Community-based innovation: The story of the Conexus incubator and venture capital fund transcript

The Canadian Centre for the Study of Co-operatives’ (CCSC) Monthly Brown Bag is an online gathering for co-operative sector professionals to learn from others in the field and exchange information in a casual setting. On November 3, 2021, the first Monthly Brown Bag featured Eric Dillon, the chief executive officer of Conexus Credit Union, and Mary Weimer, the chief member experience officer of Conexus Credit Union. Eric and Mary shared the story of how Conexus leveraged its co-operative and community connections to build a small business incubator (Conexus Cultivator) and venture capital fund (Conexus Venture Capital) to deliver technical advice, strategic guidance, and financial support for Saskatchewan’s start-up businesses. To date, 66 Saskatchewan start-up companies have taken part in the Conexus Cultivator and raised $19.4 million in capital and $11.1 million in revenue.

Below is the full transcript of their talk.

Eric: 06:01 Awesome. Thanks so much for having us. The idea of the brown bag, Marc André, happened to be down in southern Saskatchewan just a couple of weeks ago and floated this idea, and I think it’s really cool what you’re trying to accomplish. You’re bringing cooperators across the province together, and of course, it dawned on me that it’s not that far off co-op week when we were all together celebrating merit awards and those things and clearly, we should do more of that.

Mary and I are joining from treaty 4 territory here in southern Saskatchewan, so we are really thrilled to be here. We get asked a lot about this idea, either about the incubator or the venture fund, and most of the time it’s about what is this thing, and how does it work? So I think what we would like to do today, with just a few slides about a bit of the history about why we are doing what we are doing, a bit of like what is this funky thing that Mary leads at Conexus.

And then, a bit about the venture fund, which again is a separate and unique animal. And then we have got some kind of early metrics about what we have been able to create in our community, in terms of outcomes and really growing local enterprises in a more what we would say is kind of local sustainable economy. As you all know, Conexus has been around for a long time, and we have a really rich history of giving back to community. This is just a slide taken from our most recent annual report…$3 million is about, you know, generally speaking, on average, the causes that we find in community but what is really cool I think recently is we found more creative ways to give back to Saskatchewan.

Some might have heard of something in the middle of the COVID pandemic we rolled out that was called the Conexus Kindness Capital Fund. And it was fund just to recognize these extraordinary acts of serving humanity in the really dark days, early days of COVID that I think were remarkable. And, cultivator is a by-product, I think, of this idea that credit unions really have this special rule about being a catalyst for thinking differently in community and, in our case, pooling capital and ideas and people together to generate economic growth and opportunity in Saskatchewan. So, if you don’t know, I know you know cooperatives, but if you don’t know Conexus, we manage, say easy math, about $10 billion on behalf of 150,000 members across the province.

If you’re not in the credit union system, what you might not know is that credit union has about a 50% market share in the small business market in Saskatchewan, so we have always had a very rich history of serving small businesses in Saskatchewan.

This is a picture of a building and you might think what does that have to do with an incubator. Part of the genesis of our kind of, I would say, recast effort around supporting small business was around creating this center. The University of Regina was looking for a partner on lands where the original college West building is here in Regina.

And of course, lots of people heard about the project itself, but what they don’t know about the project, in terms of the partner, is that we had to really identify four areas that we would help serve as part of the building project – one of those was around local economic development. And so, we always had this idea of, is it possible to actually build a credit union run incubator to really support the growth of small local Saskatchewan businesses, and grow them into what we believe can be globally competitive businesses?

So, the idea for the incubator was really born out of our original thinking about what a building could deliver for our community if a credit union was at the center of this building. There were other things – obviously, commitment to arts and culture, that connection to Darke Hall, and those things are important. But for the purposes of today, it was really about this promise to reimagine what a credit union’s role is, in terms of serving community.

So, first, I think what Mary and I would like to do is talk a bit about this thing called cultivator and Mary runs this thing so she is way better to speak to it than I am, and then I will come back and talk a little bit about the venture fund.

