Ontario’s engine for growing business — MaRS Discovery District — has made some powerful claims recently.
The publicly funded organization boasts it has generated $3 billion in economic impact; that more than two million people have used its online entrepreneurship resources; and that it hosts more than 2,000 events annually.
But an ongoing Toronto Star investigation into MaRS reveals two problems: many of MaRS’ claims are confusing and embellished, and its secrecy is preventing the public and future entrepreneurs from learning its true track record.
In just one of its claims, MaRS stated that as of 2013 it had provided more than $2 billion of economic value in its first decade. This spring, less than one year later, MaRS claimed the impact was $3 billion. MaRS officials say $3 billion is the correct figure, but have refused to release studies they say back the claim.
Critics say agencies that receive public funding should be accountable to taxpayers.
“The $3-billion impact figure is based on analysis so flimsy that it wouldn’t pass the test of a Grade 10 science student, which is ironic for an institution charged with commercializing research by some of Canada’s top universities,” said Mark McQueen, CEO of Wellington Financial, a Toronto-based firm that provides debt to venture capital-backed innovation companies across North America.
MaRS gets more than half of its funding from the province, about $470 million to date, including operating grants, money to administer government programs and a real estate loan. The remainder includes rental income from private and public tenants at its properties on College St. at University Ave.
Former Premier Dalton McGuinty declared MaRS open for business close to a decade ago.
“The research that will be done here is going to improve lives in Ontario and all over the world,” McGuinty said in 2005.
MaRS was created when a group of science and business minds led by Dr. John Evans, a former president of the University of Toronto, decided Ontario needed a place for entrepreneurs and researchers to meet and collaborate. Its mission: “To accelerate the development of knowledge-based businesses in Canada.”
Originally dubbed “Medical and Related Sciences,” MaRS has grown by leaps and bounds. It is now run by a civil servant who earns more than half a million dollars a year. More than a third of its 100 employees earn more than $100,000 annually.
MaRS is housed in several buildings on College St., one of which is nearly empty, and the provincial auditor is probing a $234-million government loan to MaRS that the organization is having trouble repaying because the expected high-end tenants are not leasing space.
MaRS CEO Ilse Treurnicht said the organization is having a meaningful impact on Ontario’s innovation ecosystem.
“The simple fact is that the MaRS Centre brings together thousands of participants from local, national and international innovation communities to share ideas, learn from each other and forge new collaborations — on a wide range of topics and in many different formats,” Treurnicht said.
She said MaRS disagrees with the Star’s conclusions.
“The model is based on approaches of leading global innovation cities such as San Francisco, Boston, New York City, Singapore and Stockholm. MaRS has now become a model others are emulating,” she said. “This project was developed by and continues to have the support of extraordinary city builders, business leaders, volunteers, public and private sector partners.”
Two months ago, the Star set out to test a series of claims the agency made on its public documents. The Star’s probe began after entrepreneurs and investors in the startup community began debating the merits of MaRS in an online public forum.
On its website, MaRS states that in its first decade its activities “generated more than $2 billion in economic value, primarily in Ontario.” This figure was originally credited to a 2013 KPMG impact study.
But on another MaRS webpage updated in May 2014, in a section titled “Our Results,” MaRS claimed “the initial investment of $600 million has already driven $3 billion in economic value.” This claim was also initially credited to KPMG.
Both credits to KPMG were removed after the Star began asking questions. KPMG referred all questions by the Star to MaRS.
MaRS told the Star the $3-billion figure is aggregated from studies designed and conducted by independent professional firms, such as KPMG, and other measures.
MaRS said the $3 billion worth of economic impact it generated includes the development of the MaRS Centre in downtown Toronto, MaRS’ own spending and payroll, as well as revenue and payroll figures from its “client” companies. MaRS said the figure also includes “impacts of the variables on GDP using impact models.”
MaRS told the Star it cannot provide studies that back up this claim due to confidentiality agreements.
Al Rosen, a Toronto forensic accountant who has advised past federal auditors general, characterized MaRS’ explanation as “pretty foggy.”
“It’s just based on too much hypothetical material,” said Rosen, adding that organizations that receive public money are often put under pressure to justify what they’ve done. That results in some “outrageous claims,” he said.
