Leverage It - grow your business & leverage your funding
Business financing is not just about filling in a form and submitting it to decision-makers. Rather, seeking government funding is a launch pad for growing your organization. It is a critical step along the commercialization continuum.
Through its Leverage It service, The Funding Portal assists companies to leverage their applications into private sources of financing, and to move their business or project forward along the commercialization continuum.
Specifically, the Portal's experts assist clients in the following important areas:
- Leveraging your government funding commitment into VCs and other sources of capital and matching funds;
- Securing private funding commitments to meet matching requirements under many government funding programs;
- Identifying and achieving the next steps in the commercialization of your product, solution or organization;
- Advancing your company or project among commercialization partners and into customer markets.
1. Leveraging your application into private sources of financing
Venture financing is scarce in Canada: many government funders increasingly require “private matching funds,” and many private sources of capital will look more favourably on an applicant that has a government funding commitment in place.
Government requirements for Private Matching Funds
The days of government “grants” are largely over. Instead, governments prefer to “contribute” to the costs of a proposal. Hence, many government investments are now called “contribution agreements.”
As a “contributor,” governments often expect to see some level of financial contribution to the project costs by the company itself and perhaps by a third party, such as a strategic partner or an investor. Under some programs, the private funds must be committed in advance and, under other programs, the government funds will be approved conditional on the applicant being able to secure private funds. In these circumstances, the government funds can be used to ”leverage” or attract investors or strategic partners. Strategic partners and investors are often larger corporations that have a commercial interest in the research or project outcomes, as well universities and research institutions.
Our experts assist our clients to understand government requirements for private matching funds, to identify possible sources of private funding, and to leverage government funding applications into other levels of government and into private sources of capital.
The benefits of government funding in attracting private funding
Angel investors and Venture Capital firms (VCs) receive far more applications than they are able or willing to fund. Companies that bring forward a clear funding commitment from a respected government funding agency clearly have a competitive advantage. And companies that have worked through a government funding application process--whether successful or not–are clearly in a much stronger position to face a private investor. Their business plans have been scrutinized, their financial plans analyzed, their credibility tested. In short, the money is important and the experience is too.
2. Identifying and achieving next steps in your commercialization objectives
Our Leverage It and commercialization experts assist our clients in their broader corporate and project financing objectives, bringing both knowledge and networks to guide you through the objectives of advancing your company into government funders, angel investors, venture capitalists, or commercial lenders.
Our Leverage It team provides access to our clients to a growing collection of online resources, coaching sessions and connections.
Visit The Funding Portal's Products & Pricing page to learn more about this service, as well as pricing.
The Funding Portal’s Funding Continuum
Creating a financing plan is a challenging yet crucial step for any business. Most experts agree that the key to a successful financing plan is understanding the diverse sources of funding, and pursuing those that are applicable to the company's stage of growth. Please see our diagram below setting out the different sources of funding at each stage of growth.
There is no doubt that government funding is a critical source of funding for many organizations and should be included in any business financing plan. It is an important source of financing in its own right and can often be used to leverage additional private funds.
In particular, government funding is important for two reasons:
1. It is often designed to fill the gap when private sources of financing aren't available, and can in fact fill that gap; and
2. It can often be leveraged to attract private funding—investors will often respond more favourably to an investment pitch from a company that has a government funding commitment from a prestigious government sector funding agency. Wouldn’t you?
The Funding Portal’s Funding Continuum has been designed to assist our customers to better understand the role of government funding and how it compares with other types and sources of financing.
Using personal resources is often the first step in starting a business and it shows investors that you are committed to your business. Entrepreneurs can invest some of their own money through cash or collateral assets, or get loans or use personal credit. Entrepreneurs can also devote non-cash or "in-kind" resources to their business, such as time, expertise, services or a car, credit facility or home office.
Friends and Family
Friends and family may be willing to provide funding, and will often be patient in terms of repayment. In exchange for funding they may seek equity in the company, but it's wiser to consider the funding a loan. Often friends and family are a great resource for in-kind services, such as helping to write a business or financial plan, building a website and marketing. These services can save your business thousands of dollars.
