Posts Tagged ‘venture capital’

2019 Economic Review & 2020 Forecast

Canadian stocks are soaring, while the economy is expected to reach slowest pace in a decade.

The National Bank of Canada reports investor optimism for a pro-growth agenda on the horizon at the end of 2019, despite the effects of recent protectionist policies continuing to ripple across global supply chains. The fate of emerging markets, in particular, therefore continues to linger on investor sentiment for the U.S. and China trade deal.

Investor confidence in the U.S. – China trade war de-escalating sent the MSCI All-Country World index soaring to an all-time high in November amid positive negotiations. U.S. venture funding remains high, with record levels of U.S-backed unicorns (180 total with aggregate valuation of $621.2B) as Internet, Healthcare and Mobile/ Telecommunications companies continue to dominate deal activity.

However, trade tensions are slowing economic growth with global trade volumes continuing to decline on a year-over-year basis and the manufacturing sector continuing to struggle. Global trade policy uncertainty is forecasted to persist longer than expected, according to the OECD’s November 2019 Economic Outlook, with imports and exports to remain subdued. 

Rebounding from a low Q2, the Canadian economy was bolstered by increased growth in Q3 with newly revised GDP data on track to increase 1.7% in 2019 and 1.8% in 2020 according to the Bank of Canada.

Capital stock growth reached a four-year high as the net stock of capital climbed 1.2% in 2018 with gains in Ontario, Quebec, and BC offsetting declines in Alberta. Ontario saw increased capital stock across all industries including the first net capital stock increase in the manufacturing sector since 1999.

The Canadian economy is projected to reach full labour force and production capacity in 2020 after having operated below full capacity over the last several years.

NorthBridge Consultants’ Canadian Business Blog is dedicated to bringing businesses news and information to help them identify and access the most appropriate sources of financing. We offer opinions and insider information that can provide a pulse on government initiatives, the health of the Canadian economy, and firsthand thoughts from Canadian business owners.

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What Every Canadian Startup Needs to Know About Non-Dilutive Financing

When it comes to starting a Canadian business, especially one with expensive R&D aspirations such as those in the high tech industry, it’s of crucial importance that a startup leverages government funding to extend the runway of its venture.  

A startup that doesn’t capitalize on the wide range of government funding opportunities is putting itself at a huge disadvantage, which can not only limit profitability but also undermine innovation and relinquish equity that would otherwise remain centralized.

In order to maintain the vast majority of control in a company during the startup process, it’s important that funding leverages non-dilutive financing when possible. While dilutive funding can be advantageous to get over fiscal hurdles requiring a quick injection of revenue, dilution will affect executive discretion and detract from long-term profits as financers exercise their power as shareholders or seek high returns on their investments. Venture capital and angel investors should, therefore, be tentatively used during the startup process until after the risk surrounding commercialization has been surmounted and any leverage held by financers is obviated. The SR&ED tax credit program, in combination with the other sources of non-dilutive government funding, can maximize a startup’s potential for success by reducing the risk of research and development.

Maximizing Profits and Mitigating Risk with SR&ED

Canada’s Scientific Research and Experimental Development (SR&ED) program provides an amazing means of funding a business every fiscal year with tax incentives. That means small and medium-sized enterprises (SMEs) can start collecting substantial returns up to 35% on qualified expenditures following their first year of research and experimentation, as long as program criteria are met. The Canadian government’s commitment to supporting innovation ascends beyond almost every other industrialized nation in the world, as demonstrated by the more than $3B paid out each year to participating companies. A startup that structures their business to meet SR&ED requirements from the start will be all the more prepared to save countless dollars that can accelerate business growth and product development as the money is reinvested into further project innovation.

To qualify for SR&ED, first and foremost a company must be a Canadian-controlled private corporation with a total net income below $800k and taxable capital employed in Canada not exceeding $50M. A company can claim expenditures related to experimental development, applied and basic research, and support work by ensuring that these expenditures meet the three criteria of SR&ED’s assessment on scientific or technological eligibility. That is, a company must establish that their claimed project (1) has technological uncertainty that can only be overcome through (2) systematic investigation and that hypothesis formulation and experimental analysis during development (3) generates information that advances understanding of the underlying technologies.

Another critical requirement to claiming SR&ED is ensuring that the necessary information is collected throughout the year to comprehensively file a claim, which is why structuring a startup to track experimental development, employee labor, material expenditures, etc. is essential for maximizing business efficiency. With a practical tracking system in place, claiming SR&ED tax credits can be a lucrative strategy for financing prototype and minimal viable product (MVP) development, as well as funding clinical trials (in the medtech industry for example), because it affords a company the opportunity to take risks in their experimentation to improve new technologies and approaches, and ultimately help form and articulate patents/IP to garner further investment.