Mary: 10:19 Okay, thank you Eric.

So, we have a wonderful team of Conexus employees that work in the cultivator space. Our Manager is Jordan McFarlane and we are actually going to be celebrating our third birthday coming up in January.

And the research and the thinking for creating a business incubator started a few years in advance of when we actually began. And, in researching you know the environments around the world, Eric and some colleagues traveled all over the world to see other ecosystems that had been successful in doing this. And one of the things that they discovered is that really successful tech ecosystems are often connected to small cities…particularly, in rural areas around areas that are high for agriculture, so that sort of opened opportunities for Conexus in Saskatchewan.

Cultivator provides a few key things for the founders of the businesses that work from that space. So, in no particular order…I would say, community is probably the number one. So, particularly in the early days, community meant in person, absolutely 100%. It’s been really interesting over COVID to adapt to more virtual and the benefits of that, in that we can connect with people literally all over the world. Of course, the space that Eric talked about in our new HQ on college avenue in Regina allows a space for founders and teams to work and collaborate…the mentorship and the coaching, the programming and events and I will talk a little bit about that in a second. Services – so things like marketing in residence, legal in residence, accounting in residence, where our founders, as part of being accepted into the program, can get some free advice that’s really, really important, especially at the early stages. And then, finally, access to capital. So, whether it’s helping with getting investor ready, pitches, practicing feedback, and also just a pipeline to those investors.

So programs, this is a bit of a bit of a visual of how the programs feed into each other. So, the first being the very first thing that we actually did at cultivator was this event, called “the 24 hour start up”, and since then we have done it many times over. And it’s just like it says. It’s 24 hours, bunch of people who have ideas with different skill sets get together, and within 24 hours at the end they pitch on a minimal viable product, and then we award prizes. It’s a great way to feed into what our next program is, which is called “START”.

This is the early stage, you know, runs in the evenings and on weekends; these are people with ideas and they just need a place to come for 12 – 24 months and they go through a really elaborate curriculum and every week it’s augmented with speakers and special guests, and they follow the plan to sort of test and validate their idea. And that is something that happens twice a year.

The next thing that usually happens after START is this idea of this GROW  cohort. So, we will be feeding into the GROW cohort all the time as companies are ready. So, at this point, founders are like fully involved, full-time. This is their job. They probably have some employees and they have a product in the market. Their revenue would be under $250,000 a year. And then the next, which is our most recent addition, and it’s the smallest program of around four or five companies at any given time. This is SCALE, so these companies have revenue over $150,000 dollars, and the support that we are providing them is a very much one-to-one. As opposed to GROW, which would be more of a one-to-many model in scale, we are making sure those founders are lined up exactly with the specific people that they need.

And then, of course, the final piece here is just the network that you build with…you could be an alumni, the connection to mentors that’s a really important part of cultivator.

On this next slide, this is an example of our START cohort that we just had in 2021. So, we had one in the winter and one in the summer. Just to give you a quick example here, ‘Store To Door’, which is on this slide. They have got, in the last quarter, 30 employees. And so, they went from START at the quarter one of 2021 to quarter three of 2021 into GROW 30 employees, eighty five hundred dollars a month in revenue. Another company that’s doing really well is ‘bud sense’ from that group that has also moved into grow. And then, of these companies you see on this slide, half of them have female founders. So that’s something else that we are really proud of, to provide a space that’s welcoming to everybody.

Eric: 16:04 So that’s a bit about what cultivators do. It just basically takes these companies from idea through to being globally competitive. Something Mary didn’t talk about is a really cool company called ‘myComply’. Two Saskatchewan kids build this company. I was at a pitch one day and they were talking about needing more capital, and I said, “What do you need more capital for?” And they’re like, “Eric we are going to take Los Angeles,” and I am like “Oh. Okay.” And, of course, being you know the finance person, I’m like, “Tell me more about that.” They said, “Well, you might not know, but every construction worker in New York City now, building any project of any sort is required to use our software.” And I said, “Really, like how many people is that?” They said “Well, it’s only about 310,000 users.” And I said, “Well okay. We should figure out how you’re going to take LA then.”

