Government Funding for Innovation: Beyond the Binary of Success and Failure

Government Intervention and Market Failures

To spur economic growth in lagging regions, governments often provide financial assistance to technology-led businesses. This aims to address market failures that limit access to capital in these areas.

Objectives and Risks

Investing in tech ventures has the potential to foster innovation, create high-skill jobs, and expand the tax base. However, the high failure rate of startups, even those supported by investors, poses inherent risks.

Beyond Commercial Success

Our research challenges the notion that government investments in tech ventures hinge solely on their commercial success. The skills and knowledge acquired by employees in these firms have long-lasting benefits, even if the businesses fail.

Case Study: Consilient Technologies

Rise and Fall

In Newfoundland and Labrador, Consilient Technologies designed software for mobile email delivery. With government support, it grew rapidly, attracting talent from around the world before ceasing operations in 2008.

Ripple Effect

Despite its closure, Consilient's legacy extended far beyond its financial impact. It nurtured a tech ecosystem, attracting and developing software engineers, many of whom later joined successful companies like Verafin.

"Consilient provided us with access to world-class expertise and opportunities for growth that we would not have found elsewhere." – Former Consilient employee

Lessons Learned

Embrace Failure

Governments should recognize that failure is inherent in innovation. Not all supported businesses will succeed, and this should not detract from the potential positive outcomes.

Focus on Positive Impacts

Even failed businesses can generate economic benefits by investing in employee skills and knowledge. These benefits may not be quantifiable but have long-term, positive effects on the ecosystem.

Discern Selective Support

Governments should carefully consider the attributes of businesses they support. Focus should be on companies with global reach, technology intensity, and a demonstrated ability to develop valuable skills for employees.