Photo: VeloCity Director Mike Kirkup (left) took Thalmic Labs co-founder Stephen Lake’s suggestion to name UW’s new hardware incubator the VeloCity Foundry.

It might be called the VeloCity Garage, but the University of Waterloo’s celebrated tech incubator is not exactly an ideal place for people to be bending metal and drilling holes.

That much became clear in 2012, when a student-led startup called BufferBox moved into the Garage, based in Waterloo Region’s Communitech Hub.

It wasn’t long before the fledgling company, which makes parcel delivery kiosks out of metal, began to look a bit out of place amid the cavernous space filled mainly with software developers.

“BufferBox was particularly good at doing what they needed to do and then begging for forgiveness afterwards,” Mike Kirkup, director of VeloCity, recalled with a smile when we sat down this week.

“I came in one day and one of our large meeting rooms was taken over by their manufacturing facility,” Kirkup said, explaining how the company’s founders were trying to mitigate the noise they were making.

The problem was solved nearly a year ago when Google bought BufferBox and absorbed its operations into its Kitchener-Waterloo engineering facility in the same Lang Tannery complex where the Garage is housed.

“When they got acquired by Google, I think Google moved nine or 10 BufferBoxes out of our space, and we didn’t realize how much space we had until they were all gone,” Kirkup said.

It wasn’t long, though, before that empty space was filled with more companies, and as of Tuesday, 34 startups occupied the Garage, seven of them hardware-based.

All of which helps to explain why Kirkup is working feverishly to set up a sibling facility, called VeloCity Foundry, to do what the Garage can’t. In other words, to incubate “companies that are building physical products,” an increasing number of which are being hatched by UW students.

The surge in hardware startup activity owes itself to several factors, the first one being the declining cost of building prototypes, Kirkup said.

“The cost of taking products to market and all the hard work in building product hasn’t really changed,” Kirkup said, “but the cost in building the prototype has gone down dramatically with tools like 3D printers and other pieces.”

Companies also find that customers are more willing to pay for a physical product than for software, he added.

“And third, which may be the biggest out of all of these, is the use of crowdfunding platforms and self-directed campaigns to start to put revenue into the companies, to [make them] able to actually go off and physically build a product,” Kirkup said.

Crowdfunding campaigns such as Pebble’s record-breaking effort on Kickstarter last year, and pre-order programs like Thalmic Labs conducted with its MYO armband last spring, also help hardware companies “learn whether or not there’s demand and interest for their product before they spend a ton of money building it,” he said.

When these conditions collide with the kind of hard engineering talent coming out of UW, the case is made for a specialized facility where budding hardware entrepreneurs can build the next generation of world-changing devices.

All Kirkup needs now is to find a suitable space somewhere in Waterloo Region, preferably in downtown Kitchener, close to where the Garage is housed in the Tannery

“We’re looking for proximity to our existing facility for all the obvious benefits,” he said.

The goal is to have the Foundry up and running in the first quarter of 2014. The ideal space will have a loading dock to make it easy to load gear and product in and out, and be located on or close to the main floor, he said. It should be 10,000 to 12,000 square feet, in order to accommodate at least 10 companies.

“We’re also looking for something that has a lot of the similar look and feel to what we have here in the Garage, because that’s worked really well for us in terms of the brick-and-beam type of construction,” Kirkup said. This means “a very creative type of environment, but also a large open space that we can configure and adapt as the program evolves.”

The space will have to be able to accommodate appropriate fire safety and other protective infrastructure, given the nature of the work, and be wired with enough electricity to power it all.

Once up and running, VeloCity Foundry – whose name was suggested to Kirkup by Thalmic co-founder Stephen Lake – will apparently stake out new territory among university incubators.

“There are some very small hardware incubators elsewhere; there are a couple in Toronto and certainly some in other parts of the world,” Kirkup said. “We’re not aware of another university who does this today, so in that sense, from our model and the way we approach things, we’re certainly blazing a new path.”

Sourcing the right expertise in the hardware and life sciences fields will be a key challenge to meet given the specialized work of Foundry startups, but the incubation part shouldn’t pose much difficulty for VeloCity, a five-year-old program whose successes have caught the attention of the broader tech world.

In addition to Pebble, BufferBox and Thalmic, the program helped prepare Couple (formerly Maide), Vidyard and Reebee for stints at California-based Y Combinator, the exclusive accelerator founded by Paul Graham, who has remarked several times on the high calibre of startup entrepreneurs produced at UW.

Just last week, Graham commented on a Bloomberg Businessweek story about Waterloo posted to YC’s Hacker News site, saying, “There is something special about Waterloo. We noticed it a couple years ago. It’s not just how good they are. They have a different attitude from students from elite US universities. More practical, less arrogant. I’m not sure whether it’s a Canadian thing or a Waterloo thing though.”

Whatever it is, Kirkup has every reason to believe these same qualities will hard-wire the hardware produced at VeloCity Foundry.

“We believe that hardware is the next huge opportunity that we can help build out in this region, based on our ability to attract solid engineering talent,” he said, “and to leverage [students’] schoolwork through the fourth-year design program to build really compelling businesses.”

Anthony Reinhart is Communitech’s Director of Editorial Strategy and senior staff writer. View from the ‘Loo is a weekly look at the issues, people and events that shape Waterloo Region’s technology sector.