IRAP could be one of Canada's most impactful industrial policies but suffers from high operating costs, low quality capital allocation, and significant administrative burden.
This is the result of multi-step intake processes and complex rules to pick and review winners. These issues have been addressed by top programs in South Korea, Finland, and Taiwan.
By using market validation, simplifying the application process, and decreasing administrative burden these issues can be solved in line with the program's mandate to "Stimulate wealth creation for Canada."
Summary
The NRC Industrial Research Assistance Program (IRAP) has the mandate to “Stimulate wealth creation for Canada through innovation.” It should be one of the most powerful programs run by the federal government to achieve this, providing around $500m each year in non-repayable contributions1. However, the program suffers from major issues.
It has very high operating costs compared to similar government programs. More than 15% of funding is used for program delivery, nearly ten times higher than comparable programs like the Strategic Innovation Fund2. This is driven by a high touch multi-step process requiring significant leg work to identify and complete due diligence on projects.
The complex series of factors used to “pick winners” leads to low quality capital allocation. Today IRAP covers a third of project costs and it has been esctimated it induces only $0.88 of research per $1 invested3 compared to programs in the UK4 or Norway5 that return $2 or more. This implies that these funds are used on projects companies wouldn’t otherwise pursue.
In addition, distributing the contributions creates significant overhead for companies. To receive funding companies submit monthly expense reports after costs have already been incurred, forcing recipients to spend significant resources on documentation rather than innovation.
With changes based on the most successful global comparisons like South Korea, Finland, and Taiwan the program can achieve its mission through four targeted reforms:
- Streamline Application Process. Reduce the application process to 4 steps with publicly available criteria administered through the online IRAP portal.
- Use Market Validation to Determine Eligibility. Make demonstrated wealth creation the primary qualification for contributions. This means showing proven revenue verified through CRA receipts, or investment from established venture capital firms.
- Simplify and Speed Up Reimbursement. To replace the current monthly status update and cost-reimbursement model.
- Create Public Investment Stories. IRAP should celebrate invested companies using information from annual reports to signal support and encourage others.
Background and Motivation
Currently IRAP distributes contributions through a complex 6-step process that begins with hands-on eligibility screening and ends with formal project evaluation. Between these steps lie multiple rounds of proposals, assessments, and negotiations that can stretch for months. Each application receives intensive review from Industrial Technology Advisors who conduct diagnostic meetings, prepare internal reports, and guide companies through proposal development.
This system creates massive inefficiency. For every $100 spent on IRAP, more than $15 goes to administrative costs rather than innovation. The program employs hundreds of Industrial technology advisors (ITAs). But these ITAs commonly have limited entrepreneurial or business experience and spend their time reviewing expense claims and conducting technical assessments rather than evaluating business outcomes.
The current approach also misaligns incentives. Companies are rewarded for spending money in pre-approved ways rather than creating value. Monthly reporting requirements force recipients to dedicate staff time to paperwork instead of product development. Recipients must submit detailed timesheets, payroll records, and invoices alongside lengthy status reports describing changes to timelines and objectives.
Most importantly, the program isn’t achieving its wealth creation mandate. IRAP has been estimated to induce only $0.88 of additional research per dollar invested, well below international benchmarks. This suggests the program is funding projects companies would do anyway rather than spurring genuine innovation. The complex evaluation criteria focus on technical feasibility rather than market potential, missing the connection between research and real economic value.
Consider a typical Canadian tech startup seeking IRAP funding today. The company first contacts an advisor who reviews their business plan and conducts interviews. If deemed eligible, an Industrial Technology Advisor is assigned to gather extensive information and prepare a diagnostic report. The company then receives an invitation to submit a formal proposal, which undergoes evaluation lasting up to 65 business days. Upon approval, a unique contribution agreement is negotiated and signed. Finally, the company begins monthly reporting on expenses and project status while waiting for reimbursements.
Under the reformed system, that same startup would submit a standardized application online with clear criteria. Within days, automated screening would determine eligibility based on objective factors like market validation evidence. A streamlined assessment focusing on wealth creation potential would provide a decision within the published timeline. Upon approval, the company would receive full funding upfront and focus on building their business rather than managing paperwork.
These reforms will transform IRAP from an administrative burden into a true driver of Canadian innovation, reducing costs while improving outcomes for both government and recipients.
Real World Solutions
Countries with successful innovation programs have already solved these problems through streamlined processes and market-focused criteria.
Business Finland operates a simple digital portal for applications to be processed within three months through standardized templates dramatically reducing administrative overhead while maintaining program integrity. The program provides upfront payment of 70% of project costs7.