So now, if you want to build any project in the city of New York, this software that tracks attendance, safety certifications, on-site versus not onsite, of any construction project in New York City, is built from two kids in Saskatchewan. That’s the kind of stuff and you don’t know about these companies, but they’re globally competitive from here.

The other problem that we saw in our early research was, of course, it’s one thing to have great ideas and great founders. It’s another about the access to capital. So, back in 2018…as this slide would suggest, there were $3.7 billion dollars in venture capital committed across the country. And you can see little itty bitty Saskatchewan had eight out of 610 deals for $16 million, I think that says, of the $3.7 billion, which wasn’t a very big number. So, Saskatchewan was virtually a rounding error. So, of all the money deployed into high growth companies, Saskatchewan virtually had zero. This is a problem, and of course, we are very lucky that we are a credit union. And, of course, you all know this, but we are in the business of pooling local capital to support local growth. So we clearly saw a role from us, not just to use Conexus money, but to pool capital in our community to support these high growth companies so that a ‘myComply’ could take New York and then Los Angeles, or a ‘Store to Door’ could do door-to-door retailing to compete with the Amazons of the world.

So, of course, we knew as part of our research that part of the solution was an associated venture fund, which we stood up our first fund in about mid-2019. And you think well that’s probably a pardon my language that’s probably a pretty shitty time to stand up for a venture fund before a global health pandemic. But interestingly in 2019, we went from $16 million in Saskatchewan to $114 million dollars distributed in Saskatchewan. And only 11 deals, but on a percentage basis, it’s about four ‘X’ what was committed in Saskatchewan the year before or 400% growth in the amount of venture capital committed to Saskatchewan, in our first six months of operation. So what that tells you is that there was quality founders, investment-ready companies, and they were being absolutely overlooked by the traditional venture centers in Canada…Toronto, Montreal, Vancouver…and clearly, we have hit on something interesting. And, while we are credit union and Cultivator is run very much as a community investment approach. We spend about a million dollars a year supporting those founders. And as Mary said, there is no cost to the accountant and residents the lawyer and residents. We pay for that at Conexus, which is about a million dollars. But with the venture fund, we absolutely expect to share in the great returns that the founders are earning. And so again, as I said earlier, we launched our $30 million venture fund in July. Typically, it takes a venture fund about five to six months to raise the money to stand up a traditional venture fund. It took us 41 days to go from zero to fully funded and, in fact, we had to expand the cap on our fund. Say, the maximum is originally 30 million we have now gone up to 33 million because we have had more people wanting to participate in pulling capital for Saskatchewan companies. And, as we said, Cultivator is run as a community project, the venture fund is not.

I don’t know about your mutual fund investments, but right now, our fund is about 30% internal rate of return. So, it’s very successful financially in investing in high growth Saskatchewan founders. Our hypothesis, which we saw and did the research around in 2016-2017, was that we had great founders. We have one degree of separation in Saskatchewan. So, if you want access to a business person who has done this/seen this, those connections are really easy to make. And, we have people in Saskatchewan…very successful business people, who want nothing more than to give back. So, a great story would be, we have a young company building parking software. Well, the Hill family, which is a very successful family that manages a lot of real estate, we literally picked up a phone, phoned Mo Bundon, who was the Chief Operating Officer at Harvard Developments and said, “Mo, you love community; we love community; we have a company that is building parking software. We think they can add value to the Harvard group of companies. Would you have lunch with them?” He said, “How does 11:45 sound? Just tell me where to be.” You can’t do that in a Toronto or a Montreal or a Vancouver, and it’s one of the benefits of local community wrapping their arms around these founders. So, our fund, again, has been super successful. And then I think Mary is going to share just how many, like, what has been the throughput of Cultivator in our early days.

