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University-Industry Engagement Advisor

U of Waterloo incubator makes shift from grant-sponsored program to post-money SAFEs

By Jesse Schwartz
Published: April 2nd, 2019

Velocity, The University of Waterloo’s start-up incubator, is introducing a major change in the way it will be funding its pitch competitions. Ever since they were established in 2011, the three competitions held annually offered the four winners grants of $25,000 each. Now, Velocity will be using a model based on the Y Combinator’s post-money SAFE (Simple Agreement for Future Equity) and is seeking to raise more than $1 million for an investment fund slated to launch this month. Each future winner will receive $50,000 — as an equity investment.

With three pitch competitions a year each paying out four prizes, Velocity has been paying out more than $300,000 per year in grants. This new investment fund will replace all those grants.

“We are moving from a grant competition with no stake in the company to one with an equity component,” explains Jay Shah, director of Velocity. “We’ve run the competitions for seven years with 91 companies receiving a $25,000 check. There’s a lot of data on how they’ve been doing. We’ve also been looking at the funding sources available to us; we have very successful entrepreneurs connected to us.”

In 2011, he notes, the thesis that recent grad-founded start-ups could see greater than a market-expected average for success was not defensible — nor was the thesis that such a fund would have positive returns. “Today we can look at those start-ups and make a really different case,” Shah asserts. “It is not as high risk [as one might have expected].”

For the cohort of start-ups that won grants in the pitch competitions between 2011 and 2013, hypothetical equity investments would have earned 57% annualized returns, according to Velocity.

In addition, he says, the new model offers the possibility of raising more funds, “as well as [impacting] the total scope of what we’ll be able to do with our start-up incubator.” Before, he explains, there was a fixed amount of dollars for prizes. “Now we have that amount plus what we’re able to attract in a private sector fund,” says Shah. “The total impact is larger because of the diversity of our ability to attract capital.”

A detailed article on Velocity’s shift to post-money SAFE investments in its start-ups appears in the March issue of Technology Transfer Tactics. To subscribe and access the full article, along with the publication’s 12-year archive of best practices and success strategies for TTOs, CLICK HERE.

Volumes 1 and 2 of Best Practices at University-Linked Business Incubators and Accelerators: Cases Studies 2018 are now available at a special discounted rate . For complete details, CLICK HERE.

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