Innovation foundation given $5M lifeline
By Reid Southwick, Telegraph Journal | Link to original article
The province is extending a lifeline to the New Brunswick Innovation Foundation with an injection of $5 million to keep the economic development agency afloat.
The foundation, an arms-length government agency that invests in private-sector projects, was in danger of running out of funding at the end of the 2010-2011 fiscal year.
Premier Shawn Graham announced at a business gala in Fredericton Thursday night the province will keep the agency operating for another year with an injection of new money.
“With access to venture capital at its lowest in decades, this investment tonight is critical to achieving our goals for knowledge and innovation,” Graham told a sold-out crowd at the Delta Fredericton.
Calvin Milbury, president and chief executive of the foundation, declared victory for early-stage companies and applied researchers who will be eligible for investments from the new reserve of funds.
“This shows the importance that innovation has on ensuring that we can develop a stronger economy in the province,” Milbury said in an interview, adding the foundation can now continue operating until at least the end of the 2011-12 fiscal year.
“It gives us the financial backing we need to constantly carry out our business activities so we can continue to support applied research and continue to support early-stage businesses and entrepreneurs in the province.”
The foundation's distance from government allows it to act as a venture capital investor, assuming equity in companies and dealing with other investment partners without suspicion of government interference.
To date, the foundation has invested $27 million in applied research and early stage companies and leveraged another $177 million from other sources.
The organization launched with the aim of every dollar invested helping leverage five more, but has passed that goal with a 6.5 to 1 ratio of dollars leveraged to dollars invested.
The foundation relies on government funds, but doesn't receive money annually like government departments. Rather, the agency has received lump-sum payments, but Milbury couldn't say how the latest injection will flow to the foundation.
Earlier this month, auditor general Mike Ferguson raised concerns with the trust fund the province has used to finance the agency after he found it has cost taxpayers millions since its inception.
Between 2002, when the trust was established, and the time Ferguson released his report, the province had borrowed and deposited about $30 million into the trust in three payments.
Officials managing the trust fund invested the money until the foundation needed it. Since the officials didn't know when the foundation would require the money, they placed it in short-term investment vehicles with relatively low interest rates, Ferguson said.
This means the province borrowed the money at a higher interest rate than what the money was earning in the trust fund, creating a shortfall of about $2.5 million since the trust was established, according to Ferguson's calculations.
“We would rather see that the province, if they want to continue to use the innovation foundation to deliver this type of program, that they make it a regular grant recipient in the budget process and appropriate money every year,” Ferguson said in a recent interview, before the new funding was announced.
“The province would keep the money in its bank account until the innovation foundation actually needed the money.”
Milbury said discussions are ongoing with government over how the agency will receive the latest investment. He also said it's up to the province to decide the future of the agency when this round of money dries up.
Further, the auditor general said in his report the foundation is not sufficiently accountable for spending public money, saying Business New Brunswick does not properly monitor or evaluate the foundation's performance.
Ferguson called for a new level of oversight to ensure the foundation's investments meet the government's objectives.
Milbury has said he was willing to work with the auditor general and the province to correct the problem, though he said the agency has been fulfilling all its obligations in disclosing financial reports and investment information.
Business New Brunswick Minister Victor Boudreau has said his department was reviewing Ferguson's recommendations.