Creative Destruction Lab connects leading AI and quantum scientists with top entrepreneurs and investors

Every eight weeks over a span of nine months, the meeting spaces at Creative Destruction Lab (CDL) in Toronto, Ontario transform into intensive mentoring hubs for some of the world's most innovative start-ups in artificial intelligence and quantum science.

The start-ups, led by entrepreneurial scientists from Ontario and other parts of the world, are part of a select group granted a unique opportunity to learn from successful entrepreneurs, investors – including high-profile players from Silicon Valley – and globally renowned academics. MBA candidates from the University of Toronto's Rotman School of Management, where CDL is headquartered, provide support in areas such as business development, market analysis and financing.

"CDL exists for companies to learn from top business and scientific minds," explains CDL executive director Sonia Sennik. "We're not a business accelerator or incubator – we don't give companies office space or take an equity stake in their business, nor do we pay the people who mentor them."

At the end of nine months, most of the start-ups that make it through the entire program will likely get investment dollars from some of their mentors. Since CDL launched in September 2012, about 110 companies have graduated from its programs and raised pre-seed or seed-round funding ranging from $500,000 to $9 million.

"We want to increase the equity value of the companies accepted into our program, and our goal for the first five years of the program was to generate $50 million in equity value after five years," says Sennik. "We exceeded this goal – in five years CDL companies created $1.4 billion in equity value."

Build a market for business judgement: The idea that started it all

CDL is the brainchild of Ajay Agrawal, a professor of entrepreneurship at Rotman and co-founder of Next 36 and Next AI, accelerator programs for young entrepreneurs, with the latter focused on artificial intelligence-enabled start-ups. Agrawal had long questioned why Canadian universities lagged behind their U.S. counterparts when it came to commercializing their research scientists' inventions.

He concluded, based on years of research, that the problem lay not in a shortage of talent and innovative ideas in Canada but rather in a "failure in the market for business judgement."

"Some people say most of the capital flows only to Silicon Valley because they have better ideas and there's more money there, but this is not true because scientific breakthroughs are happening all over the world and capital flows globally," says Sennik.

"The thesis behind CDL is that there's a failure in the market for business judgement in Canada," she adds. "That is, entrepreneurs here can't buy access to the kind of guidance and business judgement that entrepreneurs can access in Silicon Valley, where there are so many experienced people who have built a business, exited, and then started another business."

A unique concept that stands apart from accelerators and incubators

In founding CDL, Agrawal's goal was to give innovative research scientists access to business judgment from experienced and successful entrepreneurs, and to start-up funding. He made it clear from the start that he wasn't interested in building an accelerator or incubator, but rather a platform for mentoring and advancing cutting-edge start-ups by requiring them to meet concrete milestones determined by the mentors.

CDL itself would not take an equity stake in these ventures, but the entrepreneur mentors were expected to invest in the companies they believed in. The program launched with seven high-profile entrepreneurs, including Dennis Bennie, co-founder of Delrina Corporation which sold to Symantec Corp.; John Francis, former president and CEO of Trader Media Corporation which sold to Yellow Media Inc.; Lee Lau, co-founder of ATI Technologies which sold to Advanced Micro Devices for $5.4 billion, and brothers Michael and Richard Hyatt, who sold their Ontario company BlueCat Networks Inc., to Madison Dearborn Partners for $400 million.

Each of these founding entrepreneurs donated $300,000 to kickstart CDL. As a program requirement, they also committed to spending five days, spread out over nine months, working with CDL companies. During each of these days, the entrepreneurs identify three objectives that the start-ups are expected to meet over the next eight weeks.

Those who fail to achieve these milestones are cut from the program. Start-ups who fail to get a commitment of continued mentoring from at least one entrepreneur also get dropped.

"It's not that the company is no good, it's just that it's not a good fit for the mentors or perhaps the company is currently not at the right stage," says Sennik. "And even when they're cut from the program, companies tell us they learned a lot and benefitted a lot. I mean, outside of the program, it would be very hard for most start-ups to get one-on-one time with the calibre of mentors and investors who come to CDL."

Scoring a world's first with an artificial intelligence program

CDL opened with a general technology "prime" stream that welcomed start-ups in a wide range of deep science and technology industries. In 2015, it introduced its AI stream – the first in the world to focus exclusively on start-ups driven by artificial intelligence and machine learning.

"The science was already here in Toronto, and in the Toronto-Waterloo technology corridor," says Kristjan Sigurdson, associate director and lead of the AI stream at CDL.

Indeed, by 2015 Toronto had already become widely recognized as the birthplace of modern AI, thanks in large to the pioneering work of a University of Toronto professor named Geoffrey Hinton, whose research on neural networks – modelled on the human brain – has driven advances in machine learning.

Today, says Sigurdson, CDL companies have access to the research of Hinton and other Ontario AI scientists through the Vector Institute for Artificial Intelligence, an independent AI research centre funded jointly by the Ontario and Canadian governments, and industry.