Until recently, MaRS claimed in an online statement by its board of directors that “more than two million people” have used its online entrepreneurship resources. MaRS explained that the figure indicates the number of “views” of the resources, rather than the number of people who have used them. The organization said this was an inadvertent error and removed the reference. However, the claim has yet to be removed from two other parts of MaRS’ website.
In a third claim, MaRS said that it hosts “over 2,000 events” each year. The Star, in researching the number, was unable to find evidence that MaRS hosted that many events. When asked to explain the reference, MaRS said it counts “stakeholder meetings, conferences and workshops” that it hosts as events, along with events put on by its tenants, government and private partners, and community organizations.
MaRS told the Star it has “worked with over 3,300 venture clients” since 2005. The organization said it does not make the names of these clients public because of “marketing and partnership development related reasons.”
The Star was able to reach out to 36 companies, from a list of names provided by MaRS, some from MaRS’ annual report, and some the Star learned had involvement with MaRS. Accounts of the 27 companies that agreed to speak about their interactions with MaRS were mixed.
Some described aspects of their interaction with MaRS as positive, with many speaking glowingly about receiving mentorship, funding, market research and helpful introductions to potential investors. Others described aspects of their experiences with MaRS as unhelpful or not crucial to their success.
Many said they were concerned that MaRS, by boasting about the accomplishments of its client companies, appeared to be taking credit for successes in which it played little part.
Kirk Simpson, co-founder and CEO of Wave Accounting, which became a MaRS client in 2010, describes his experience with MaRS as “mixed.” He says MaRS initially paired him with an “amazing” mentor who helped him refine his presentation techniques when pitching to potential investors. MaRS also exposed him to two large investment events that helped him get comfortable in front of the investment community, “but I was not able to raise capital from either event.”
“After that my time spent with MaRS was virtually zero,” Simpson said.
In its latest annual report, MaRS lists Wave Accounting as one of its top startup clients for capital raised, and in an online pamphlet calls the company its number two “leading venture” for job creation in 2012.
“For MaRS to point to Wave’s $25 million in capital raised and 65 people employed as a MaRS client success and proof of their good work and justification for their funding is just not fully accurate. I cannot, and will not, say that my time spent there didn’t help me on this road, but I also will not say that they were a crucial piece of Wave’s success,” he said.
A Hamilton-based company had glowing words to describe MaRS.
Gora Ganguli, CEO of VitaSound Audio Inc., which develops audio-enhancement technologies for boomers, said the financing and mentoring his company received from MaRS provided a huge boost.
MaRS lists VitaSound as its top startup client for new jobs created in its latest annual report.
Ganguli said the $500,000 VitaSound received from an accelerator fund now administered by MaRS was the first external investment his company secured and set the stage for a million-dollar financing round of private investors.
“It was critical to our first round of financing,” he said, adding that MaRS has been of further value to VitaSound, particularly when it comes to opening up business networks and reviewing proposals for further rounds of financing. “Overall the mentoring and guidance provided by MaRS have probably surpassed the initial $500,000.”
Another senior executive of a company that MaRS touts as one of its top successes in 2012 said the organization had “nothing to do” with his company’s fortunes.
“We go to their events, we play along and why not? There’s no harm for us,” the executive told the Star on the condition of anonymity because of relationships he has with MaRS employees. “But they had nothing to do with our success.”
MaRS chairman Gord Nixon stressed that the agency’s board pushes for independent measurements to ensure MaRS creates value, but conceded that attributing companies’ success to MaRS’ involvement is difficult.
“You can ask different entrepreneurs and they’ll say, ‘I wouldn’t exist today if it weren’t for MaRS,’ and you’d have others that MaRS has helped which have said MaRS was a little bit helpful but at the end of the day would not have made as big of a difference,” said Nixon, outgoing president and CEO of the Royal Bank of Canada.
MaRS provided the Star with a letter from KPMG that stated a 2013 survey of 597 MaRS clients found that 85 per cent of them said MaRS had a positive impact on their success.
“You can say, well, how do you know these companies wouldn’t have succeeded if MaRS wasn’t there? We can speculate about that,” MaRS CEO Ilse Treurnicht told the Star. “The reality is that we know that these companies use our services, that they find our services valuable and from the client results we know that they are a high-performing group of companies.”
Kenyon Wallace can be reached at 416-869-4734 or email@example.com. Follow him on Twitter: @KenyonWallace