Friday, August 30, 2013

ACOA and the Dirty Secrets of Government Investment

Investing without research is like playing stud poker and never looking at the cards.

Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.

Peter Lynch

I was intrigued to see today that the Atlantic Canada Opportunities Agency (ACOA) is suing Cathexis Innovations  for $4.4 million as a result of alleged loan payment defaults.  The story can be found here.

It’s not the first such court case nor will it be the last.  Here’s an example – ACOA suing Consilient for $7.7 million.  It is intriguing to see how some people behind these failed ACOA investments parlay their ACOA-enabled“success” into great careers.  This is how Trevor Adey, former head of Consilient, is described in his Ericson bio.

While the notion of a federal agency investing in seed or growth capital is a noble gesture, there are many dirty secrets that people have discovered that allow those who know how to play the system to gain millions in funding, redirect much of it towards their own pockets and then allow the companies to go down the drain.  As Sunny Marche, formerly a management professor at Dalhousie University (now deceased) once said:

They know how to write the application so that it gets some kind of positive review.  They know what the right language is ... and they've cracked the code around the relationship with ACOA.

To be clear, I am not implying or inferring that Cathexis is one of those companies nor am I suggesting that ACOA is without some successes.

However, when many companies have milked the ACOA teat to the fullest extent possible and go down the drain anyway, they cite “poor market conditions” or some other excuse while those of us “in the know” shake our heads at another rip-off.

As someone who has been asked many times to explore companies who are on the ACOA teat to see if they are “real or just smoke and mirrors”, I have become very disenchanted with the government investment program as a result and I wonder if it’s more of a vote-buying engine than an investment engine.

But before I get into why I think this, some advice from my mother comes to mind:

If you can’t say something good about something then don’t say anything at all.

Hmmmmm …. good advice.

In service and servanthood,



Some readers have asked for examples and I will provide one.

A leadership team of an ACOA client had for years spent approximately 60% of its time applying for various government investment and incentive programs.  For some of the leadership, that’s all they did year round.

At one point, they had an opportunity to score a potentially large partner investment with a globally known brand that had revenue in excess of $20 billion per year.

The potential partner offered an initial sum of approximately $2.4 million in order to partner with this company and to build extensions to this company’s product offerings.  This would have amounted to more money than this company earned cumulatively (i.e. non grant / investment / loan capital) in the history of the 10-year old company.

Most of us entrepreneurs see such opportunity as turning the corner on the way to success.

However, this company turned down the offer.

Why?  Because they were afraid that they would fail to deliver for this important partner whereas “other sources of income” were more guaranteed and easier to get.

I was in the room when the decision was made … and have never forgotten it.


  1. It is amazing that the title leading into your blog uses the term "authentic life" and then you write an article like this claiming to be "in the know" on all things ACOA.

    You do not know the people, nor the situation, behind the news article that you read. You then proceeded to use social media and your blog to portray subject matter knowledge on the topic.

    A little consideration for the fact that there are REAL people behind the things you write and the effect it may have on them would go a long way towards your goal of an "authentic life".

    So here is my call out to you... Dinner at my house with my lovely wife and two small children where I will answer ANY questions that you have. Come and meet my family, see and get to know the people you are writing about, and then start using the term "authentic". #doubtifheaccepts

    Mark Gillingham

    1. Hi Mark,

      Thanks for your note. In full disclosure, you neglected to identify yourself as one of the founders of Cathexis and you were present for some of the events identified in the article.

      First of all, I would suggest that you put your anger behind you otherwise it may create complexities for you as I describe here in my blog Anger - Setting Yourself Up For Manipulation -

      Your haste to comment and prove someone wrong caused you to miss this very important line in my blog:

      "To be clear, I am not implying or inferring that Cathexis is one of those companies nor am I suggesting that ACOA is without some successes."

      As you can see, I specifically indicated that Cathexis was not one of the companies I was referring to although your quick response may indicate otherwise. I don't know since that would be pure conjecture on my part.

      I have been involved with many ACOA companies over the years - some at the specific request of ACOA, some at the request of private investors in which ACOA investment was also involved and some at the invitation of ACOA clients themselves. Since you obviously don't know this, don't criticize others as if you do.

      You also appear to forget that I had intimate access to some Cathexis knowledge some years ago for reasons I won't get into here.

      To direct anger at others instead of where energy needs to be focused is revealing of the attributes of a leader and how they prioritize their focus. If you are still involved with Cathexis or are associated with people dealing with the matter that was in the press last week, I would suggest that that's where the focus needs to be directed. Companies and the families who rely on the income from those companies are what matter.

      On a personal note and in reference to your family and the other families, the life of an entrepreneur is not easy. When people have indicated to me that they would trade their lifestyle for my alleged "free" lifestyle any day, I have to remind them that oftentimes the entrepreneur, while seeming to bathe in the limelight by day, goes home and worries about where the next deal is coming from, where the payroll for the families who depend on him will come from, etc. Many an entrepreneur spends their night staring at the ceiling while their employees sleep in the bliss that comes from ignorance of the details.

