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What lessons can be drawn from the closure of OneEleven?

April 29, 2020

There’s been a hubbub across Canada’s startup community this past week as the country’s largest single coworking space for startups called OneEleven has just announced ceasing operations at the end of May 2020.

Founded as a not-for-profit organization in 2013 to house early stage ventures focused on Big Data, OneEleven grew in scope and size by 2017.  The new mandate sought out rapidly scaling tenant-startups to fill a massive quarter million square feet on Front Street (almost 2 times the exhibition space in the SkyDome where the Toronto Blue Jays play baseball.)  Very quickly the Founding team was replaced with a new bunch of C-suite titled staff who reformatted the organization as ‘for-profit’ and pursued a failed experiment to expand the brand with global locations that scaled back after 6 months.

In the business of starting up, entrepreneurs are typically hard pressed to walk away from what they build in the face of adversity.  I think what shocked startup tenants of OneEleven last week was how its operating team didn’t communicate any efforts to keep their business alive before suddenly announcing closure. Then again, OneEleven wasn’t exactly an owner-operated venture.  It had no charismatic leader dug into building a dream to support future generations of their family. In fact, OneEleven’s CEO left the company mid last year to become the COO at its landlord. Oxford Properties, the landlord, is owned by the pension fund who in turn owns the venture capital fund who financed OneEleven’s operations… so it looks like the person who failed at rapid-scaling OneEleven may have had a hand in building its coffin.

We don’t want to endlessly postulate dramatic narratives or write off the benefit of OneEleven’s existence in our startup ecosystem. Instead, lets use this story to highlight how scale-over-sustainability limits the lifeline of a company. Post-pandemic, its more important than ever for entrepreneurs to understand their options when financing the growth of their ventures, and for them to accurately envision what sustainable success for their companies looks like.

As VCs expect a limited number of portfolio companies to return massive amounts of money to their investors, startups typically end up raising more cash than they need at every stage of growth.  This is a sort of ‘pump & dump scheme’ that requires startups to scale into massive companies who can be sold off (‘exited’) through IPO or a merger/acquisition.  Enjoying profitable operations simply for dividend distribution is not an option for VC-backed startups, and that reality doesn’t usually sink in for founders until its too late.

Of course, some ventures require massive capital investments in order to prove massive profits. Entrepreneurs must consider whether their ventures are using capital to become profitable or to buy into a scale story that steals the destiny of their firm from them.

Looking ahead, a constricted economy paired with limited global travel options should inspire innovators to solve local problems.  If sustainability is chosen over scale across the board, our regional economies will strengthen and entrepreneurs will enjoy a better quality of life – working for themselves instead of their investors.  Here in Toronto, StartWell continues to provide a home for any company who needs a place to work on improving the Canadian standard of living.

If your company has been affected by the pandemic and needs a workspace, we can accommodate you on campus – whatever your team size, please send an email to qasim@startwell.co

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