Over the last three and half years I have directly deployed over $1.4m in $30k private grants to about 50 of the earliest stage software companies in Ontario. We did this through an agreement with the Ontario Government’s Ministry of Research & Innovation (MRI). As our customer, MRI expected we place this capital with Ontario based software companies with growth potential. MRI’s objective for the program was job creation and economic output; we added measures of exits (M&A) and follow-on investment capital (Angel, VC, etc.). Over 250 Jobs (25% overachieved target), $12m (34% overachieved) of economic output through the projects, 5 exits, and $30m+ of follow-on capital were the results. Exits include; AlogAnywhere to 500px, Openera to LiveQoS, Liberate Health to NexJ, Health Media Today to VerticalScope, Pilot.me to Shopify. Growth companies that have raised funding and are continuing to perform are; Viafoura, The OMX, Vantage Analytics, Nudge Rewards, Thought Wire, Symanta, Cozumo, and Memex (TSX-V OEE). A number of other companies not highlighted are building sustainable businesses or are on the path to growth.
I am proud of our performance at Coral CEA and I am proud of the companies I had the opportunity to help get further down the road on their startup journey. I am grateful that the role also allowed me to help number of entrepreneurs outside the grant, providing guidance, a helping hand, and connections whenever I had the chance. I have learned so much from the experience.
One of the most valuable things I have learned through this process is an understanding of the funding environment for early stage tech companies in Ontario. I spent the last five years of my professional life helping the earliest stage companies figure out how to navigate this terrain. This post is my attempt to open source what I have discovered, I hope it helps. I encourage feedback and contributions to fill gaps.
I will start with the Low Hanging Fruit; government tax credits. These are typically recouped after you spend the money, but do not leave this money on the table, it is cheap, and your business is entitled. Capture the credits and use them to grow.
CRA Listing of Provincial R&D Credits: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/prv-crdts-eng.html
Ontario Specific: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/prv-crdts-eng.html#ntr
Most well-known is SR&ED: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html
If you are or can partner with an NFP / Academic Institution checkout OBRITC: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/prv/on/bsnssrsrch-eng.html is a large pool (up to $4m).
If any of your employees are under 30 years old, dig into the Youth Employment Programs. The Government, both Provincial and Federal, are aggressively deploying money to support youth employeement https://www.ontario.ca/jobs-and-employment/youth-jobs-strategy. The program to attack for startups is the Youth Employeement Fund that will provide up to $6800 per team member under 30: http://www.tcu.gov.on.ca/eng/employmentontario/youthfund/. You can also capture $2/hour for interns, please pay your interns;) https://www.ontario.ca/jobs-and-employment/employer-incentives-hiring-students. Co-Op placements can generate a rebate of up to 30% http://www.fin.gov.on.ca/en/bulletins/ct/4014.html#qlfyg.
When it comes to Tax Credits, I would always assume there are more. A good accountant who is specialized in innovation companies is highly recommended. My go to person is Dale Wilson of Collins Barrow http://www.collinsbarrow.com/en/cbn/professionals/toronto-ontario/dale-wilson. My default recommendation is to use a big 4 firm PWC, Deloitte, KPMG, E&Y. Tax credits are found money, do not get risky with capturing them.
Funding Source Aggregators
Good accountants will help identify other sources of funds in addition to Tax Credits. However, these following services are explicitly setup to provide guidance and assistance accessing public funding.
The place to start is the service provided by the government its self: http://concierge.portal.gc.ca/ . The service is relatively new, so the feedback has been positive as the agents have ample time to provide help. It is free, try it.
The two services that I have some experience with, and are freemium models are: http://www.mentorworks.ca/ and http://thefundingportal.com/. The Funding Portal has more scale and is partnering with organizations like MaRS http://www.marsdd.com/funding/search/. In this case I would tag that as an advantage. Mentorworks has the best website, an excellent shortcut to understanding government programs.
As a Founder I would do the following: Checkout Mentor Works to get an understanding of what is out there that I think we might be eligible for, then contact the Government Concierge to get feedback and more ideas. At that point I would engage a specialized Accountant, with a roster of clients that look like my venture, and send him/her to work preparing documentation etc..
