As vice-president and director of the Mississauga, Ont.-based Xerox Research Centre of Canada (XRCC), Paul Smith has helped guide many a manufacturing startup over what he calls “the valley of death.”
Though he’s not the first to notice that Canadian startups have a tendency to sell out instead of scaling up, Smith and team are uniquely qualified to offer advice: since 2012 the centre has been offering external clients its expertise and infrastructure as a paid service, and in 2013 began collaborating with other organizations that also support the start-up community. (Smith himself has been working at the Centre since 1995.)
“We have some of the most educated students in the world,” Smith says. “We have an amazing higher education system and university structure, and we spend a lot of money educating them. Why would we want them to go across the border? We want them to stay in Canada and grow here.”
The need for Canada to nurture its startups becomes especially apparent when you consider that approximately 70 per cent of Canadians work for companies with fewer than 100 paid employees, and that approximately 20 per cent work for companies that employ between 100 and 499 people.
“If we are going to have employment growth, we need to focus on those numbers, and that means helping SMBs [small and medium-sized businesses] grow,” Smith says.
At present, eight of the Canadian manufacturing startups the XRCC is working with are physically located on-site, and it’s a corporate initiative for which Xerox is not receiving any government assistance. It also houses the Peel RIC (Research Innovation Commercialization) Centre, a non-profit organization that connects startups with the support they need to scale up their business.
According to one resident startup, collaborating with the Centre accelerated the scale-up process by between 18 and 24 months compared to conventional venture capital support, and saved the company at least $2.5 million.
We recently chatted with Smith and his colleague Patricia Hawkins, who serves as the XRCC’s strategic partnerships and innovation hub manager, about why it’s important for Canadian manufacturing startups to scale up instead of selling out, and how the Centre helps them do so.
ITBusiness.ca: We’ve written about the Xerox Research Center of Canada before, but for the benefit of readers who haven’t heard very much about it, can you tell us about the centre and what it does?
Paul Smith: We’re the global materials research center for Xerox, and there are only two global research centers in the entire corporation – here and in Palo Alto (PARC) – and they both have separate mandates. PARC is mainly focused on connected devices and AI, while ours is materials. Any material that you can imagine Xerox using, including electronic materials, probably started life here. We’ve been here for 40 years.
ITB: How did supporting startups become part of your mandate?
Patricia Hawkins: Back in 2011 there was the Jenkins report, which analyzed federal support for research and development and asked how we can do better. There were lots of ideas, but the trick is actually executing those ideas, which is at the core of our conversation today. And that was when we went to the [Xerox] corporation and asked whether we could use our own incredible infrastructure and capabilities to offer external support. The idea was that people could focus their money on developing technology rather than trying to build an infrastructure and hire people.
And so today we do that with a number of organizations – not just startups. Corporations and universities have projects with us too. But we certainly do a lot of work with Canadian startups, and that was really the core of our focus and determination to support Canadian innovation.
ITB: Can you give us some examples of companies that you’ve supported?
PH: One of the earlier ones we started working with back in 2014 was Forward Water Technologies, a spin-out from Green Centre Canada and Queen’s University. Their technology – a forward osmosis process, initially designed to clean tailings from the oil sands – was based on technology licensed from Queens University, and was good enough to help them mature to a small scale in a fume hood. But for their technology to attract further investment, they needed to do a couple of things.
One: they spun out their service into a separate company, but they still needed to take that tiny input process and develop it into something they could actually use as a demonstration unit for investors. So they came to us and asked for help with that. And so we helped them take a forward osmosis technology, designed for cleaning industrial waste products, out of a fume hood and scale up that process. We did an entire design for them and built a micro-pilot unit, which they then installed in our pilot plant here.
They also needed a place for investor meetings. And so once that micro-plant was set up they were able to bring investors through.
So working with us, they estimated they saved between 18 and 24 months of trying to get VC funding and also about $2.5 million just by leveraging everything we had here.
Another example came out of Mark Andrews’ lab at McGill University – Anomera, which converts naturally sourced, raw materials from the Canadian forestry industry into a proprietary, biodegradable, high-performance cellulose product, were doing a project with nanocrystalline cellulose materials that was aimed at replacing the plastic micro-beads that are found in cosmetics. They were working on the technology, and they had external investment, but the fellow that was leading the project was nearing the end of his thesis. The company, which had been investing, suddenly wanted more materials so they could start to experiment with the product.
So they came here. They located the company in our building, they set up a lab, they located staff here. And we began to scale up their manufacturing for them, so they could provide materials to their customers. And once again we participated in investor meetings, client meetings, audits – we went through that journey with them.
ITB: A recent OECD (Organization for Economic Co-operation and Development) working paper found that Canada is a leader in student-led startups, yet they famously struggle to scale up rather than sell out. Why do you think that is, and how does XRCC help?
PS: Part of it is the lack of ability to access skill sets or capital or whatever is needed to grow a business. We’ve invested something like $100 million into our pilot plant. Startups can’t afford to do that. They can’t afford to learn all of the skill sets they need to make it through those transitions either.
So with startups that want to know about XRCC and its capabilities, we normally start by asking, “What is it you really want to do?” Because, it’s one thing to have a concept, and another thing to say, “This is our idea, and this is the cost range, and these are the ways you can manufacture it.”
And this is what we do for Xerox, so they come to us and say, “This is our idea.” And sometimes we do a paper study for them, telling them what we think the stages of their scale-up need to be and split it into sections. We call that statements of work.
Then there will be two outcomes. One, we can give them confidence: they have a process that’s going to be scalable. And they can use it to go back to investors and say, “Look, we’ve had this discussion with a company that is really renowned in this field and world famous for innovative technology and they say it will cost this much.”
And it gives them incredible credibility with venture capitalists or investors to know that they’re working with someone trustworthy, who has the capabilities and has given fairly accurate quotations about the parts.
We also partnered with the National Research Council of Canada to create the Canadian Campus for Advanced Materials Manufacturing, somewhere startups, SMBs, or even multinationals could come and access all of these capabilities.
The National Research Council actually decided to build their first National Lab for seventeen years adjacent to our campus.
