your application according to your requirements.
Administration
Once successful, Mitacs will invoice the startup for their portion of the funds (+ HST, which always comes as a surprise to first-time applicants). Once paid, funds are routed to the university, and the interns are paid by the university for their work. Of particular note in this arrangement is that the intern is an employee of the University, not of the startup. This has important implications that should be carefully managed and settled before the start of the award.
Conflict of Interest
If the supervisor of an academic lab has a significant ownership stake in the startup, then that person cannot be the academic supervisor for the Mitacs interns. This is important for many reasons, not the least of which is that Mitacs interns are academics with a mandate to publish, which is usually not a priority for startups.
Mitacs is quite flexible in how such situations are managed, but does require that it be managed, and in all cases will require that the academic supervisor be someone who is arm’s length from the startup, irrespective of where the work actually gets done. If the startup involves an academic supervisor directly, engage with the local Mitacs representative and the university tech transfer office early to open a dialog around conflict of interest management. Typically, another researcher in the department will be designated as the academic supervisor to serve as a neutral third party to ensure adherence to academic standards and the interest of academic interns.
A proactive and transparent approach to conflict of interest management shows that the startup is committed to mitigating these issues and will go a long way toward establishing the trust between the startup and the university, a relationship that is probably the single most important one to cultivate in the early stages of commercializing technology.
Grants and Taxes
Because Mitacs interns are university employees, they do not count toward the employee count of the startup when applying for other grant programs. NRC IRAP and NSERC Alliance, for example, require a minimum FTE count to consider a company for funding or as an eligible funding partner, and Mitacs interns cannot be counted toward this total. Instead, they are considered contractors.
Because Mitacs interns count as contractors for SR&ED purposes, money spent on them is not eligible for SR&ED refund at the full employee rate. There are also usually limits on the maximum degree to which government contributions can be stacked, which must be tracked carefully to ensure compliance across all programs. Engage a tax professional to assist in navigating related claims, as the varying administrative requirements imposed by combining sources of funding quickly become complex and the cost of getting it wrong far outweigh what you will have to pay a qualified accountant to get it right.
Intellectual Property, Confidentiality, and the Right to Publish
Because Mitacs interns are university employees, IP created during the execution of their Mitacs contracts falls under the purview of the IP policies of the host university. Mitacs is completely hands-off with respect to IP, deferring entirely to the agreement established between the host university and the startup.
For this reason, it is critical to establish a set of agreements that ensure the startup gets the IP generated during Mitacs internships. In cases where the host university IP policy is university-centric, this is usually most simply managed using a simple agreement that assigns IP generated by Mitacs interns to the company funding the internship. This approach is uncontroversial: it is to be expected that industry funding a research project will get in exchange the IP that results. University of Calgary has a template agreement for this purpose that can be repurposed easily. Their approach is simple, sound, and I strongly recommend using it as the default framework for startup-funded Mitacs projects.
In cases where the IP policy is inventor-centric, all Mitacs interns should be required to sign a contract directly with the startup assigning IP developed during the internship to the startup. Do this before the project starts. In most cases, the standard a contractor template agreement used by the startup will be an appropriate starting point. At the very least, it should establish confidentiality requirements and assignment of IP. The only difference from a standard contractor agreement relates to the right to publish: most universities will rightly require that any agreement between the startup and its employees allow academic publication, dissemination of results at conferences, and defense of theses with at most a delay for review and necessary IP protection, or (in the case of thesis defense, a closed session and subsequent time-limited embargo on public release). These provisions should be included in the contract between the intern and the startup, and should be reviewed and approved by the arm’s-length academic supervisor and the tech transfer office to ensure that the academic rights of the Mitacs interns are protected. The relevant section in the University of Calgary template linked above can easily be adapted for this purpose.
In most cases, subject to the collective agreements of host university that apply to the interns, there is no issue with the startup also paying the intern some additional salary as a part-time employee, which can simplify matters. In all cases, how best to manage the administration depends on the local policies of the host university. Spend the time working with university administration, the host lab, and the local Mitacs representative to ensure transparency and clarity on all of these administrative issues. All of the issues below need to be settled and managed before any Mitacs internships begin. There is always a way to manage it, and the cost of getting it wrong far outweighs the effort needed to get it right.
Looking Forward
If I have to find issue with the Mitacs program (and I do, given the topic of this column), it lies in their data collection. Once a Mitacs project is funded, there is almost no oversight, and essentially no data collection that can be tied to long-term outcomes. The project terminates with short survey that captures a low-resolution snapshot of the state of the technology but as far as I can tell requests no information from which forward guidance can be derived. Given the critical role that Mitacs plays in getting Canadian technology across the valley of death, they are in a position to shine a light on the challenges that are faced by Canadian innovators attempting to commercialize the output of academic labs.
I have written previously about data collection initiatives that I would like to see built into most Canadian innovation support funding programs. Similar long-term tracking of IP generated during Mitacs projects would go a long way toward building a foundation for evidence-based policy-making. If there is interest in developing a more useful framework for collection of actionable data on Canadian technology commercialization, I would jump at a chance to be involved in the design phase.