Posts Tagged ‘venture capital’

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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Why Venture Capital is so Important

Greg Smith, president of Canada’s Venture Capital and Private Equity Association (CVCA), described the current landscape of Canadian entrepreneurship:

“Canada has an historic opportunity to become an innovation leader by making major investments that enable our best technology businesses to realize optimal growth and compete on a global stage,” he said in a statement. “However, in order to act decisively on this opportunity, we must first overcome challenges to supplying VC funds that, in turn, supply entrepreneurs.”

Without VC initiatives, small companies with big ideas are being caged by cash crunch – running low enough on cash so that it has a significant impact on operations. Exponential growth can also cause a company to be short on working capital. Business growth requires a steady cash flow, enabling the acquisition of equipment and personnel. Lacking VC, companies may be forced to unload assets or sell a part of the business to raise crucial funds.

The cheapest forms of financing are the sources taken for granted:

-Cash in bank account
-Revenue from sales
-Financing from tangible assets (accounts receivable factoring, purchase order factoring).

Aside from borrowing from friends and family, the next funding options come from cost-heavy debt or equity financing. Debt financing directs small businesses to traditional institutions, banks and credit unions, and many small businesses run into trouble meeting financing prerequisites. Equity financing or “share capital” – funding through selling common or preferred stock to individual or institutional investors – is dilutive in nature and requires loss of ownership and possibly control of the business.

In order to get to an operable stage, small businesses can also consider bridge financing and financing from intangible assets. Bridge financing is used to gain immediate cash flow while waiting for an expected inflow of cash. Basically bridge financing provides a forwarded payment for future sales or anticipated inflow of cash. Financing on intangible assets, such as SR&ED (Canada’s Scientific Research and Experimental Development credit program), is not often offered by the traditional institutions but is a non-dilutive form of bridge financing. North Innovation Fund (NIF) is one such source of funding, providing accrual SR&ED financing to support small business and entrepreneurs. NIF released their first Fund this month in response to the increasing demand of funding alternatives for start-up companies in Canada. SR&ED financing will bridge the funding gap for companies with R&D initiatives and new ideas to help make the leap to commercialization.

NIF offers a unique opportunity which includes support in identifying SR&ED activities and a friendly approach to funding. Initiatives like NIF will help push Canada to forefront of growth and innovation.

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Options for Early Stage Technology Companies to Finance Growth

The dilutive nature of early stage equity financing (i.e., giving up ownership) makes it the most expensive way to finance growth.  When a start-up does not have enough cash in the bank or cash flow to support their growth (hire more employees, fund working capital, etc.), the company is faced with a significant funding barrier that quite often results in tepid acceleration or worse, either bankruptcy or a fire sale.

When seeking various financing options, it always makes sense to start off with the cheapest form of capital until the threshold is met at which point, you would go to the next tranche of financing – for example (in the order of least to most expensive):

–          Cash on hand and internally generated cash flows;
–          Traditional bank debt;
–          Loans from friends and family;
–          Alternative debt financing (subordinated/mezzanine debt or factoring); and
–          Equity financing.

At the end of the day, all types of financing are based on one of two things: cash flow or hard (tangible) assets.  However, by leveraging its vast knowledge and experience in the SR&ED program, North Innovation Fund (NIF) focuses on an intangible asset – SR&ED accruals.  NIF is a provider of SR&ED accrual debt financing, which is timely, flexible and more importantly non-dilutive. What differentiates NIF’s SR&ED financing from other SR&ED financiers is the fact that NIF advances funds before the SR&ED claim is filed (i.e., beginning of the fiscal year). This type of funding plays a critical role in an early stage company’s capital structure by providing the runway to a future round of equity investment or a bridge to the next level of growth.

FedDev leads $20M funding round for 8 Toronto startups

The Federal Economic Development Agency for Southern Ontario (FedDev) put up $4.85 million into young startups, in order to leverage an additional $15.2 million from venture capital and angel investment groups.  The companies to receive funding are as follows:

Trillium Therapeutics Inc.
Total funding: $2.97-million
Sources: $965,000 from FedDev and $2-million from Covington Capital, GrowthWorks, and BDC Venture Capital.
Purpose: The biotechnology company wants to conduct clinical testing of a new therapy to threat a chronic bladder disease affecting millions of North American women.

Profound Medical Inc.
Total funding: $16.2-million
Sources: $867,000 from FedDev and $7.5-million from Genesys Ventures, BDC Venture Capital, MaRS Investment Accelerator Fund, and Tri-Color Venture Fund.
Purpose: Company has developed a non-surgical treatment method for prostate cancer and needs the money to fund the regulatory approval process.

Axela Inc.
Total funding: $2.8-million
Sources: $708,333 from FedDev and $2.125-million from VenGrowth Capital.
Purpose: The company is hoping to continue developing its protein analysis tools to provide more detailed medical diagnoses.

Field ID Inc.
Total funding: $2.23-million
Sources: $575,000 from FedDev, $500,000 from the BDC and $1.15-million from the IntelliVest Angel Group.
Purpose: To enhance the delivery platform of its automatic corporate inspection and safety software to large oil, gas, mining and utilities companies.

StickerYou Inc.
Total funding: $2.04-million
Sources: $539,305 from FedDev, $500,000 from an unnamed venture capital firm and $1-million from IntelliVest.
Purpose: Customized sticker and label maker wants to optimize its online platform with new features such as home printing and also launch a mobile application.

Futurestate IT
Total funding: $1.5-million
Sources: $500,000 from FedDev, $1-million from the MaRS Investment Accelerator Fund and angel investment from members Maple Leaf Angels.
Purpose: To further develop software solutions allowing companies to migrate software and data from old operating systems to newer ones.

Fuse Powered Inc.
Total funding: $1.5-million
Sources: $500,000 from FedDev, $1-million from BlackBerry Partners Fund
Purpose: Digital mobile game publisher behind Fuseboxx will continue developing the Fuseboxx mobile gaming technology platform.

Shiny Inc.
Total funding: $592,500
Sources: $197,500 from FedDev, $395,000 from York Angel Investors and Maple Leaf Angels.
Purpose: Advertising technology company wants to commercialize its self-service online advertising platform.

 More about Canadian small business financing

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Venture Capital Fundraising Concerns in Canada

According to 2011 year-end figures from the Canadian Venture Capital and Private Equity Association, a four-year high of $1.5 billion from VC was disbursed to Canadian startups last year.  Although this was the highest level since 2008, this was far short of the $2.1 billion invested in 2007.

New funds for VC hit $1 billion in 2011, up only 2% from 2010, which pales to the 32% jump in the United States from 2010.  High-tech startups have had to look for alternative sources of funding in the past few years, due to limited VC supply.  With limited growth capital available, startups have had to rely on government funding programs, such as SR&ED, and the financing of SR&ED accruals to generate internal cashflow.

Canada’s fastest-growing tech firms include:

1.  Accedian Networks (St. Larent, Que.; 50,136%)

2. RTI Cryogenics Inc. (Cambridge, Ont.; 46,278%)

3. Avigilon (Vancouver; 38,796%)

4. NexJ Systems Inc. (Toronto; 29,161%)

5. Real Matters (Markham, Ont.; 28,265%)

6. Arise Technologies Corp. (Waterloo, Ont.; 10,017%)

7. Clevest Solutions Inc. (Richmond, B.C.; 7,976%)

8. Dominion Voting Systems Corp. (Toronto; 3,539%)

9. Acquisio (Saint-Lambert, Que.; 2,622%)

10. GuestLogix Inc. (Toronto; 2,322%)

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