The Atlantic Canada Opportunies Agency, whose logo is seen here, has not been able to collect much of the money it lent to technology firms in Atlantic Canada. (CBC)

About 90 per cent of federal loans given to the first group of Atlantic technology firms under a highly touted assistance program announced a decade ago are unpaid.

Almost eight years ago, Ottawa started loaning a total of $33.2 million to 17 companies through the Atlantic Innovation Fund, which aims to boost research and development.

The Atlantic Canada Opportunities Agency, which runs the fund, had recovered $3.2 million as of April, according to documents obtained through access-to-information legislation. The majority of that money has been repaid by two companies.

The fund was announced with much fanfare in June 2000 by former prime minister Jean Chretien, who called it "a new start on the new economy in Atlantic Canada."

Too early to tell: official

All but one of the loans are provisional, which is one sign of how the companies are faring as repayments are generally based on the agency recouping a percentage of sales once inventions by the firms hit the market.

Michele Bernier, a spokeswoman for the agency, said research companies typically take up to 10 years to "reach maturity," and therefore it is too early to expect the level of commercial success that triggers repayment.

Bernier said the agency considers the fund successful because of the scientific expertise and inventions that it generates.

'If your goal is to generate financial returns, loans to high-potential new ventures is a route fraught with peril.'—Harvard professor Josh Lerner

"Raising the level of research and development and innovation is fundamental to increasing Atlantic Canada's competitiveness and closing the region's productivity gap with the rest of Canada," she said in an email.

But an expert who studies government aid to entrepreneurs said if the federal government wishes to recover a higher percentage of its investment, thereby making more funds available for future investments, the provisional loans are a questionable method.

"In general, if your goal is to generate financial returns, loans to high-potential new ventures is a route fraught with peril," said Josh Lerner, a professor at the Harvard Business School. "When you look at returns to new businesses, you tend to have a few winners with a lot of mediocre [results] and some losers."

He said provisional loans create a situation where, "heads I win a little, but mostly I'm going to lose."

'The reason we're here'

Some of the firms haven't started repaying yet. Once the companies begin paying back the loans, they have up to 10 years to complete repayment.

Ocean Nutrition Inc. of Halifax, the manufacturer of omega-3 fish-oil food supplements, has repaid $1.7 million of its $6-million loan.

MDS-PRAD Technologies of Prince Edward Island was the only firm that declined to reveal how much it has repaid, arguing it is exempt from the access-to-information request due to potential competitive harm from disclosing the figure.

But by subtracting the funds given to the 16 other companies from the total amount disbursed, it appears MDS-PRAD repaid $1.1 million, or about half of the $2 million it is listed as owing.

Phil Rodger, the president of the Summerside-based firm, declined to confirm the figure.

But he said his company wouldn't have been able to develop a specialty coating for gas turbine engines without the fund.

"This is the reason we're here. This is the reason we're able to hire 75 people and do the project we were able to do," he said.

Almost $5M written off

About $4.7 million in loans have been written off. That includes money given to Consilient Technologies, a St. John's provider of mobility software that went out of business in the fall of 2008 after repaying almost $200,000 of its $1.7 million loan.

Micro Optics Design Corp., a maker of eye glass manufacturing equipment based in Moncton, N.B., folded and its technology was sold to a German competitor. It had an unpaid loan of $1.2 million.

Mathis Instruments went bankrupt after repaying $20,000 of its $2 million loan. The Fredericton company developed sensors measuring how materials transport heat.

Another three companies are listed as being "in default" on their loans because they are no longer operating, and a fourth is in default because it isn't meeting the contract requirements.

That leaves 10 companies that the agency is hoping to collect from, though five hadn't made a payment as of April 20.

Most of those companies started receiving cheques seven years ago, though J.D. Irving Ltd. began receiving money totalling $700,000 four years ago for a forestry initiative, and Kanayo Software Inc. received the first of $3.1 million in funds five years ago.

Take a stake, author says

Lerner, author of Boulevard of Broken Dreams, a book on government investment, said if the federal government had an ownership position in the firms, it would stand a better chance of recovering its money over the long term when a firm succeeds.

"I'm more comfortable with schemes which are co-investment schemes where the government gets the same upside and downside as co-investors do," he said.

'I'm more comfortable with schemes which are co-investment schemes where the government gets the same upside and downside as co-investors do.'—Author Josh Lerner

Bernier said the agency doesn't take equity positions, adding that its role "is to offset the risk for companies and investors to encourage more innovation investment to take place in Atlantic Canada."

"Given the inherently high-risk nature of research and development investments, ACOA is pleased with the repayment rate," she said.

In its access-to-information request, The Canadian Press also obtained data on a second group of companies that received Atlantic Innovation Fund loans five to six years ago.

Of the $41 million paid out under that program, eight per cent has been repaid and $3.5 million written off.