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A Sustainable Startup Model for Canada

At the end of my last post on the gaps in the R,D,E chain, I talked a bit about why people with the development skill set are attractive to large companies, but ultimately don’t fit in with these companies’ emphasis on engineering (e.g. rigour, discipline, process).  Startups are by far the best at the critical development piece between research and engineering, and yet the existing model for startups has them dissolve after acquisition.

Quite often when a company buys a startup they think that they actually want the organization, but the supporting jobs start disappearing, a bit later the technical staff will drift off, and in the end the whole place just shuts down.  Canada is full of acquired entities that followed this path.

That is OK on some level, because the transition will hopefully have brought some measurable amount of money or expertise into the country. But ultimately, it also means an economics loss: the loss of a company, the associated jobs, and a skilled development team that has found ways to work together effectively and efficiently.  This is especially important for a country like Canada where there are not a lot of big companies left that do engineering on a large scale (Nortel is gone, RIM is spiralling to the bottom, etc.).

So, how is it beneficial for the development capabilities of startups to be dispersed instead of being rolled into other development projects?  Industry really doesn’t want the development skill set in the long term, and every startup is forced to waste time starting their company from scratch. Following this traditional path is both capital inefficient for the startup as well as sub-optimal for the region in terms of long term economic growth. On the flip side, any law or policy that limits the ability of a startup in a small economy to be sold to the big players in another economy is fundamentally a mistake. Doing so just lowers the competitiveness of the venture and ultimately weakens the economy.

Having witnessed an economically successful cross-border acquisition and the aftermath, I can’t help but wonder if there isn’t a more effective way to build companies. This was on my mind when it was time to set up another venture in Canada: TandemLaunch was the result.

TandemLaunch is meant not only to solve the major international challenge of university-industry tech transfer, it is also meant to be a “sustainable startup” for Canada. TandemLaunch runs multiple development projects in parallel, each encapsulated in its own company to avoid cross-project distraction. Each portfolio company is structured in such a way that they are easy to acquire by industry, and allow industry to hand pick the technical resources that they need.  All other assets, including facilities and people, stay with TandemLaunch after any acquisition for assignment to new projects.

This means that the jobs created by TandemLaunch actually stay in the country of origin, grow in that country, and the money that is made on acquisitions is invested into future ventures in that country.  This maintains and creates jobs, and sustains a long term company.  All this, while transferring technologies into an organization that’s more effective at engineering, and ultimately consumer production.  The idea is to treat the invention and early prototyping steps that small economies like Canada are often very good at as the product of the larger entity. Each portfolio company has its own business model, revenue stream, and ultimately acquisition opportunities, but from the perspective of the larger entity they are revenue streams themselves.

Added side benefits are: the ability to create and maintain stronger industry connections, by the nature of multiple venture engagements; higher capital efficiency of each portfolio venture (avoiding a significant portion of ramp-up cost as the resources of past ventures are re-used where appropriate); and the fact that investment capital is maintained in the entity and thus the country (TandemLaunch is effectively an evergreen fund).

We will see how the model unfolds, but I have high hopes that it will lead both to financial success and an ongoing contribution to the local economy.

2 Responses

  1. David Asgeirsson

    Hi Helge,
    Interesting business model you describe. I am curious about how you will distinguish between “technical resources” that an acquirer needs, and people that stay with TandemLaunch. I would have guessed that the number one technical resource needed is the engineering staff, but then as you point out, they are no longer needed once the product is out of development and in production. Will you loan out your technical staff?

    Regards,
    David Asgeirsson (another UBC Physics grad)

    1. Good question David. Frankly, I think it depends a lot on the tech transfer scenario. Probably the most aggressive staff transfer scenario is one where we actually mature a product company that graduates from the TandemLaunch program and almost by default takes everybody associated with the project (including sales staff and other non-technical people). The next scenario are companies that have a strong talent focus during acquisitions (to the point of making acquisitions purely for talent and shutting down the actual technology/product). Those will likely want a transfer all technical staff associated with the project (but probably not the business and admin folks). Others have more of a technology or intellectual property focus (especially when the technology incrementally fits into the acquirer’s product). Those might just want the technical founder. Yet others have geographic restrictions that make staff transfer unlikely in any case (e.g. Korean consumer electronics companies who license a lot of technology but rarely transfer people).
      We are open to all of these scenarios. Our philosophy is to support the ultimate productization process as much and as openly as possible. The key is that the TandemLaunch model can “survive” all of these scenarios. The core body will always remain in place, even in the “full transfer” scenario because each project at best represents 20% of our internal staff capacity. We are constantly hiring, growing and developing the core team so this just adds a turn-over element to the growth management process (at a percentage that is manageable). That’s very different from a conventional start-up where the business shuts down regardless of transfer scenarios and the “left-over” employs are fire no matter what. Similarly, TandemLaunch keeps the financial return of a transfer “in circulation” by using it to immediate re-create any transferred jobs (and likely more) rather than diffusing it out to investors who might or might not use the funds for the creation of replacement jobs (and even if they do might not do so locally).

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