North received $9.5 million from Ottawa’s flagship innovation fund before layoffs, memos show – The Logic

The federal government paid out more than a third of the $24 million it promised North before the wearables company’s February 2019 layoffs led Ottawa to pull its funding, according to documents obtained by The Logic. Though the layoffs breached the terms of the contribution agreement, neither side will say whether the firm has repaid any of the public money it received.

Government documents prepared in anticipation of the staff cuts also suggested Kitchener, Ont.-based North had a backup plan for its technology if its Focals smart glasses didn’t succeed in the consumer market. Last month, the company hired an executive charged with exploring new uses for its eyewear, as it prepares to launch the crucial second generation of the product. 

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North received more than a third of a $24-million award from the Strategic Innovation Fund before the federal government suspended payments after the firm laid off 150 people, documents obtained by The Logic show. But neither Ottawa nor the Kitchener, Ont.-based wearables company will say whether it has returned any of the public money. The documents also suggest the government believed North had a backup plan if its Focals smart glasses didn’t succeed in the consumer market. 

North first unveiled Focals in October 2018. The following month, Innovation Minister Navdeep Bains announced the firm would receive $24 million from the government’s flagship Strategic Innovation Fund toward a $130-million plan to develop its eyewear and expand its production facility. The then-450 person company committed to creating 390 new jobs as part of the project.  

The first pairs of Focals shipped in late January 2019; three weeks later, the firm cut the product’s base price from US$999 to US$599. A month later, on February 22, North laid off 150 people. At the time, the government told The Logic it was suspending “all future payments” to the firm and was in discussions to “establish the best path to repayment, while protecting existing jobs.” 

By that point, the SIF had already given $9.5 million to North, according to documents program officials prepared before the staff cuts were reported by media outlets, which The Logic obtained via access-to-information request. The layoffs and unspecified “material changes” to the project breached the terms of the firm’s contribution agreement with Innovation, Science and Economic Development Canada (ISED), the memo states. It lays out three options for the government, which are redacted.

Neither North nor ISED answered The Logic’s questions, including whether the company has repaid any of the funding; North declined to comment and ISED did not respond by deadline.

The Strategic Innovation Fund is a now-$2.5-billion program designed in part to back businesses’ R&D and help Canadian companies scale. Under the program, firms pay for eligible project costs—such as labour, equipment and overhead expenses, but not debt or marketing—and are then reimbursed by the government. The companies agree to targets on things like job creation, employee retention, intellectual property and R&D, and must provide Ottawa with annual financial statements, as well as progress and benefits reports. 

By the time of Bains’s November 2018 funding announcement, North had already spent $19.6 million, and the firm was allowed to claim expenses going back to that July, when it filed its completed application. The government documents show the company made two claims of $4.8 million and $4.6 million, but the costs against which it sought those reimbursements are redacted. A spreadsheet detailing repayment options sent between SIF officials on Feb. 25, 2019 is also redacted.

North’s SIF award was originally supposed to be paid out over 24 months, according to a November 2018 form Bains signed to approve the funding. The money was to be “conditionally repayable based on gross business revenues,” with the first installment due April 30, 2023. Both the amount of money the firm would be required to return and the repayment schedule are redacted.

In September 2016, North, then known as Thalmic Labs, announced it had raised a US$120-million Series B round led by Intel Capital, the Amazon Alexa Fund and Fidelity Investments. Last year, the company reportedly got another US$40 million in bridge financing from those same backers. 

The government documents also suggest North had a backup plan if consumers did not take to Focals. A sheet of responses prepared for department officials in anticipation of media questions and dated Feb. 19, 2019 states the company had “already established a number of partnerships with academia, research and private-sector firms to consider using the technology in other areas, should the market not develop as expected.”

North has received interest from other companies to use the upcoming Focals 2.0 for enterprise applications, according to a source with knowledge of the firm whom The Logic has granted anonymity because they were not authorized to speak publicly. But the source said they were unaware of any such agreements already in place, and that the company remains focused on the consumer market.

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There is precedent for wearables initially targeted at ordinary users finding adoption among businesses. Alphabet launched an enterprise version of its Google Glass product in August 2017, and another, cheaper edition in May 2019. 

Shortly after The Logic contacted the company for this story, Jay Kim, a former executive at Virginia-based augmented reality firm Upskill, announced he was joining North. “I’ll be responsible for heading up new business initiatives with an emphasis on developing a vibrant ecosystem around Focals 2.0 smart glasses,” he wrote on LinkedIn. “This will include building the business that will take them beyond consumer applications.” Kim’s LinkedIn profile indicates he joined North last month as a vice-president and general manager responsible for new business.