Mary: 21:48 So, metrics…one of the things we teach companies as they go through the programming is how important it is to track metrics so that you really just continue to validate that what you’re doing is working. So, these metrics – I will just drop sort of draw your attention to the top lines – we are talking about all-time so from where we began in 2019 until the end of the second quarter this year. This is just a few of the things that we track, so 66 companies have been incubated formally in the START and GROW programs. Over 560 investor connection, so that’s meetings, pitches…that kind of thing; the public funding aspect, there is funding available through the provincial and Federal Government and it’s really important for founders to know about that and have access. And then maybe one of the most exciting is this one around job creation…245 jobs created. And one of the things that we have noticed that has grown so much is the start, so that first entry…that start…you have got an idea. In 2021, we had 110 applications for the start program and we’ve got about 20 to 24 spots for the entire year. So, it just shows you and we are finding that, every cohort we do, the quality of these ideas is just unbelievable.

So, we will go over to the next slide, which is talking a little bit about the economic impact. So, Conexus was kind of wondering, you know, we put actual dollars into funding Cultivator, what is that generating? So, we did some math and found that, for every dollar that Conexus give to Cultivator, those companies turn that into over $6 in revenue, over $9 in private capital raised, and almost $13 in public funding. The final thing I will mention just on this slide is that the metrics piece is really important, and the program piece is really important, and another aspect that has grown and become part of what we do is our events. So, you may have heard of some of these things that we did, like Canada’s Farm Show, 24 Hour AgTech start-up, the annual start-up summit that we hold in September. So, being successful at the programing level with the founders allows us to expand even further out so that we can reach more people.

And then the next slide is just some good news headlines. Betakit is an important publication for the tech ecosystem in Canada and it’s really exciting we have gotten a lot of profile in Betakit, which helps to turn especially investors’ eyes towards Saskatchewan and what is happening. Then some of these companies might be familiar to you. Eric mentioned myComply. Precision AI is an example of a scale company working out of Cultivator. They have received multimillion-dollar funding privately and through public funding. So, yeah there’s just a lot of exciting things happening and we are talking about real sizable investments and the creation of literally hundreds of jobs coming out of these.

The last thing that we are going to talk about is what’s next. So, the focus of the past two and a half years or so has been on this industry non-specific tech play, so you will notice…if you look at the names of those companies that are associated with Cultivator, it’s everything from health care to cars to medical things to scheduling software to parking cars. We are launching into this month actually the first-ever AgTech accelerator. So, we are going to have a program at Cultivator specifically that will be targeting AgTech companies. And, this is the first time, as well, where the focus won’t just be on Saskatchewan, but it will be Canada-wide. And, this is connected to our recently announced $60 million AgTech venture capital fund called, Emmertech. So, the play between Emmertech and Cultivator, while they are separate bodies – Cultivator can support the venture capital fund by bringing awareness to these companies that are out there and the venture capital can bring real excitement and attention to Cultivator as a place where companies can come and be seen, learn, and have this access to capital that’s so important. So, we will be embarking on a three-year commitment to this AgTech accelerator starting in just over the next few weeks.

And that takes us basically to the end of the presentation, so I think we are going to open it up to some questions.

Eric: 27:13 I note briefly, Marc André, that there was a question from Ross about kind of private versus public funding and I responded to it.

But just quickly, so up until this point, Cultivator was completely funded by Conexus and then the first venture fund was completely funded by co-operatives. So, a number of Saskatchewan Credit Unions; Conexus is the manager, but other Credit Unions have invested…and some private enterprise. There has been a commitment from WD, which is now called PrairiesCan, into the evolution of AgTech accelerator. And then there was a $15 million commitment…you might have seen the press release in the last provincial budget about an investment in an AgTech fund; that was our AgTech fund. So, there has been some public support for both the fund and the AgTech play, but the first fund and the first incubator was completely funded by Conexus.

Marc-André: 28:00 Great Thank you Eric, and thank you, Mary. Great. So fascinating and so many questions popping into my head. Just so folks know, we are going to have a breakout conversation, so Jen and I might ask one question each, then we are going to break out and then we are going to come back and then we can have a bigger plenary conversation.