Government Funded Programs
Do not under or overestimate publically funded programs. Yes most are bureaucratic, slow, and do not ‘get it’, but the capital is inexpensive. If you work the system the system will work for you. These programs should never be core to your funding or business strategy, any dependency here is a recipe for a problem. The programs are extra leverage that should be invested in as far as the capital and leveraged returned provides solid ROI. Simple rule of thumb, revenue dollars are worth 10x public funding dollars. If you are spending more time chasing government money than customers you have a problem.
Here are the key interchanges on the Ontario funding highway:
The Ontario Network of Entrepreneurs
The Ontario Network of Entrepreneurs http://www.onebusiness.ca/ is the umbrella for all the Regional Innovation Centres (MaRS, Communitech, etc). The RICs are intended and designed to be hubs to access resources. The large centres service a large volume of people from crackpots to Elon Musk. To access the resources you need to acquire attention from the Advisors. Like any other customer, sell high and have a clear value proposition. This institutions want to generate positive PR for their programs. Rounds of funding, customer wins, awards, patents, job growth are the basics they are looking for, sell them your success story. As a success story for a ONE program you have good leverage to make the programs work for you.
MaRS, fill out the form http://www.marsdd.com/venture-services/apply/, seriosely. I have a number of connections to the key people and I am happy to make referrals, but you will still need to fill out the form. Within MaRS there is the MaRS Investment Accelerator Fund (IAF) http://iaf.marsdd.com/ & Youth IAF http://iaf.marsdd.com/youth-iaf/. Each require private capital lead investors. IAF caps at $500k, the Youth fund at $250k. Also, if you are trying to hire a leader into your Startup you need to consider the Embedded Exec program to fund up to $60k of the hirs: http://www.marsdd.com/funding/embedded-executive/. Within MaRS and the other RICs the staff has different points of value, be targeted, know what you want from the organization and focus on extracting it.
http://www.communitech.ca/steps-to-engaging-with-startup-services/, I am not as well connected in KW, but I can still help. Communitech has a number of programs under its umbrella as well, which can add capital and value. Its accelerator http://hyperdrive.communitech.ca/, like MaRS’ Jolt (think its out of money) is an interesting option for very early teams. Google for Entrepreneurs is an interesting program with very little cost and access to a lot of upside if leveraged properly http://www.communitech.ca/programs/google-for-entrepreneurs/. For more mature businesses the CDMN soft-landing program has been successful for several companies I have worked with and carries a positive reputation, if going out of market to build the business tap in this http://www.cdmn.ca/soft-landing-program/overview/.
http://www.venturelab.ca/ has a couple unique programs that are valuable, checkout http://www.venturelab.ca/healthcare-ecosphere for ventures targeting Hospitals, led by Dan Wasserman. For Seed ventures tap into Mike Betts and http://www.venturelab.ca/genesis.
Futurepreneur (formally CYBF) http://www.futurpreneur.ca/en/get-started/ – provides services along with a $30-45K 5% BDC Loan. People get hung up on the personal guarantee of the loan. If you are that unwilling to invest in yourself its a very strong signal to investors. If you think a government backed program designed to encourage the risk of entrepreneurship is going to ship you to the Gulag for your debt, again you might not be cut out for this game. Lastly, you are going to leverage your personal finances. This is cheaper than your savings, line of credit, and credit card; take the loan.
The Ontario Centres of Excellence http://www.oce-ontario.org/ provides the Market Readiness program is targeted to exract IP from Academic environments and commercialize it: http://www.oce-ontario.org/programs/commercialization-programs/market-readiness.
The OCE Smart Start program is for Startup Founders under 30 and is very accessible http://www.oce-ontario.org/programs/entrepreneurship-programs/smartstart-seed-fund. All you need is someone on the cap table under 30, and / or be believably youthful;).
OCE also has programs to promote Industry to Academic partnerships worth exploring if you have R&D projects http://www.oce-ontario.org/programs/industry-academic-collaboration. See more on OCE programs to attached MA-PhDs to your venture here: http://www.mentorworks.ca/what-we-offer/government-funding/human-resources-and-training/oce-talentedge/.
