Public Money, Private Gain?

The Verschuren Centre, once part of Cape Breton University, now a standalone corporation, has received another injection of public money—$6.8 million, to be exact—from the federal and provincial governments.

The funding includes:

• $2.5 million from the provincial government
• $2 million from ACOA via the Canada Coal Transition Initiative Infrastructure Fund
• $2.3 million from Next Generation Manufacturing Canada (an “industry-led” non-profit funded by the federal government through its Advanced Manufacturing Superclusters program)

The Verschuren Centre will kick in $1.3 million and a Halifax-based “clean technology” company called DeNova will pony up $500,000.

The money will be used to expand the Centre—already home to one of only three bioreactors in Canada—into a “national bioprocessing centre” and to increase is bioreactor capacity “by more than ten times.”

I feel I can add value to this story by explaining who DeNova is because neither the federal nor the provincial press release about the investment offered any detail (and frankly, I can understand why).

 

DeNova

DeNova was founded in 2015 by Brianna Stratton, the daughter of Robert Orr, who serves as chair of DeNova’s board.

Orr was the general manager of Dartmouth-based Laer Products which was purchased by John Risley’s Clearwater Fine Foods Inc in 1997 and renamed Ocean Nutrition Canada Limited with Orr as president and CEO and later board chair. (Orr appeared in these pages back in March, when I wrote about a constructive dismissal case involving Ocean Nutrition.)

Royal DSM bought Ocean Nutrition for $540 million in 2012 and Orr left the company to become a managing director at Cuna del Mar (Spanish for “cradle of the sea”), the family office of Christy Walton, the widow of John Walton who was the son of Walmart founder Sam Walton.

The list of Cuna del Mar’s portfolio companies includes the Center for Aquaculture Technologies, which specializes in “fish health and nutrition” and operates facilities in Souris, PEI and San Diego, California. According to the PEI Business Registry, the Center for Aquaculture Technologies is the trade name of Tethys Aquaculture Canada and according to the federal business registry, Robert Orr is a Tethys director (there are only two listed).

Orr is also the board chair of Natural Products Canada, a PEI-based “innovation cluster” which receives public funding (in August 2021, it received $20 million from the federal government) and which has invested in DeNova. (And you thought that smell from our harbor was stinky.)

In 2021, Entrevestor announced that DeNova would head a $6 million “Sustainable Protein for Aquaculture” project to develop its first facility to “produce protein for aquaculture feed through a process that removes greenhouse gases from the atmosphere.”

Roughly half that funding—$2.6 million—came from Canada’s Ocean Supercluster while the rest came from the other project partners and I want you to pay special attention to the first two:

• Center for Aquaculture Technologies
• Natural Products Canada
• Dalhousie University
• National Research Council of Canada,
• Atlantic Canada Opportunities Agency
• Cooke Aquaculture

The CBC’s Paul Withers wrote about this $6 million project when it was announced, at which point Natural Products Canada CEO Shelley King told him that DeNova had also received funding from “prestigious Canadian and international Venture Capital and family offices” (although not, apparently, enough such funding to wean the company off the public teat).

I can tell you, by the way, that one of those “prestigious” venture capital outfits was Sandpiper, the early-stage VC fund focused on women-led startups that received $5 million from the provincial government in February 2021 as one of Stephen McNeil’s final acts as premier. DeNova was, in fact, Sandpiper’s first-ever investment, announced on 27 May 2021 with fanfare, although nothing so gauche as a dollar figure.

Entrevestor’s eternally awestruck Peter Moreira wrote of DeNova:

There’s been a growing buzz about the three-year-old Halifax company because it is addressing two global problems – the climate crisis and the pending shortage of protein. Founder and CEO Brianna Stratton has assembled a team of partners and devised dual technologies that have the potential to make an impact in tackling both problems.

In an interview, she said the company is commercializing a two-stage process that removes harmful methane from the atmosphere, and ends up with a protein that can be used in feed for aquaculture or other forms of farming.

The initial source of methane will be flare gas from oil and gas wells in Alberta, and DeNova will convert this gas into methanol. This liquid will be shipped to a production facility, where it will be used to nourish micro-organisms in bioreactors. [emphasis mine]

Once these micro-organisms have grown, they are dried into a powder, which is the protein to be used in feed for aquaculture operations. Stratton hopes to have developed the demonstration facility in about three years, and be at full commercial production within five years.

I’m no protein expert, but it occurs to me that it’s probably cheaper to invest $500,000 in the Verschuren Centre and gain (priority, perhaps?) access to its bioreactor than to spend millions constructing your own. I can’t say this is Stratton’s plan, though, because, funnily enough, DeNova is the only Verschuren Centre investor that had nothing to say about this latest investment in the press releases.

 

Jobs, jobs, jobs

The rationale for investing all this public money in the Verschuren Centre, according to the federal government’s press release, is that the Centre “helps cleantech companies develop new sustainable technologies and bring them to market” and in return:

These companies are helping to diversify Cape Breton’s economy by providing new opportunities for cleantech jobs and increasing investment in the area.

As I explained back in April 2021, on the occasion of the Verschuren Centre and four private sector biotech companies using its facilities receiving $2.2 million from ACOA, the Centre doesn’t take any ownership stake in its “clients” or their intellectual property. In the press release describing this most recent gift of government funds, Verschuren Centre CEO Beth Mason says:

Biomanufacturing has been cited as the internet of the future in relation to speed of development and impact on sustainable procurement. As such, companies in this field need to scale rapidly in a capital intensive and unencumbered environment. The Verschuren Centre’s new business model was created to provide just that, development speed, capital efficiency and open access technical capacity not readily available elsewhere.

How, exactly, that does that constitute a “business model?” They take public money and buy expensive equipment that they allow private companies to use to commercialize their products in the hope that they will establish manufacturing facilities here?

I mean, just consider those companies that received funding from ACOA last year: Kraken Sense, Alter Biota, Phycus Biotechnologies and Reazent. All four had previously received seed funding from the federally funded Sustainable Development Technology (SDTC) of which Annette Verschuren serves as board chair. Kraken Sense had earlier received $40,000 from Innovacorp through its GreenShoots competition for “Nova Scotia” startups.

When SDTC announced it had given Kraken Sense $100,000 in seed funding in November 2020, it described the company this way:

This past February, though, when it gave the company an additional (undisclosed) amount of start-up funding, it described Kraken Sense somewhat differently:

None of the other three companies got start-up funding from SDTC, but that doesn’t mean they didn’t get more government help.

ACOA gave Alter Biota (which still lists its location as Sydney) an additional $145,000 in January 2022 and Innovacorp invested an additional $100,000 in the firm in 2021. Reazent (which is listed as based in Halifax) got another $50,000 from ACOA.

ACOA also gave Phycus Biotechnologies, which it described as being located in Sydney, another $50,000 in March but the company has been receiving a steady stream of money from the National Research Council of Canada, for which purposes it is based in Richmond Hill, Ontario:

 

All of which makes it difficult for me to suspend my disbelief and join Mike Kelloway, Parliamentary Secretary to the Minister of Fisheries, Oceans and Canadian Coast Guard and Member of Parliament for Cape Breton-Canso, in his conviction that:

Investments like this are helping Cape Breton – Unama’ki turn the page from traditional industries toward a more diversified and sustainable local economy. This growing biotechnology cluster is attracting talent, creating well-paying jobs and will have a lasting impact on our community.

I’m afraid it will require more evidence than this to separate me from my disbelief.