Once, there was a MaRS mission: To incubate new forms of life in a hostile environment.
Now, after a decade-long gestation, Ontario’s publicly funded business incubator has given birth — to a white elephant.
A just-announced $309-million bailout of the MaRS centre, across the street from Queen’s Park, has humbled the blue-chip financiers behind it. And impoverished the public treasury, which is on the hook for a two-thirds-empty architectural showpiece in the heart of Toronto.
The unanswered question, preoccupying the media ever since the story hit the headlines during last spring’s election: How did the business elite that sit on the MaRS board of directors — chaired by then RBC chief Gord Nixon — bungle a real estate deal next door to the legislature while the Liberal government backstopped them?
MaRS, which stands for Medical and Related Sciences, got in over its head by banking on its own seemingly unstoppable mission to create a Phase 2 tower: If we build it, the startups and high rollers will come — no matter how high the rents and how misplaced the location.
But here’s another question, rarely asked: Beyond the bricks and mortar (and reflective glass) of the gleaming, 20-storey office building, what’s going on within the walls of planet MaRS? If the building is a boondoggle, what does that say about the team that built it and the government that backed it?
“It’s a ridiculously gorgeous building on a ridiculously gorgeous corner,” muses one former government official who has watched the rise and fall of MaRS up close. The over-the-top tower made MaRS a target.
While teaching newcomers how to manage stable businesses, the MaRS team experienced its own management churn: Four CFOs (chief financial officers) came and went over the past five years while its balance sheet went up and down. A new COO (chief operating officer) arrived last year and left town this year.
While setting out to teach entrepreneurialism to startups, the MaRS board was dominated by big bankers and established corporate bluebloods, bureaucrats and academics — tilted heavily toward establishment titans instead of entrepreneurial types. Despite the real estate fiasco, there has been no shakeup at the board or in senior management.
Its original headquarters building, converted from an old hospital on College St. at University Ave., is fully occupied. But the roster of tenants remains strangely lopsided: Barely half are startups, while the rest are established enterprises (supposedly for cross-pollination).
MaRS has always operated in a rarefied orbit. With relatively little to show for its first decade, and a relatively large appetite for public funding, has it gone off course?
Long a favourite of the media, its lofty raison d’être — commercializing research and incubating startups to compete in the digital age — seemed a good idea at the time. Founded with the support of a Tory government in 2002, fostered by the Liberals ever since, it enjoyed broad support.
MaRS was motherhood — who could be against nurturing? No one doubts the goals are worthy, but is it worth the money?
Reports of swank offices, high salaries and well-connected consultants have undermined its reputation. CEO Ilse Treurnicht earned more than $530,000 and roughly one-third of its nearly 100 employees earned more than $100,000 last year.
Big brains can cost big bucks. But the latest bailout has battered the brand, casting MaRS as hyperbolic and bloated.
Far from cutting the umbilical cord to Queen’s Park, the incubator has become even more reliant on the provincial treasury: It takes in about $50 million a year, of which one-third comes from real estate revenues, donations and sponsorships. The remaining two-thirds is public funding, split between its own operations and program delivery on behalf of government.
Treurnicht concedes the fallout has hit hard.
“There’s extraordinary concern,” the CEO says in an interview, lashing out at the whistleblower who exposed the looming bailout to the Tories during last spring’s campaign: “The negative press was catalyzed by an illegal act (unauthorized leak) when we became a football in an election.”
Treurnicht says the revolving door of CFOs and COOs under her watch was merely a matter of talented executives being recruited elsewhere, and insists none were troubled by MaRS balance sheets. If that raised questions about fiduciary consistency over time, the board seems to have gone along for the ride.
Despite criticism that her incubator dug itself a deep hole with an overpriced and underutilized office tower, she is unrepentant: “Would we change the location? Absolutely not!”
A decade after its genesis as a hub in a hostile business environment, MaRS has incubated a hostile political environment all its own. That’s a value proposition best avoided by any startup.