Troubling Facts about MaRS Discovery District (Part 2 of 4)
Two days ago I wrote about the incredible $470K salary of the MaRS Discovery District CEO and UofT president spouse, the $130M in subsidies the institution pocketed between 2002 and 2008, and the deficit in public reporting. Today I take a look into the results of all that spending.
Why spoil a good party with performance management?
The poor public reporting I talked about in my last post is only one of several issues with MaRS, which fuel palpable resentment against the institution among many in Toronto’s growing entrepreneurial community. Another problem area that entrepreneurs often point to is the low ROI of the hub. While we are aware of the costs, little is known about the hub’s actual results.
For an institution that promotes science, performance measurement appears surprisingly unscientific. Externally, all we hear are sound bytes such as “Kalgene (a division of Kalgene Pharmaceuticals – a MaRS client company and incubator tenant) raises $500,000”. And quite often, as in Kalgene’s case, this fundraising is achieved through a province-sponsored investment fund. Talk about healthy due diligence.
Scientific measurement of the hub’s performance would require assessing actual “performance improvement”. Not fundraising events that may have happened anyway without the institution’s help, and not the inputs into those results (“we helped x companies” and “had x appointments”) as was put forward by the hub’s communication officer when I asked the question last year [April 10 update: and the only indicators on the "Where does my money go" page at the time of this post]. It would also cover more than just select MaRS clients, to assess the effectiveness of the help provided across all startups in Toronto, since that’s the mandate that comes with $130M in public subsidies. Handing money out selectively might help the recipient but it leaves many in the cold, harms local competitors of that recipient, and overall distorts the marketplace.
(As a sidenote, MaRS channels entrepreneurs in different categories, each with a different volume of support. The winner-picking approach means that the hub ends up throwing a lot more support behind ventures that are quite far along the commercialization curve, rather than actual start-ups.)
Of course, MaRS holds internal performance reviews, but in the absence of public scrutiny, there are few reasons to be critical and many to just keep cashing the checks and claim victory.
System deficiencies and a sample of poor results hint to a low ROI
So, how effective are the advisors at helping companies? Is their advice really worth the salary they are paid? Is it cheaper to provide through MaRS than through the private sector? In the current system, how many clients would MaRS advisors secure without the grants that compel a company to sign up?
Believe it or not, I used to work for a government as a commercialization consultant. The French ministry of Economy and Finance, of all things. As surprising as it may sound for a French initiative, we charged companies for most of our services, even though our rates were subsidized. Now, although I was doing this as a diplomat in the Philippines and then in Pakistan, where few French-speaking consultants could be found, I can tell you that a majority of our “clients” only signed up because we also offered grants and had some administrative power (e.g. we could facilitate visas for their clients and suppliers), and they wanted to keep us happy.
The bottom line is, under such conditions: 1. one generally couldn’t expect great results, because there was no link between an advisor’s pay and the services we provided (I certainly felt more effective as part of the Boston Consulting Group in Toronto) 2. the attribution of grants plus the power coming from being part of the public system made sure clients would invariably provide great feedback. See anything wrong with that? I did, and it further motivated me to emigrate to Canada… (the Canadian emigration officer in Islamabad had a hard time believing my motives, he told me he had never seen a French diplomat apply before!)
MaRS doesn’t even charge for its commercialization services – unless it has to do with renting space (more on that in the next post). Result-wise, companies generally get what they pay for. “Clients” know that and those I interacted with care little for the free support. What they want is what we all do: cash. So they go along with this circus, and pay lip service to the institution. Some good advisors open doors and get stuff done for their clients, but they seemed the exception rather than the rule – the system just does not reward that behavior much. More often than not in my observation, entrepreneurs just had an opinionated public servant to deal with, who might sit on their board and even sometimes collect equity for its public sponsors (that last fact was mentioned to me by an insider although I did not doublecheck it.)
In the course of my activity and my discussions, that was a recurring theme – even before I started seeing the issues with the hub for myself. Several entrepreneurs, who won’t go public not to threaten their MaRS-administered grants (and there are many), mentioned in private that to get grants they felt they were obligated to work with the advisors, even though those helped very little. One told me that “MaRS people think high of themselves but results don’t second that. In hindsight, we would have been better off without their help.”
Granted, my assessment is not highly scientific either – my sample would not be considered large enough to constitute a true survey. But since MaRS regards soundbytes as valid performance measurement, I am certain they will consider the ones I collected seriously.
Opacity in grant attribution decisions, and back scratching
MaRS relies on close-knit self-serving networks to attribute projects. One could even say caucasian networks… Check out the list of advisors – out of 26, not one is part of visible minority (at the time of this post) – that can’t possibly be an accident in a city where 47 percent of the population reported themselves as being part of a visible minority. I know this is not the only organization in the city where most executives are white, but as a subsidized nonprofit, I would expect better – and it supports my experience, which is that grants and projects are attributed not based on performance, but on loyalty, reciprocity and generally being part of the club.
For most grants, such as BMEP or a subsidized “Outsourced Executive”, you can’t apply directly. You have to be “retained” based on undisclosed criteria. The process puts a lot of discretionary power in the hands of advisors. Are they better at picking winners than, say, venture capitalists who do that for a living and even then have to spread their bets widely? Short of replacing grants with tax incentives, which would be fairer and level the playing field, the selection process of a publicly-funded service should be much more transparent and open.
I was the consulting recipient of two MaRS grants last year, thanks to relationships with advisors. One of the clients renewed my contract twice, and the other secured multiple more leads than initially expected as the outcome of our work. I received recommendation letters for both, one by a MaRS advisor. After understanding the system better, I raised my concerns about the institution’s opacity through some discussions with advisors and others. As I imagined it might happen, in spite of the acknowledged results, I have not been referred any project from MaRS since.
Note that in my conversations last year, I was told, both by MaRS insiders and others who shared similar concerns and had experience with the institution, that if I publicly raised my concern, I should expect to be sidelined. That it is a “highly politicized minefield”, with lots of interests at play, and “yes, this is opaque and not ideally ran, but you can’t change city hall”.
No way. I came all the way to this country because that’s where anyone can express themselves and change things if they have a case. Canada is no banana republic, and so here is my attempt at changing city hall. And those who agree should stop fearing for their own self and stand up before another $130 million get wasted. Revolution! ;)
My post next monday tuesday will be about the MaRS-led institutionalization of viable private-sector services and real estate expansion of innovation hubs in Ontario.