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Home My WebLink AboutCAO-16-008 - Communitech Expansion REPORT TO: Planning and Strategic Initiatives Committee DATE OF MEETING: March 7, 2016 SUBMITTED BY: Rod Regier, Executive Director, Economic Development, (519) 741- 2200 ext. 7506 PREPARED BY: Rod Regier, Executive Director, Economic Development, (519) 741- 2200 ext. 7506 WARD (S) INVOLVED: All DATE OF REPORT: February 19, 2016 REPORT NO.: CAO-16-008 SUBJECT:Communitech Expansion ___________________________________________________________________________ RECOMMENDATION: That a grant to Communitech, of $300,000 from the Economic Development Reserve, to fund interior leasehold improvements to an expanded Communitech space at 151 Charles, be approved; and further, That the remainder of Communitech’s request be considered as part of the 2017 budget process, subject to demonstration of other partnerships, progress on implementation, and receipt of audited financial statements. BACKGROUND: In 2010, The City of Kitchener provided seed funding of $500,000 to Communitech to assist with the development of the Communitech Hub in The Tannery, in downtown Kitchener. That commitment allowed Communitech to raise $37.1 million in public sector funding. Communitech leveraged the public sector investment to generate more than $125 million from the private-sector to create what has become the most successful incubator environment for startup companies in Canada. Communitech has become known world-wide for its success as a catalyst for innovation, and technology commercialization. Since 2010, the Communitech Hub has supported 2,296 startup companies. Those companies raised $773.3 million in investment, creating up to 7,500 new jobs across Kitchener and Waterloo Region. In late 2015, Google moved from its offices in the Tannery to 185,000 sq. ft. in the Breithaupt Block. This created an opportunity for Velocity and Communitech to expand their programming into the former Google space in the Tannery. The City of Kitchener approved a $500,000 investment in the Velocity expansion to accommodate new wet labs and maker space for life science companies. This investment leverages a further $13 million investment in operating and capital costs to support UW student and alumni startups. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 1 - 1 REPORT: Communitech currently occupies 50,000 sq.ft. at The Tannery. It is planning an expansion of 80,000 sq. ft. onto the second and third floors of The Tannery to increase programming for growth stage companies. It is also renovating the main floor of the Hub to expand the number of corporate enterprise clients it can accommodate. The total operating and capital cost of the expansion is in the range of $15 million over five years (see attached project budget). Approximately $7.25 million has been requested from Federal and Provincial governments and private revenue is projected at $6 million. Communitech is requesting a municipal commitment of $300,000 annually to fund the balance over five years. The enterprise (corporate) innovation lab is important to Kitchener because those business clients tend to subsequently make significant investments in larger associated spaces such as the Deloitte expansion on Joseph Street. Growth stage companies are startups that have begun to achieve significant sales targets have raised venture capital to support significant growth. Both of these categories of business are increasing employment in the City. Staff recommend approval of the first year funding to allow for the immediate renovation of space necessary to allow the program to move forward. The project involves the removal of interior walls to create open concept collaboration environment for both classes of companies. It will also include the reorientation of the Communitech reception area to make more room for enterprise clients and allow it to better manage the up to 15,000 people that visit the Hub every year. The operating costs of the expansion will be borne through increased operating grants from the Provincial and Federal Governments, but these grants do not include provisions for leasehold improvements required to accommodate the growth of services. It is expected that the increased capacity of the Hub will result in an additional 9 enterprise (corporate) innovation labs, an additional 50 growth stage companies with investment of $170M and new, incremental employment for 4,000 people over the next five years. Enterprise Companies: Communitech’s corporate innovation program provides space within the Communitech Hub for large company labs; a space to develop and test new ideas and tap into the innovation ecosystem in Downtown Kitchener. These companies include local companies like BlackBerry, Christie Digital, OpenText, Google Entrepreneurs, CTI Canadian Tire Innovation, Manulife RED Lab, “{d}” Deloitte Innovation Labs and TD Innovation Labs. They also bring in large multinational companies new to Kitchener: Canon Innovation, GM, Thomson Reuters and Fairfax Financial. In 2015, Canadian Tire Innovation spun out the CTI “Digital Garage” located at 417 King Street West, based on the success of its CTI lab inside the Hub. Deloitte announced plans to assume a new office space for 200 employees at 195 Joseph Street (adjacent to The Tannery) by 2017. This project involves a $10 million renovation to a vacant historic building. Growth Stage Companies: While Communitech may be best-known for big companies and startups, a large part of Communitech’s work is supporting small-to-medium (SME) sized tech enterprises. There are more than 500 SMEs in the Communitech network, ranging in size from 20-50 employees. Communitech provides mentorship, programming, events, access to finance, business development, talent, and leadership to these SMEs, helping them grow from fledgling startups to larger companies like D2L, Clearpath Robotics, Miovision, Thalmic Labs, IGLOO, NetSuite and many more. When the expansion of Velocity and Communitech is complete, the combined facilities will be the largest startup incubator in Canada, larger than any in California. It will be a completely unique facility, 1 - 2 supporting innovation from the scale of two person startups through growth stage to the largest corporations in Canada. The City’s proposed $300,000 investment for the current fiscal year represents 2% of the overall 5 year capital and operating costs of $14.8 Million, whereas the total Communitech request would be approximately 10% of project costs. Communitech has brought outstanding partnerships with the senior levels of government and the private sector to deliver a key component of Kitchener’s economic development strategy. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: Make it Kitchener identifies the challenges of supporting growth stage companies and expanded investment from enterprise scale firms in the urban economy. The proposed investment is completely aligned with Kitchener’s economic development strategy and consistent with the policy objectives of the Economic Development Reserve Fund Policy. It will accelerate investment and high-wage employment growth in the city, and enhance Kitchener’s identity as an important node in the Toronto Waterloo Region innovation corridor. FINANCIAL IMPLICATIONS: This report requires a 2016 allocation of $300,000 from the Economic Development Reserve. A more detailed proposal regarding the remainder of the Communitech request will be brought forward through the 2017 Budget process. There is no impact on the City’s operating or capital budgets. The funding is consistent with Council direction regarding the use of the Economic Development Reserve to support implementation of The City of Kitchener economic development strategy, Make it Kitchener. COMMUNITY ENGAGEMENT: CONSULT – This project is the result of extensive consultation with economic development stakeholders, namely Communitech, the Waterloo Region’s technology industry association. INFORM – This report will be posted to the City’s website with the agenda in advance of the committee meeting. CONCLUSION: In the past five years, partially as a result of early investments in the Communitech Hub, Kitchener has become known as a critical node in one of the most dynamic startup ecosystems around the world. The Hub has become one of the most successful startup environments in Canada and the companies it has supported have attracted over $773.3 million in capital since 2010. It is expected that the increased capacity of the Hub will result in an additional 9 enterprise (corporate) innovation labs, for a total of 20 enterprise labs, an additional 50 growth stage companies with investment of $170M and new, incremental employment for 4,000 people over the next five years. ACKNOWLEDGED BY: Jeff Willmer, CAO Enclosures: • Schedule A: Hub Expansion & Renovation Municipal Support Allocation (5yr horizon) 1 - 3 1 - 4