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HomeMy WebLinkAboutCAO-15-042 - Expansion of the University of Waterloo Velocity Programming in Downtown Kitchener Staff Report KiTMENFR CA0 Office www1itahener ra REPORT TO: FINANCE AND CORPORATE SERVICES COMMITTEE DATE OF MEETING: Monday, December 7, 2015 SUBMITTED BY: Brian Bennett, Manager Business Development, Economic Development 519-741-2200 ext 7230 PREPARED BY: Thom Ryan, Senior Business Development Officer, Economic Development 519-741-2200 ext 7826 WARD (S) INVOLVED: All DATE OF REPORT: Friday November 20, 2015 REPORT NO.: CAO-15-042 SUBJECT: Expansion of the University of Waterloo Velocity programing in Downtown Kitchener RECOMMENDATION That the City of Kitchener allocate $500,000 from the Kitchener Economic Development Reserve Fund in support of the expansion of the University of Waterloo Velocity commercialization programs in downtown Kitchener, bringing together the commercialization facilities of Velocity Garage, Foundry and Science in The Tannery, 151 Charles Street West, Innovation District, Kitchener. EXECUTIVE SUMMARY Velocity is a leading entrepreneurship program at the University of Waterloo. From idea to product development to commercialization, Velocity provides the knowledge, tools, space, mentoring, and network that startups and entrepreneurs need for success. In Downtown Kitchener, Velocity programs are focused on commercialization and business programming to support graduate startup companies. In contrast, Velocity programs on the University of Waterloo campus are focused on idea discovery, research and development for active students. If the University campus (Waterloo) is where great ideas are formed, The Tannery (Kitchener) is where those concepts are developed and become economic drivers. With a proven track record of supporting the creation of hundreds of successful startup companies, most of which are retained in Kitchener and in Waterloo Region, Velocity has demonstrated its ability to create hundreds of net new, high-value jobs, attract millions in venture capital and acquisition wealth, while fueling innovation and the urban ecosystem Downtown. The Velocity expansion involves consolidating and expanding downtown facilities and programs into 36,000 square feet (sf) in The Tannery, focused on commercialization support activities for the Velocity Garage, Velocity Foundry and establishing a new, dedicated Downtown Kitchener ***This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 4 - 1 Velocity Science arm. "Velocity Science" is the Velocity brand for biotechnology startups targeting the life and health sciences market. Velocity will operate in Downtown Kitchener under the Velocity Garage branding, with subcomponents consisting of software, hardware and life sciences. Velocity has requested a $500,000 up-front investment from the City of Kitchener to purchase capital equipment and fund leasehold improvements for the expanded space in The Tannery. The residual value of this investment will in large part remain with the property well beyond the five-year horizon of this project. If Velocity does not expand facilities in Downtown Kitchener, Velocity's ability to accommodate a growing funnel of startup companies will be compromised, significantly lengthening the timeline for expansion. BACKGROUND Velocity is one of the best entrepreneurship programs in Canada and is overseen by the University of Waterloo. Velocity runs programs on the university campus and in the Innovation District. The program is completely free and does not take any cash, equity or intellectual property (IP) rights from its startups (the latter is a prized policy of the University of Waterloo, and is attributed to the expansion of commercialization of technology spinning out of the university); most accelerator-incubator programs take some stake (I P, equity, incremental share of profit, lease, etc.) from incubating enterprises. Velocity's investment supports entrepreneurs, with the hope that successful startups will recognize these contributions and make donations in the future to help sustain the program. Current Velocity programs include: • Velocity Garage (digital media, software): 151 Charles Street West, Innovation District, The Tannery, Downtown Kitchener • Velocity Foundry (hardware, manufacturing tech): 45 Water Street, Downtown Kitchener • Velocity Science (biotech, health/life sciences): on University of Waterloo Campus, Waterloo • Velocity Alpha: concurrent tri-annual series of sessions, workshops, panel discussions and brainstorming in support of commercializing businesses • Velocity Residence: Velocity Residence is located in the Minota Hagey Residence on the University of Waterloo campus • Velocity Fund: a non-equity grant program for startups offering more than $400,000 to local startups through Velocity Fund$25k and Velocity Fund$5,000 Programs In Kitchener, Velocity currently operates two facilities which deliver the benefit of all Velocity programming: 1) The Velocity Garage is a 7,000 sf incubation facility in The Tannery (151 Charles Street West), focused on supporting software startups. 