South Korea’s TIPS program requires market validation before substantial funding, achieving over $8 billion in follow-on investment and creating more than 15,000 jobs since 20138 by focusing on companies with proven traction rather than speculative research projects.
Taiwan’s SBIR program provides partial upfront lump-sum payments rather than reimbursement-based funding to reduce administrative burden and improve cash flow for recipients. With areas achieving up to 4:1 return ratios where companies generate $4 in additional revenue for every $1 in government investment9.
What Must Be Done
The government should implement four specific changes to transform IRAP into an effective wealth creation program while maintaining program integrity.
Create a streamlined digital application. Replace the current IRAP approach with a straightforward process that limits subjective decisions. Here’s what it could look like
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Digital Application Submission: Any company is allowed to submit an application through an IRAP portal using standardized templates. Applications include business overview, market validation evidence (see more details below), project description including a 6 month plan with named owners, and a funding request. Example submissions and evaluation criteria are published publicly online.
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Automated Initial Screening: Applications will undergo automated eligibility screening based on a series of objective criteria: company size, Canadian incorporation, market validation thresholds, and basic technical feasibility. Results should be available within a week for all applications. This eliminates the current “triage” step while ensuring only qualified applicants proceed.
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Streamlined Assessment: Remaining applications would follow a standard assessment with a set number of interviews focused on the project’s potential for wealth creation rather than detailed technical review. Assessment should use frameworks similar to venture capital due diligence, emphasizing market opportunity, and scalability rather than R&D methodology. This assessment should follow the existing SLAs and keep a public record of the number of companies not meeting these timelines.:
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20 business days for projects with a contribution of $50,000 or less
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30 business days for projects with a contribution greater than $50,000 up to $500,000
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45 business days for projects with a contribution greater than $500,000 up to $3 million
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65 business days for projects with a contribution greater than $3 million up to $10 million
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Decision and Funding: Approved projects receive binding funding commitments with immediate fund disbursement. Contribution agreements use standardized templates with minimal custom conditions, eliminating the negotiation process that currently delays funding by months.
Establish market validation as the primary eligibility criterion. Grant size should correspond to demonstrated market success based on annual revenue, export contracts, or venture capital funding rather than research complexity.
- Companies with less than $100,000 in proof points (annual revenue, export contracts, or venture capital funding, pilot agreements) would qualify only for contributions under $50,000.
- Companies with proof points between $100,000 and $1 million would access contributions up to $1 million.
- Companies exceeding $1 million in proof points would qualify for the largest contributions up to $10 million.
- This approach ensures taxpayer funds support businesses with proven ability to create wealth rather than speculative research.
Eliminate monthly reporting in favor of upfront funding and annual accountability. Upon project approval, recipients should receive full grant amounts immediately, eliminating cash flow constraints that slow innovation. Monthly expense reports and status updates can be replaced with annual reports showing clear business metrics including revenue growth, export development, and intellectual property generation. Clear repayment requirements would apply to fund misuse while allowing reasonable flexibility in cost categories, with randomized audits maintaining program integrity.
Transform IRAP into a visible champion of Canadian innovation. The program should publicly celebrate successful investments using annual report data to demonstrate impact and encourage other entrepreneurs. This approach follows venture fund best practices of showcasing portfolio companies while providing valuable market signals about government support for emerging sectors.
Common Questions
Won’t this approach reduce program oversight and increase fraud risk? Upfront funding with market validation requirements actually improves oversight. Companies must demonstrate real market traction before receiving substantial funding, creating stronger accountability than expense monitoring. Clear repayment mechanisms and audit procedures will maintain program integrity while reducing administrative burden.
Will this hurt smaller companies without existing revenue or investment? Small contributions under $50,000 remain available for early-stage companies, providing essential support without requiring extensive validation. This creates a natural progression where companies prove their potential before accessing larger funding amounts, similar to private investment markets.
Doesn’t market validation favor certain types of businesses over others? Market validation is the most objective measure of wealth creation potential available. Revenue, export contracts, and institutional investment provide clear evidence that customers value a company’s innovation. This approach supports all sectors while ensuring taxpayer funds create genuine economic impact rather than funding research that never reaches market.
Conclusion
IRAP represents one of Canada’s largest innovation investments, but complex processes and misaligned incentives prevent it from achieving its wealth creation mandate. By streamlining applications, focusing on market validation, eliminating administrative burden, and celebrating success stories, these reforms will transform IRAP into a true driver of Canadian prosperity and economic growth.