National Research Council of Canada Programs
My general impression is that these programs are perceived as slow / expensive; however, venture companies with legit R&D activity report good results once the first project is secured.
IRAP ARP program $50k to optimize digital products.
BIAP is under utilized, to my knowledge. If you are Selling into the Public Sector (Hospitals,Universities, Research Facilities, etc.) this should be explored as a way to help customers find or augment budget http://www.nrc-cnrc.gc.ca/eng/irap/biap/index.html
CAIP is funding for Accelerators & Incubators, if you are one, check it out: http://www.nrc-cnrc.gc.ca/eng/irap/caip/index.html.
Academic to Industry partnership programs are a great way to add bench to drive R&D. http://www.nsercpartnerships.ca/FundingPrograms-ProgrammeDeSubventions/index-eng.asp
National Research Youth Employment initiative to onboard post-secondary grads in SMEs is an attractive program http://www.nrc-cnrc.gc.ca/eng/irap/services/youth_initiatives.html.
Is a very large pool of capital that is currently behind on deploying capital. This is an opportunity for entrepreneurs to take advantage of the organizations ‘Use it or Lose it’ mindset.
Investing in Business Growth and Productivity IBGP should be considered by any established SME working to make a substantial investment to grow the business, program is orientated to help small companies go global or expand facilities: http://www.feddevontario.gc.ca/eic/site/723.nsf/eng/h_01905.html.
Investing in Business Innovation IBI is the most well known program that acts in partnership with NAO-O registered Angel Groups to add $0.50 on the $1 of private money: http://www.feddevontario.gc.ca/eic/site/723.nsf/eng/h_00324.html. If you are raising Angel Capital you and your investors are leaving money on the table if you are not exploiting this program. As soon as you have an Angel term sheet contact NAO-O or an Angel Group (list later).
The Ontario Digital Media Fund http://www.omdc.on.ca/interactive/Funding/IDM_Fund.htm, if you are building a digital interactive product or digital content OMDC should be engaged.
I am sure there are more programs out there, the three places I recommend starting are the Government Concierge, Mentor Works, and your Accountant.
On to the hard stuff, that is happily much more straightforward to access. If it is not straightforward, I suggest trying to find customers and not sources of funding. If you are not getting traction with government backed programs you most likely have one of two problems; one you are not eligible, move on; two you do not have a compelling story. If your story is not getting people paid by the government to deploy public money, at zero risk to themselves, interested I recommend you checkout http://www.applybetter.com/ (I funded them;).
General rules of thumb for Ontario Angels, have traction, preferably financial traction. I would highly recommend having a lead Angel before engaging with a group. Be prepared for diligence, every group will have players that are governance geeks, have your board book, etc. in order. These are good ideas in general, but I emphasis to support the common perception that Canadian Angels are conservative.
The best Canadian Angels are typically not members of the Angel Groups, at least not active members. They may, and in my opinion should, leverage the groups for the FedDev IBI benefit. The best Angels IMHO are exited entrepreneurs, if someone has a decent list of Canadian Startup exits over the last couple of decades that would be an awesome place to start. Here are my quick examples: Workbrain, Radian6, Eloqua, 724 Solutions, upcoming Shopify, Hootsuite, Vision Critical, etc.. Build relationships with the leadership groups of the companies that have gone all the way. Ask them great questions about how to get there yourself and the just might help you out with more than advise.
- NACO http://nacocanada.com/ the national body, if you are raising the events are worth investing in.
- NAO-O http://www.nao-ontario.ca/ – the orgainizing body that delivers administrative funding to all the groups. When in doubt start here.
- MLA – Toronto’s Angel group https://www.mapleleafangels.com/ most noteworthy for its new fund to provide 48 hrs application to decision http://www.mla48.com/.
- GTAN http://goldentriangleangelnet.ca/ Kitchner-Waterloo group is the largest and most tech savvy.
- Angel One http://angelonenetwork.ca/ in my opinion is the most well run (term sheets, etc.)