2) The Velocity Foundry is an 11,000 sf facility currently located at 45 Water Street South (Manulife Building), focused on supporting hardware and life sciences startups. 2 4 - 2 Velocity has generated significant economic benefits for the Waterloo Region and the City of Kitchener, through the creation and support of high tech companies that predominantly stay in Waterloo Region after leaving the program. Approximately 61% of the companies launched from the Velocity program in Kitchener have remained in Waterloo Region. In just the past four years, Velocity has supported the following notable companies that continue to operate in downtown Kitchener: • Vidyard • Blitzen • Thalmic Labs • DraftingSpace (acquired by • Mappedln BuildDirect) • Reebee • BufferBox (acquired by Google) • Chalk.com In the past four years, Velocity has helped to create over 800 jobs and Velocity companies have received over $250M in follow-on funding. Velocity currently has over 65 companies in active incubation within the Garage and Foundry. Velocity has created over 160 companies, with the survival rate for companies after their first year at 81% and after 4 years 66% (significantly higher than the US average of 48% ( th)). REPORT With Google's planned move to the Breithaupt Block, vacant space is becoming available within The Tannery for expansion. This space has been negotiated to accommodate expansion for both Communitech and Velocity. For the past year, Google, Communitech and Velocity have been cooperatively working to build out a plan to create an unprecedented expansion of the cluster of tech companies within The Tannery. Fostering the opportunity to expand existing programs, create new programs, support more companies, and generate even more benefit for the local economy. Velocity Expansion Communitech will be subleasing the former Google space in The Tannery (67,000 sf). As part of the plan, Velocity would lease additional space from Communitech for a 5-year period, doubling their space Downtown from 18,000 sf to 36,000 sf, providing an opportunity to significantly improve and expand programing. Community Community is one of the largest factors for the success of the Velocity program. Peer to peer mentorship and support amongst the Velocity companies has proven to help companies develop far more quickly than they would in isolation. The expansion enables Velocity to repatriate the Velocity Foundry back into The Tannery building, so that all Velocity teams would be operating in one contiguous space, under one roof. It provides a more robust connected community and would provide for an even tighter connection with both Communitech to help support growth in Velocity companies, as well as collisions with the broader Waterloo Region startup ecosystem. 3 4 - 3 Increased University of Waterloo investment and presence downtown The expansion would continue to increase the presence of the University of Waterloo in downtown Kitchener, building on investments such as the University of Waterloo School of Pharmacy and Velocity. With additional ground floor space and exterior signage, we expect to showcase the expanded presence of the University of Waterloo within the facility. More Life Sciences startups Downtown One of the key elements of the Velocity expansion is to support the evolving needs for life sciences and nanotechnology companies. With the introduction of Velocity Science in 2014, a student program on the University of Waterloo campus to support science-focused research, Velocity has seen a significant increase in the number of nanotechnology and life sciences companies being created. These students perform their initial research in the Velocity Science lab facility on the university campus and upon graduation, then shift operations to Velocity Foundry for commercial incubation. Since launching, Velocity Science has created 24 companies with 14 continuing to operate on campus and five who work out of the Velocity Foundry. The demand for life sciences amenities in Downtown Kitchener is growing, and the inventory of these capital-intensive amenities in the region such as commercial wet labs is nearly non-existent. Currently, the Velocity Foundry cannot continue to accommodate growth for life sciences startups. With this planned expansion, Velocity will build out a wet lab facility to support life sciences lab functions. Expansions will also include fume hoods and other permanent amenities to support the needs of a growing cadre of Velocity Foundry and Sciences companies, so that all of their commercialization work can be conducted in this facility in Kitchener. Size and Scale With this expansion, Velocity