      So I am ALL too familiar with the difficulties that an entrepreneur and their families face. However, that doesn't negate what I said in my blog and in fact, raises another element that I think is despicable. Many of the people whose ACOA capital go kaboom wipe out a lot of families who had their hopes and hearts set on something more permanent, more stable and more lucrative and were unaware of the state of their employer until the doors are suddenly shut.

      Too many examples exist ... not only with ACOA but in companies in general.

      Thank you for your kind invitation to dinner. Unfortunately, being 5000 miles away, I will have to take a rain check.

      I wish you well personally and professionally.

      Create a great day.


  2. Hi Harry,

    Thank you for your comments. I apologize if I neglected to identify myself properly in the comment above. As I listed my name and it was mentioned in the news report I may have inaccurately assumed it was known. My name is Mark Gillingham and I was one of the founders of Cathexis, a company which was started by my partners and I before we graduated engineering at Memorial University. While I have not worked at Cathexis for nearly 6 years now I still consider the management team to be not only some of my closest friends but also the most intelligent, creative and stand up individuals I have ever met.

    As you mentioned the life of an entrepreneur is often not as glorious as some would believe. But it is a path that myself and others have chosen despite the sometimes difficult circumstances. I have prided myself during my professional career in always putting the interests of my employees, shareholders and investors at the top of my priority list. In doing so I have upheld the highest of moral and ethical standards and believe this to be the only way to do business.

    I lead a very happy and emotionally controlled life style and do my best every day to bring positive energy into the world and to treat everyone I encounter with dignity and respect. Like the majority of the world however I regularly make mistakes and I am far from perfect. And today I did "react" to your article which, if you knew me you would likely agree that it, is well out of character and not nearly as articulate as it should have been.

    However, after taking quite some time to think things over today my position still has not changed on the content of your article. It is highly negative, opinion based, and while you may not have intended it to be this way the inferences to Cathexis and its founders are direct and obvious. I certainly did not miss your "very important line" however if you read back through the blog post again and put yourself in a different set of shoes here is what you may see:
    - A title that talks about ACOA and its "dirty secrets" which implies that something underhanded is afoot.
    - Use of term "idiot" twice in opening paragraph with reference to the people who run the companies you are about to discuss. Unless I completely missed the purpose of an introductory paragraph in all my years in school there is a direct and intentional link there.
    - Then reference to reason you wrote the blog post (i.e. the news article which personally references me - only as a founder but those are minor details).
    - The next paragraph is also interesting. The use of "court case" for a registering of debt. While no one has actually been to court or is there even any evidence of any sort of wrongdoing I guess documents did get registered with the court so technically it is kind of correct.
    - The next paragraph talks about the directors of these "dirty companies" who know how to play the system to line their own pockets with Government money. But I guess there is nothing here to take offence to either...
    - Ahh the disclaimer... now everything is good again!
    - But wait, the next word is "However"... and it is followed by "milked to the fullest extent possible".

    The sad part of all of this is that the people I know who read your article didn't pay nearly the amount of attention to your disclaimer as you may like to think. The inferences on the other hand draw the real attention. In a small intimate business community like Atlantic Canada where I, like many others, have worked very hard to create positive economic differences, employment opportunities, a career and establish a family, the words in your blog can (and did) create unjustified negative implications to the individuals referenced AND their families.

    In closing, while it may not seem like it, I do not hold any ill will and maybe we can get to chat over a beer sometime.

    I wish you all the best in life and business!

    1. Hi Mark,

      First of all, no apologies are necessary. I didn't take your response personally. :-)

      My blog reflects my opinion and your response (which I am grateful for) reflects yours.

      As you can see, I do not censor differences of opinion and in fact I welcome them. We all grow stronger and more knowledgeable when challenged.

      We are blessed to live in a part of the world where such exchanges can take place, where opinions can differ and where, at the end of the day, people can look at each other and say "It's all good - we can agree to disagree". It would be a dull world if we all were the same "flavor".

      One of the key things about entrepreneurs is their passion - passion for their beliefs, passion for their intentions, passion in their execution and most importantly of all, passion for their team members - the belief that we die or thrive as a team - the belief that no one gets left behind.

      As I sense from you and as I feel also, the passion ... and yes ... love ... that one develops for one's teammates is forged through difficulty and triumph.

      The bonds are unbreakable ... the stories are almost impossible to believe by those who "weren't there" .... and the memories are forever.

      I set out with an intention with this blog and you kind of stepped in the middle of it - my apologies for that. :-) My initial intention was accomplished. Our exchange was a bonus (speaking for myself, anyway).

      It's all good!

      And truthfully, the next time I am on "The Rock", I would be happy to buy you a beer and have that chat.

      It takes an entrepreneur to be able to have a REAL conversation with another entrepreneur. The conversation where, as you listen to the other person, you know EXACTLY what that person means, where they came from and why they did what they did.

      Entrepreneurs have felt the pain and experienced the triumph that they hear expressed by other entrepreneurs.

      Thank you for your passion, your commitment and your willingness to stand up and be heard.

      Few have such courage.

      I wrote a long distance dedication to entrepreneurs a few years ago .... I would like to send this long distance dedication to you. Entrepreneurs - A Long Distance Dedication.

      Create a great day, Mark - I have enjoyed the exchange with you and I have benefited from it.