Toronto-based incubator OneEleven announced on Wednesday that it has permanently ceased operations due to economic impacts caused by the current COVID-19 pandemic.
In a letter to its community, the incubator noted that because of its model, OneEleven had absorbed some of the risks currently faced by the many startups that it houses in its downtown Toronto location.
“Our membership and partnership fees represent our entire operating budget.”
“That model also involved OneEleven absorbing some of that risk: the risk of failure. The risk of graduations or closures or layoffs among our companies and what that would mean to our bottom line, in relation to the flexible, short-term memberships we provide,” the statement read.
Launched in 2013, OneEleven occupies a 125,000 square foot space in downtown Toronto that houses over 50 startups, including Blue J Legal, Zoom.ai, Hockeystick, and more. Its alumni include Wealthsimple, Borrowell, Tulip Retail, Koho, and Maple, among others. Along with providing office space of varying sizes, OneEleven also offers programming for member and non-member companies.
“Having worked out of so many spaces in SF and Canada since we have offices in 5 cities, nothing comes even a mile close to OneEleven,” Lloyed Lobo, co-founder of Boast.AI, told BetaKit. Boast’s Toronto office is located within OneEleven.
With startups and small businesses across Canada affected by the pandemic, OneEleven provided two months of rent abatement to its members for April and May. And, while the incubator moved to offering remote programming, its business model became “existentially threatened.”
“OneEleven does not receive government funding,” the statement reads. “Our membership and partnership fees represent our entire operating budget, and we have always done great things with slim margins. As the particulars of a post-COVID world remain uncertain to all of us, there is also no doubt that a safe return to office environments will require changes to the way we work, and in particular, the required de-densification of physical space will fundamentally threaten our business model.”
Roy Pereira, the founder of OneEleven tenant company Zoom.ai, told BetaKit that the incubator had already seen a few of its startup members fail at the end of 2019 and the beginning of 2020. “So when COVID-19 came and made some startups’ business models unreasonable a perfect storm was created,” he said.
“In the previous two quarters we saw the Canadian tech ecosystem hurt with several startups shutter due to not being able to raise additional funds,” Pereira added. “With the number of startups trying to raise additional funds and not be able to reach Series A metrics, Canadian investors became conservative, which made the matters worse.”
During a webinar hosted by the National Angel Capital Organization (NACO) in early April, OneEleven executive director Siri Agrell noted that over the last nine days OneEleven member companies had made approximately 40 layoffs. Agrell also lamented that many of the current government support programs are not designed for startups, and the decision to offer rent abatement was to help reduce immediate expenses for OneEleven’s startups.
According to the statement, the decision to cease operations was made by OneEleven’s board of directors, which includes former CEO Dean Hopkins, who left the role last year and became COO of OneEleven partner Oxford Properties. Hopkins currently serves as chair of the board for OneEleven. Agrell stepped in as executive director of OneEleven following Hopkins departure in July 2019.
OneEleven said despite the permanent ceasing of operations its doors are not closed. The incubator noted that member companies will continue to have access to their workspaces with Oxford taking over management of the space. Oxford is the real estate arm of the Ontario Municipal Employees Retirement System (OMERS) and one of OneEleven’s founding partners along with Ryerson University and Ontario Centres of Excellence. OneEleven said companies will have the option to remain in the space under a contractual agreement with Oxford, after May 31.
“Siri and the OneEleven team are the soul. Without them, it’s just a space.”
“This will, of course, include a change in service and the faces they see every day,” the organization said in its statement. “The OneEleven team will no longer be there to provide programming, events, office support or – in Siri’s case – meaningful strategic advice, leadership, and sarcastic comments.”
Multiple OneEleven tenants BetaKit has spoken to (who would only speak under condition of anonymity) voiced concern about how their rent agreements might change under Oxford. One tenant expressed doubt that Oxford would offer a deal similar to OneEleven’s month-by-month agreement.
In a statement to BetaKit, Oxford said it plans to honour OneEleven’s commitment to providing startups affordable office space. The property group also noted that OneEleven determined its business is no longer viable and the only option was to close, “notwithstanding our offer to provide additional support and subsidies.”
A source familiar with the situation who spoke with BetaKit on condition of anonymity explained that OneEleven’s team made the decision to shut down despite Oxford offering subsidies and support to the incubator. “[OneEleven] made the decision that the business model just isn’t viable anymore,” the source stated.
The source also said Oxford plans to offer existing tenants access to the same affordable rates and honour the two-month rent abatement. Oxford is reportedly currently figuring out the logistics of what future agreements will look like. Oxford is also working to reconfigure the OneEleven space, the source noted, to allow for physical distancing once government measures are lifted.
“Delaying this decision would jeopardize our ability to do the right thing for our members, our team and all of OneEleven’s stakeholders,” OneEleven added. “We have helped to grow and develop some of the brightest lights in Toronto’s home-grown technology sector … we are incredibly proud of them and the work we have done with the support of so many, including our invaluable corporate partners and ecosystem allies.”
Lobo told BetaKit that a reconfigured space run by Oxford would not be the same. “Siri and the OneEleven team are the soul – their proactive approach to helping startups, support programs, peer and mentor groups,” he said. “Without them, it’s just a space.”
The Toronto-based OneEleven was the original and sole remaining location after a planned international expansion that saw the organization open two additional locations in Ottawa and London, England.
Shortly after founding CEO Bilal Khan stepped down in 2018, OneEleven announced plans to launch in Ottawa, Vancouver, and Boston by the end of the year, with sights on London and Berlin in 2019. A statement from OneEleven, released last summer, said that the company planned to open an additional 10 tech hubs around the world.
OneEleven stated at the time that it expected to find and procure spaces in these cities through its relationship with Oxford.
The Ottawa and London were the only two locations to materialize, though both were shut down last year, with the United Kingdom OneEleven open for only a few months. Multiple sources BetaKit spoke to at the time pointed to a poor rollout plan as a potential cause for the clawback, noting a lack of marketing and sales support on the ground to drive demand and brand awareness.
Last year, shortly before Hopkins was out as CEO, OneEleven also lost almost half of its executive team, with CTO George Eichholzer, Pearl Chiu, chief people officer, and Sandy Perlman, chief marketing officer departing from their respective roles.
BetaKit has reached out to Agrell and Hopkins for comment. BetaKit reached out to OMERS, which did not offer comment, instead pointing to Agrell and Hopkins. Neither the board chair nor executive director had responded by time of publication.