Combining Sources of Early-Stage Funding

Depending on the size of a startup and the stage of business development, companies can also avoid dilution by applying for multiple government loans and grants. Loans bear the cost of interest in return for less operational oversight, while grants serve as a non-repayable contribution that is contingent on meeting various qualifications.

The National Research Council of Canada’s Industrial Research Assistance Program (IRAP) offers an especially rewarding means of financing SMEs qualifying in technology innovation. IRAP funding typically ranges between $50k-250k, making it a great opportunity to subsidize research and experimental efforts without diluting shares or falling beholden to acquisitive creditors. The Ontario Centres of Excellence (OCE) is another great source to receive innovation funding through industry-specific programs with special emphasis on digital and software work within the information and communications technology (ICT) sector.

Acquiring Private Sources of Funding

Whenever a business does decide that private investment is the best way forward or bridge funding is required to overcome particular fiscal restraints, SR&ED financing can help to fill the funding gap in a non-dilutive manner, prior to subsequent funding rounds.

While the SR&ED tax credit program is critical for the viability of startup companies in Canada, the main challenge with the SR&ED program is that it often takes over one year before the funds can be received by the applicant. SR&ED financing helps to facilitate and alleviate existing cash flow issues in early-stage businesses, as startup companies often have difficulty commercializing their concepts after exhausting their previous rounds of funding. In this way, accrual debt financing in the form of SR&ED financing allows early-stage companies to bridge the funding gap and extend the runaway until the next funding round, thereby bolstering their business plans.

Moreover, a successful track record of securing government funding, such as SR&ED tax credits, can appeal to private investors by reducing the perceivable risk for funding product development.  

All of this funding information is sometimes a lot to process, but NorthBridge Consultants is here to help. If you have any questions or want to learn more about SR&ED for startups, please contact us.

Co-authored by Philip Finkelstein, Technical Writer, and Ela Malkovsky, Technical Writer/ Editor–in-Chief at NorthBridge Consultants.

The Startup Revolution

At an age when the technology sector is growing twice as fast as the global economy, startup ecosystems provide a vital means for individuals and regions to not only take advantage of technological change, but to also steer it in a direction that will improve humanity.

Read more about Startup Financing in Canada including Canada’s Startup EcosystemFund RaisingWriting A Convincing Business Plan and Canada’s Brain Gain.  

 

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NorthBridge is involved with a broad array of emerging industries throughout Canada. The Principals of NorthBridge are angel investors themselves with extensive experience in raising both debt and equity. This, coupled with NorthBridge’s expertise in various government funding programs, provides an unparalleled combination for assisting Canadian technology companies to raise funding for growth.

Contact us today to arrange for a free, no obligation consultation to determine your eligibility of receiving government funding.

Free December 5 Waterloo Workshop- Government Funding for Start-ups

When funding growth, start-ups should always look towards non-dilutive funding sources to preserve a larger share of control over the company.

One of the main advantages of situating your start-up in Canada is the plethora of federal and provincial funding programs accessible to start-ups that can total over $20 billion each year.

This workshop will address the SR&ED tax credits, non-repayable grants, and interest-free loans available to early-stage companies, as well as how to structure your company and operations to take advantage of multiple funding opportunities.

Topics covered will include:

  • Introduction to non-dilutive government funding
  • SR&ED Tax Credits
  • Government grants and loans
  • Overlap between funding programs
  • Structuring to take advantage of funding

This educational workshop will preceed GTAN|RAW, a monthly event held by the Golden Triangle Angel Network (GTAN), where entrepreneurs that are considering raising funds from Angels and Venture Capitalists have an opportunity to present their pitch to several members of GTAN, who will offer feedback and suggestions.

Event details:

Speaker:
Gerry Fung, CPA CMA, P.Eng.
VP of Business Services at NorthBridge Consultants

Date & Time:
Tuesday, December 5 2017 from
3:00 PM to 5.00 PM  (Just before GTAN|RAW)

Location:
Accelerator Centre
295 Hagey Blvd – 1st Floor, West Entrance
Waterloo, Ontario N2L 6R5
Canada (MAP LINK)

Register Online 

For more information please contact us at 1-519-623-2486  

 

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IRAP Announces Support for Early Stage Firms

Accelerators and incubators based in Canada that support the development and growth of start-up companies can receive funding from the Industrial Research Assistance Program (IRAP).  The Canadian Accelerator and Incubator Program (CAIP) will provide non-repayable funding over a five year period to a limited number of qualified applicants.  To ensure that the funding is allocated to the appropriate sector needs, the program will be assisted by a Venture Capital Expert Panel, which will be  assembled by the Minister of Finance.  The National Research Council of Canada (NRC-IRAP) is accepting proposals until October 30, 2013.

The National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP) is Canada’s first-class innovation program that supports small to medium sized enterprises (SMEs). IRAP is integral to the NRC and has been recognized world-wide for its contributions to innovation in Canada.

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