You just touched on a point that I really want to drill down a bit on, Eric and Mary, around the policy context. Can you talk to us about the importance of, for example, the tax credit as well in kind of kicking this thing of. We are policy folks so these things are central to our audience and some of our audience.  What kind of role does that played and what could other provinces do to perhaps model the Saskatchewan approach?

I don’t know who should take that one, whether that’s a hard question or an easy question…

Eric: 28:54 It’s a great question, Marc André. So, a couple of thoughts. One is when we did the research, we went like to Europe…to some of these really interesting places…Ireland is ripe and very active, in terms of incubation…Australia and found lots of similarities, but two things we found. A) the degree of cohesiveness of the ecosystem is a disproportionate factor on the ability to scale up companies. So, I think that was interesting. And the second thing we found was, and with great respect to academics, that what we found was that incubators that are run by either government agencies or by academia didn’t perform that well, in terms of their ability to continuously scale-up companies, for whatever reason. But, we do have here in Saskatchewan, we are very cohesive kind of community, so clearly that was an advantage for us. And then I think, the right policy supports are in place, so we do have an ecosystem and you can see it’s funded largely by co-operatives and private enterprise. But there has been policy support from the government. If you look at the government of Saskatchewan economic growth plan, there is very bold commitments about support for next-generation companies in the tech ecosystem.

The $15 million investment in the AgTech fund…the STSI tax credit, I would say, is amongst the most aggressive, in terms of seed and series investments into tech and related start-up companies. So, our view is that is the appropriate role for government is that those policy places as opposed to running incubators and doing things that maybe haven’t been successful elsewhere in the world.

Jen: 30:34 So, this is amazing what you have been able to get done in three years. I am wondering if in this short period of time you’ve been able to able to make any observations, or you can draw some generalizations about what makes for a good start-up in this context. I am familiar with the few of them that you didn’t mention, TeamLinkt, we use for all my son’s hockey practices and games now and Lumeca health care, all of that, I had no idea that it came out of this program.

What makes for a successful company start-up? Are there any lessons?

Mary: 31:10 Yeah definitely. The number one thing that comes to mind, for me, is a founder. So always, starting with the founder. Then, as you get into a little bit more of the idea and the idea behind the business, is not being so tied to your solution, but being really committed to what is the problem that you’re trying to solve. So, I mean, you could use, the parking as a perfect example. So, ‘Offstreet’ parking; they’re really focused on ‘what is this problem that we are trying to solve?’, which actually has changed and evolved throughout the pandemic. Probably before the pandemic it had a lot to do with working people and space like that. But as you go through something like the pandemic and people’s behaviors change…the solution actually probably has to evolve like that tech piece, you can’t be married to your really fun, smart idea around the solution; you’ve really got to be honed in on what is that problem that you’re trying to solve. And it is sometimes easier, as a bystander, watching that to pick that out in some of the companies that you know that we are dealing with is, are they really focused on solving the right problem.
Jen: 32:45 That seems like a good life lesson in general.
Mary: 32:47 Yes, that’s a good point, it is.
Marc-André: 32:4 It’s funny Mary, as you were talking, I was thinking about students who are doing Master’s degrees, and PhDs, and writing their papers. There is this similar kind of dynamic that pull you off at times. What is the question you are trying to answer in this case and being very clear about that.

Look, so we have planned and we are trying this out and this is a brown bag so we are going to do a breakout now and the idea is Stan is going to share a question in the chat. And it’s going to ask people to tell the other people at their breakout group a bit about themselves, some reactions to the talk, and any other ideas they may have around how we could get more of this kind of thing happening elsewhere, so that’s our breakout.

I think Stan will send you off, we are going to have groups of five people. We will re-emerge after about 15 minutes and then we will have a closing plenary conversation where people can share some what they have had some of what they have discussed in the in the breakout.

Stan, send us away.