The Big Read

Can Kitchener-Waterloo forge a new identity as a medtech hub?

Zachary Monteiro for The Logic

In a hollowed-out warehouse across the street from Kitchener’s preeminent startup accelerator is the shell of what used to house the Ontario Seed Company. The 90,000-square-foot space doesn’t look like much now. But by 2023, the old greenhouse will start a new life as a different sort of incubator. 

In November, Kitchener City Council approved a plan to put $8.5 million toward the University of Waterloo’s $35-million Innovation Arena, a state-of-the-art research and development hub meant to churn out products to facilitate the digital transformation of Canada’s health system. 

“Health science is an area of growth; it’s an area that we’ll see increased pressure on government spending over the coming decades, and as a result, there will be lots of opportunities for startups to work in this space,” Kitchener Mayor Berry Vrbanovic told The Logic. “We’re already seeing it happen.”

The arena will serve as the new headquarters of the university’s startup incubator, Velocity. UW is projecting it will house 50 to 75 startups and 50 scale-ups in the space, generating a combined $95 million in private-sector investment and more than 800 jobs.

The centre adds to a densifying network of innovation accelerators in a southwestern Ontario region that’s worked hard to renew its identity as a tech hub in the wake of BlackBerry’s decline from its former heights. With its most recent generation of startups falling short of the lofty expectations their boosters had for them, Kitchener-Waterloo is now banking on medtech to help it stand out among the country’s tech ecosystems. And with the COVID-19 pandemic casting a halo around the health sector, the timing couldn’t be better.

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Talking Point

A new health innovation centre in Kitchener adds to a densifying network of innovation accelerators in the southwestern Ontario region that’s worked hard to renew its identity as a tech hub in the wake of BlackBerry’s decline. With the last generation of startups falling short of the region’s expectations, politicians and local entrepreneurs are banking on medtech to differentiate Kitchener-Waterloo from other more established tech hubs in Canada.

Kitchener-Waterloo isn’t an obvious health-innovation hotspot. There’s no medical school or top research hospital—institutions that typically function as the centres of gravity for medtech hubs, like Boston’s Kendall Square or Toronto’s MaRS Discovery District. But leaders in the community say its history in software and hardware development has laid the foundation to support a fully fledged medtech ecosystem. 

“Over the last couple years, there’s really been a pivot to health and medtech startups, and I think that culture in Waterloo around innovation has really helped the ecosystem grow,” says Elliot Fung, a former senior global program manager at BlackBerry who’s worked at the nexus of public health and technology since leaving the pioneering smartphone company seven years ago. 

Mary Pat Hinton, a former colleague of Fung’s from their BlackBerry days, is one entrepreneur who has translated her R&D experience in software and IT to the medtech space. The process wasn’t always straightforward. In 2014, she recruited some former BlackBerry colleagues to help launch Emmetros, which builds assistive devices for people with cognitive impairments. To get the company off the ground, she first enrolled in the startup accelerator program at MaRS, but found it didn’t address the particular challenges she was looking to work through. “Because I had worked for quite a long time in business, that kind of very early-stage information was not something I found as valuable at the time,” says Hinton. “I’m not somebody who’s just graduated from university, who’s never worked in a technology company, and I’m not someone with just an idea—I had a fully baked business plan. I wasn’t sure how I fit in there.” 

Back in Kitchener, Hinton found the support she needed at the Accelerator Centre, a business incubator in town. “It was much more personalized,” she says. “The mentors were able to meet me exactly where I was at. They were able to adjust to support more mature startups, no matter the sector.” 

Hinton says that culture of innovation she found at the Accelerator Centre extends to the region’s hospitals more than it might elsewhere in Canada. “There’s an openness to try new technologies here,” she says. In November, for example, Grand River Hospital in Kitchener became the first in Canada to move health data onto the cloud, transferring over three decades of documents like financial reports and patient records from disparate sources to a centralized Amazon Web Services platform.  

Fung, who’s the vice-president of innovation and strategic partnerships at Ontario Health, says local health-care providers’ interest in new technologies became especially acute during the pandemic. “There’s been such an interest to say, ‘We need to do things differently. We don’t have the capacity, we don’t have the tools that we need to be able to pivot fast enough,’” he says. “‘So we need some help from the innovation community.’” 

Along with patients, it’s medtech companies that are benefiting from that need. As of late September, digital health startups in Canada had collectively raised more than US$300 million, roughly double what the sector raised in all of 2019, according to PwC Canada and CB Insights. Medtech also helped drive record-high venture capital activity in the country in the second quarter of the year. 

While COVID-19 has put a spotlight on the sector, a faction of local leaders have spent years teeing up Kitchener-Waterloo to become a medtech hub.

