Government incentives have almost no impact on creating startups: study

Just days after Ottawa asked for input on how to spend $400 million in new venture capital funding, a new study suggests government programs have almost no influence on entrepreneurs launching startups in Canada.

Only two percent of small and medium sized business (SMBs) surveyed byToronto-based Wave Accounting say governmentincentives influencedtheir decision to launch a startup.

The release of the findings – obtained by Wave in an online survey of1,386 if its SMB customers in Canada and the U.S. – coincides withfederal finance minister Jim Flaherty’s call last Friday for publicinput into how Ottawa should allocate $400 million in new VC fundingannounced in the federal budget in March.

“Responses seem to suggest that government efforts to encourage small businesses are falling flat,” Wave Accounting declared in a report detailing the survey results.

The report finding also comes on the same day the federal government invested nearly $5 million in startups across the country. In Ontario, the Ontario Centres of Excellence was given $1.1 million to invest in 30 startups in the science, technology, education, and medicine fields.

“It’s incumbent upon us in government to make sure these young entrepreneurs are supported,” says Kellie Leitch, a Conservative MP (Simcoe-Grey) who made the funding announcement on behalf of the Minister of State for the Federal Economic Development Agency for Southern Ontario.“We also need to make sure it’s collaborative with the private sector and the academic support.”

Startup culture is often at oddswith government bureaucracy, says Startup Canada executive-directorVictoria Lennox.

“The findings really don’t seem surprising,” said Victoria Lennox,executive director of Startup Canada, a non-profit group touring acrossCanada to gather ideas about the type of startup support needed inCanada.

“This is one of the top three issues we’ve heard from startups,” Lennoxsaid. “(Entrepreneurs) are not aware of them or they find the(government) support is very cumbersome and very difficult to accessand it’s better to just get on with it than wait to apply.”

Besides encountering bureaucratic red tape in the application process,startups have overwhelmingly complained during the Startup Canada tourabout the lack of a one-stop clearing house for information on all thestartup programs offered by federal, provincial and municipalgovernments, she said.

“There’s no one place to go to. Whenever they call a 1-800 number theyget passed on so many times they just go on with it (themselves),”Lennox said.

There’s also a disconnect between the hyper fast pace of entrepreneurship, especially in the competitive technology sector, and the understandable desire of governments to ensure all public funds are allocated with the proper degree of oversight and diligence.

“There’s a lot of red tape. That’s nothing new. The government has afine line (to tread) between having to balance the use of publicfinance and the need for entrepreneurs to move quickly. It’s twocultures,” Lennox said.

Lennox said some headway is being made, however, with Ottawa settingaside the $400 million in the budget, and the fact that the governmentwants that funding initiative to be led by the private sector. A newsrelease sent out with Flaherty’s call for public input by July 27 saysthe $400-million VC program is intended “to help increase privatesector investments in early-stage risk capital and to support thecreation of large-scale venture capital funds led by the privatesector.”

Ideally, any program aimed at helping entrepreneurs must be led by themand other members of the private sector rather than government, Lennoxsaid.

“My hope is that entrepreneurs are stimulated by each other and bytheir passions and government stimulus would not be the main reasonyou’d start a company,” Lennox said. “They’re not going to found acompany because there’s a new government program, they’re going to doit because they see a gap in the marketplace.”

Among other findings in the survey:

-although government incentives don’t create entrepreneurs, a badeconomy seems to; 18 per cent of owners who launched SMBs in the pastyear said they started their businesses after finding themselvesunemployed or unable to find work; among SMBs started over six yearsago (before the current economic downturn), only nine per cent gave thesame answer
– 73 per cent plan to expand their product offerings or initiate newmarketing campaigns in the coming year
– Canadian SMBs are more optimistic than their American cousins on somefronts, but less so on others; just 38 per cent of Canadian SMBs see abright future for their company vs 47 per cent in the U.S.; yet 43 percent of American SMBs see the next 12 months as being harder for SMBsoverall compared to just 34 per cent of Canadian SMBs

(With files from Brian Jackson.)

Christine WongChristineWong is a Staff Writer at E-mail her at [email protected],connect on Google+,follow her on Twitter,and join in the conversation on the IT BusinessFacebook Page.

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Christine Wong
Christine Wong
Christine Wong has been an on-air reporter for a national daily show on Rogers TV and at High Tech TV, a weekly news magazine on CTV's Ottawa affiliate. She was also an associate producer at Report On Business Television (now called BNN) and CBC's The Hour With George Stroumboulopoulos. As an associate producer at Slice TV, she helped launch two national daily talk shows, The Mom Show and Three Takes. Recently, she was a Staff Writer at and is now a freelance contributor.

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