- York Angels http://www.yorkangels.com/
- Capital Angels http://www.capitalangels.ca/
There are others (see NAO-O site) listed are the ones I can provide feedback on and make referrals to.
Seed Venture Capital
Seed capital is the least defined asset class, I have tried to focus on General Partnership with a specific Seed mandate from their Limited Partners. Qualified with the notion that there are VCs not listed here that will write Seed checks, and that some that are listed are super angels. I am qualifying Seed Investors as professional investors that will enter with a Seed Round deal, typically as the lead, from $250 – $1.5m. Rounds are above $250k and less than $2m, generally.
- Real Ventures www.realventures.com
- Version One www.versionone.vc/
- Golden Ventures www.goldenvp.com
- Mantella VP www.mantellavp.com
- Pycap VP http://www.pycap.ca/
- MaRS IAF http://iaf.marsdd.com/
- Plaza Ventures www.plazaventures.ca
- Terracap Ventures http://terracapventures.com/
- Round 13 Ventures www.round13capital.com
- Monnsoon http://monnsoon.com/
The three bolded firms behave the most like Silicon Valley based Seed Funds the rest all have variants on their approach. MaRS IAF is by far the most active Seed Fund.
Series A Venture Capital
Most Seed Investors will scale up to A rounds so I will not relist them. I am going to include some B round investors to save me making more lists. I am qualify Series A as rounds of $2m – $12m of funding.
- OMERS VC http://www.omersventure.com
- Extreme Venture Partners http://www.evp.vc
- BDC Ventures http://goo.gl/og8tFD
- Growthworks www.growthworks.ca
- Brightspark Ventures http://www.brightspark.com
- Information VP http://www.informationvp.com/
- rho Capital www.rhocanada.com
- Klass Capital www.klass.com
- iNOva Capital www.inova.vc
- Relay Ventures www.relayventures.com
- Georgian Partners http://georgianpartners.com/
- Tandem Expansion Capital (series B and up) http://tandemexpansion.com/
- McRock Capital http://www.mcrockcapital.com/
- Yaletown Ventures http://www.yaletown.com/
- emerald Technology Ventures http://www.emerald-ventures.com/
- Celtic House Ventures http://www.celtic-house.com/
- Kensington Capital http://www.kcpl.ca/
- Espresso Capital (venture debt) http://www.espressocapital.com/
- BEST Funds (venture debt) www.bestfunds.ca
- Wellington Fund (venture debt) http://www.wellingtonfund.com/
- Gibraltar Ventures http://gibraltarcompany.ca/
- Difference Capital http://differencecapital.com/
- iGan Partners http://www.iganpartners.com/
- White Star Capital http://whitestarvc.com/
I bet you are surprised how long the list is. To my knowledge these funds are active. I have tried to exclude funds like Summerhill Ventures that are inactive. I have tried to just highlight tech investors, though the investment thesis vary broadly. Agnostic of any particular scenario, I would most want to work with Real Ventures or Version One, or Extreme VP. I listed both Real & V1 as Seed Investors, but both have Series A capacity, EVP will be an active Seed Investor. I am drawn to those three because the partners have operated, have great reputations, solid track records, cred in the Valley, and are early in their fund cycles.
Choosing your funding partner is mission critical, not all money is the same, and cost of capital (valuation) should not be your prime concern. As a Founder know what gaps your VC will fill in your board / leadership and what operational leverage they will provide. Some situations will warrant patient, relatively passive investors (key word is relative) that let you and your team run the company. Other scenarios require your investors to bring leverage the table, helping you execute core pieces of the roadmap. Generally, the best VCs land in the middle, giving the leadership team lots of room to operate and create the vision of the company, while actively executing to generate leverage. Especially around Corporate Development, Business Development, Talent Acquisition, and Finance Strategy.
I am of the opinion that you can never be over capitalized, maybe over diluted, but hard to see having too much money in the bank as a problem. As always the best capitalization strategy is REVENUE. If you solve the revenue challenge, attracting investors will not be a challenge. Another rule of thumb, you are ready for investment when investors start asking you if you are looking for investment.
I hope this post is helpful and allows you to spend less time trying to figure out where to find funding so you can spend more time building your Revenue Development Engine.