Vrbanovic says Kitchener had been talking with the University of Waterloo about expanding the local health-innovation sector since well before he became mayor six years ago. In 2004, the city gave the university $30 million and a swathe of land to build its School of Pharmacy campus. The commitment, made through the government’s $110-million economic development fund, would support the university’s broader plans for a downtown health-sciences campus, of which the health-innovation arena would be a part. 

More recently—but pre-pandemic—the city had planned to make medtech one of two innovation clusters in its new economic-development strategy, Make it Kitchener 2.0, which launched this fall. “The timing of the pandemic, as far as this initiative goes, could not have come at a better time,” says Vrabanovic, “but we were slated to launch this plan regardless.” (The other cluster focuses on arts and entertainment.)

The shift toward medtech could help set the community’s tech ecosystem apart from Canada’s more established hubs, says Vrbanovic. Kitchener-Waterloo has indeed graduated a cohort of high-growth startups, including construction tech firm Bridgit, online marketplace Faire and digital learning platform D2L, to name a few. But several of the region’s most promising companies have seen their growth stall or have been acquired by U.S. firms before reaching profits or their projected potential. The hype surrounding smart-glasses firm North and the disappointment that followed is maybe the highest-profile example of that dynamic. The eight-year-old company had been a local darling for years. In 2018, Innovation Minister Navdeep Bains announced $24 million for the firm from the government’s flagship Strategic Innovation Fund. The money would support North’s $130-million plan to develop its products and expand its production facility. The then-450 person company committed to creating 390 new jobs as part of the project. But the firm struggled to find customers for its eyewear, and in February 2019, it laid off 150 people. Google’s parent company Alphabet snapped it up for US$180 million June.

Medtech firms in town have faced their own barriers to scaling. After launching Intellijoint Surgical in 2010, founder Armen Bakirtzian struggled to find local customers to buy the firm’s product, a computer-navigation system that assists orthopedic surgeons. Getting new products into Canada’s health-care system is notoriously difficult, given the complex public-purchasing system, which varies by province. Bakirtzian says it’s an issue that drives the majority of medtech startups either out of business or to the U.S. before making a single sale in Canada. “Without better procurement, we’re always going to be fighting an uphill battle to try and keep companies here,” says Bakirtzian. “We continue to support and invest in startups, and we don’t invest in retention.”

To try to address the challenge, last year Bakirtzian founded the Medical Innovation Xchange (MIX), a healthtech hub that caters to companies that are past the startup phase and looking to land local customers. MIX, which recently hired Fung as executive director, provides firms with mentorship and office space, through which companies can learn from each other’s experiences. “We feel that this is the most important thing we can do to ensure we retain the companies that have started here and scale those companies in Kitchener-Waterloo,” says Bakirtzian. “In our opinion, that’s the driving force behind a growing medtech ecosystem.”  

Bakirtzian sees MIX as a key connection in a network that includes Kitchener’s new economic plan and the University of Waterloo’s growing emphasis on medtech. While MIX is focused on scale-ups, there’s still a dearth of capacity to support the growing number of medtech startups in town, says Adrien Côté, executive director of Velocity. In 2015, the city spent $500,000 to help the incubator build a wet lab for health-focused startups at its current facility in the Tannery, whose tenants also include Communitech and Google’s former local headquarters. “By then, we had started to see a few companies interested in the program that were looking to build medical and diagnostics devices,” says Côté. “So we created some laboratory space and added other tools to help the development of those products.” 

Since then, Côté says nearly 60 healthtech startups have gone through the program—representing about a third of all Velocity alumni for the period—and have collectively raised more than $8 million in pre-seed funding through two health-specific funds, as well as other sources. In 2020, about a third of all investments in Velocity firms likewise went to those in healthtech. “We are supporting companies on another dozen deals or so,” which have yet to close, says Côté. While Velocity won’t focus exclusively on healthtech when it moves into the new innovation arena, it will have additional space and resources to bring in more startups in the sector.

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Bakirtzian says challenges around scaling are in large part a matter of public resources being concentrated in early-stage firms—from government funding for university incubators to R&D tax incentives. It’s a problem medtech CEOs deal with, too, and one with which Bakirtzian was well acquainted in the early days of scaling his own firm. “Maybe it was a bit of naïveté, but there were a lot of elements that gave us confidence that [Kitchener-Waterloo] would continue to focus on building capacity and expertise for health innovation,” he says, pointing to the university’s plans to expand its health-sciences campus and the droves of talented technicians coming out of BlackBerry. “It wasn’t going to be easy; it wasn’t going to happen overnight. But we were committed to the community, and to our ecosystem.”