In Ontario: A confluence of favourable factors

"So in addition to the science being here, we also have in Ontario the support of government and industry, and at CDL we have the support of a lot of people from the local angel investor community as well as investors from Silicon Valley who see the value of what we do," says Sigurdson. "At the same time, there's this great quality of life here that makes it desirable for great AI talent from all over the world to be here. The confluence of all of these factors bodes well for us."

Since its AI stream launched, CDL has accepted 175 companies into the program, says Sigurdson. Of this total, about 100 came into the program just in the last year.

"We are increasing the size of our AI program and making it more international," he says. "We want Toronto to be known as a worldwide hub for artificial intelligence – as a place to find world-class companies and products."

Jumping ahead of the curve with a new stream in quantum machine learning

As its prime and AI streams continued to grow, CDL turned its attention to another, still-emerging field: quantum science – an area of study focused on the smallest possible units in the universe, and their applications.

In May 2017, it announced a new program focused on the creation of start-ups with innovations based on quantum machine learning, which uses quantum technologies to boost the speed and performance of machine learning algorithms. The program started with a partnership with Burnaby, B.C.-based D-Wave Systems Inc., which agreed to provide training and access to its state-of-the-art quantum system. This made CDL the first in the world to give start-ups access to the D-Wave machine, which was already being used by innovation powerhouses such as Google, NASA, and Lockheed Martin.

A few months later, CDL forged another partnership, this time with Rigetti Computing, a quantum computing company in Berkeley, Calif. Like D-Wave, Rigetti opened its cloud-based quantum system to CDL start-ups.

The year-long quantum machine learning program accepted 40 start-ups in September 2017. Three Silicon Valley venture capital firms with extensive portfolios of AI investments – namely Bloomberg Beta, Data Collective, and Spectrum 28 – pledged to invest US$80,000 in every company that made it into the program.

"A lot of brilliant scientists in this country toil away in relative obscurity until businesses realize the benefits of their work, and when this happens a lot of talent gets funnelled away to companies outside of Canada," observes Daniel Mulet, associate director at CDL who focuses on quantum machine learning start-ups. "So we thought: what area does Canada compete in at the global level right now that isn't yet commercialized, but that is sure to create a brain drain when it gets to that stage? And how can we get a jumpstart on the large tech companies in other countries so we can keep attract and keep talent in Canada?"

This question produced a short list that was topped by quantum science, recalls Mulet. Looking at the resources already available in Canada, it made sense for CDL to create a stream in quantum machine learning. In Ontario alone, a Quantum Valley has been in the making over the last 10 years, with the University of Waterloo's Perimeter Institute and Institute for Quantum Computing.

More successful quantum machine learning companies than anywhere in the world

"The key to all of this is commercial success," says Daniel Mulet. "If we can create large sustainable companies that create employment for all of these specialized individuals and give them an opportunity to stay in Canada, then we can achieve our mission. By 2022, the CDL program will have created more commercially viable, well capitalized, revenue-generating quantum machine learning companies than the rest of the world combined. The majority of these companies will be based in Canada."

The 40 quantum physicists who joined CDL last September formed 21 start-ups and raised $80,000 each in pre-seed funding. The innovations from the companies in this stream run the gamut, from algorithms that model protein folding at speeds not possible on classical computers to novel architectures that will allow computer makers to meet the ever-growing demand for exponentially more powerful and faster processors.

"All of the companies coming to this program will have first-mover advantage," says Mulet. "This is an exciting – and crucial – time and our hope is to build a quantum industry in Canada that will lead the rest of the world."

Attracting global capital and the world's leading minds in quantum and AI

From its first location in Toronto, CDL has expanded to four more sites in Calgary, Halifax, Montreal and Vancouver, with each location offering its own unique menu of streams. A sixth site, in New York City, is set to open this year.

To date, CDL has accepted 500 companies into its programs. Many of the scientists behind these start-ups hail from Canada, but increasingly the lab is seeing participants from other countries, with some coming from as far as Australia and Israel.

"What CDL is doing is providing an enhanced supportive program that can help these innovators turn their cutting-edge research into actual, polished products produced by massively scalable businesses," says Sigurdson. "We're really good at helping to set up companies to get to the next stage, and if you're a scientist who has never built a company before, then you could really benefit from the CDL program."

At the same time, CDL continues to attract mentors and investors from Canada and other parts of the world. The program draws many from Silicon Valley, where big-name entrepreneurs and venture capitalists are sitting up and taking notice of the AI and quantum science innovators working to bring their inventions to market, and of the lab that's helping them achieve their goals by giving them access to people with solid business judgement.

"Venture capital and the leading minds in quantum science and AI are coming to Toronto from around the world to meet with start-ups at CDL," says Sennik. "At this early stage of the technologies' development, that is perhaps the strongest market signal possible that the companies at CDL are globally competitive."


February 23, 2018
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