reaches a level of size and scale that few such organizations have achieved. Velocity will be the largest free startup incubator in North America, and based on initial research, could be the largest in the world. It will become the largest university incubator in North America (in comparison, Harvard's iLab is 30,000 sf). This expansion provides an opportunity for Velocity to reach a higher capacity for programming and amenities, using fewer resources, provided the program would be housed under one roof. Velocity estimates the expanded and consolidated facility would have enough room to support over 100 startups (increased from a current capacity of 65 startups; with another 25 startups on a waiting list). The community-focused mentorship approach allows Velocity to scale the support systems needed to help these companies grow. Waterloo Region has the highest density of startups outside of Silicon Valley. This investment in Velocity is also a catalytic one; recognized economic inducement models suggest high tech enterprises offer a return of six times employment value: "...for each new high-tech job in a city, five additional jobs are ultimately created outside of the high- tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones 4 4 - 4 (waiters, hairdressers, carpenters)." The Multiplier Effect of Innovation Jobs, MITSIoan Management Review. E.Moretti, 2012. (http:Hsloanr view.mit.edu/article/the-multiplier-e ct-of-innovat ion-jobs) PROPOSAL As part of the expansion, Velocity will incur significant increased costs, including upfront capital costs to modify the space within The Tannery to support the vision for a unified software, hardware, and life sciences space for Velocity companies. Velocity plans to build a wet lab facility for life sciences companies, as well as build out additional workshop facilities for hardware tech companies. Estimates for the cost of leasehold renovations, capital equipment and furniture would be $500,000 in one-time capital, up-front costs to outfit the expanded space. As the funding is up front for a 5 year commitment, should Velocity relocate from the Tannery space prior to the conclusion of their 5 year lease, a pro rata claw back provision of$100,000 per annum will be incorporated in the agreement, which would be returned to the City. The University of Waterloo will be covering the operating costs for managing and staffing the expanded facility, which is expected to cost more than $10M over the same 5 year period. In comparison to the request for support of the expansion in the City of Kitchener, $500,000 represents 5% of the total expected operating investment on behalf of the University for the next 5 years. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN Strategic Priority: Strategy— Strong and Resilient Economy 2.1 Foster a business environment that stimulates innovation and job creation, helping startup entrepreneurs establish and grow their business. Strategic Action: Ensure Kitchener remains innovative by investing in a catalyst organization producing mentored, high-potential startups, new jobs, mentorship and supports students commercializing ideas. 2.2 Support the attraction, retention and development of existing and new industries within the regional economy, working in collaboration with the economic development corporation for Waterloo Region. Strategic Action: Invest in capital improvements in a key downtown Kitchener property, ensuring downtown has the amenities to underpin emerging and strategic industries like biotechnology, smart manufacturing and digital media. 2.5 Facilitate the ongoing development of Downtown Kitchener as the heart of the city. Strategic Action: Keep some of Kitchener's most innovative companies growing and thriving in the Innovation District and beyond. s 4 - 5 FINANCIAL IMPLICATIONS The Velocity expansion in downtown Kitchener will be funded through the Economic Development Reserve. COMMUNITY ENGAGEMENT: Kitchener Economic Development Strategy Symposium: IDEAS OF THE BRAVE hosted by Kitchener Economic Development at THEMUSEUM on June 2, 2015 identified Velocity downtown as one of the key economic drivers of Kitchener's downtown innovation ecosystem. Findings from the IDEAS OF THE BRAVE conversations suggested the City of Kitchener should continue to invigorate and advance student and startup investments in downtown Kitchener, particularly related to the University of Waterloo. YOUR KITCHENER, (Compass Kitchener, 2014,) a survey and series of events gaging the opinions of Kitchener residents, identified the economy and jobs as key concerns for the City of Kitchener. PREVIOUS CONSIDERATION OF THIS MATTER The Velocity expansion support as outlined in the Make It Kitchener 2015 Kitchener Economic Development Strategy (Make It Start) approved by council Monday November 16, 2015, Staff Report CAO-15-037. ACKNOWLEDGED BY: Jeff Willmer, CAO 6 4 - 6