For early-stage companies, government funding will tend to be a pre-condition or path to private and commercial financing. For mature companies, government funding will tend to supplement revenues and corporate resources to finance a specific project that has strong public benefits, such as market-leading R&D, job creation or regional economic development. There are many types of government funding, including grants, repayable contributions, tax incentives, support and job creation programs. Searching for government funding is facilitated by using Find It
, which allows businesses, non-profits and learning institutions to search and rank more than 4,000 federal, provincial and municipal government funding programs and more than 3,000 sources of private financing in minutes.
Crowdfunding, also known as "crowdsourced capital," is the process by which an entrepreneur uses his network to pool money and resources together online to support a business. In some cases funding is provided solely by a personal network of connections, but in other cases it can be provided by the public at large. Each website has its own variation of crowdfunding-on some sites the funding only exchanges hands when a target amount is reached, on others equity and revenue share is provided for funding. To learn more about crowdfunding, read this article
in The Funding Report.
A business incubator is a centre that encourages early-stage businesses to accelerate their development by providing an array of support services. There are two main types of incubators: (i) incubators that are specific to the technology and innovation sector, such as the Ontario Regional Innovation Centres
or "RICs"; and (ii) incubators that assist other types of small and medium businesses in a community, such as The Code Factory
in Ottawa. Some incubators, like Year One Labs
in Montreal, provide debt or equity or seed financing, but this is increasingly rare. More often, incubators provide in-kind support and services such as office space, guidance and shared administrative services to early-stage businesses to assist them thought the difficult start-up period. To learn more about business incubators, consult the Canadian Association of Business Incubation
(CABI), which also provides a list of incubators across the country.
Angels are often wealthy individuals, entrepreneurs and business people or groups of investors who provide capital to early-stage businesses for ownership equity or convertible debt. Traditionally this funding ranges from between $25,000 and $100,000 on a per angel investor basis. Along with providing funding, angels often offer knowledge and guidance to businesses, and may ask for or be willing to take a seat on the company's board. Sometimes the advice is very welcome and sometimes it can be an irritant if there is too large a group with each angel trying to provide advice to the entrepreneur. Angels often focus on sectors in which they have previously worked and can bring experience and networks, as well as cash, to the table. Because angels expect a return on their investment-something more than they could get in the market or in the bank-they look for companies that have compelling prospects for capital growth and returns. Angels often have a relationship with the company they are investing in, usually through both industry and business networks and geographic proximity. Because of angels do not want to be inundated with requests for capital, angels often work below the radar and can be difficult to identify. Organizations such as the National Angel Capital Organization
(NACO) and the First Angel Network Association
can help match businesses with investors. Angel Groups, such as Maple Leaf Angels
, which is Ontario's largest group with 40 members, can be quickly found through an online search.
Considering partnerships is an important part of developing a financing strategy as the right partners can accelerate product commercialization and create market leadership. Traditionally a strategic partner is a large company or association that has a commercial interest in the project's outcome. In their heyday, Nortel and BNR were strategic partners for a generation of venture companies within the telecom sector, often providing them with access to labs, office space, capital and knowledge in return for an ownership stake. Very little is achieved in business without strategic partnerships. When searching for a strategic partner, consider which complimentary businesses or associations could increase the value of your product or service. Will your partner increase your credibility? Help customize your technology? Introduce you to a new market? Then, think about how the partner will benefit from its relationship with you in order to create a proposal of mutual value to both parties. In doing so, be a bit wary. Often there is a clear inequality in bargaining power and many companies that are desperate for financing make deals-giving up enormous ownership or control in return for relatively small sums of cash-and come to regret them years later. This is why government funding can be so attractive, providing seed or R&D financing without having to take on debt, or give up ownership of the company or its IP.
Venture capital firms (VCs) provide significant financing to companies in return for significant ownership stakes. Most will not take on the costs of due diligence unless the investment range or "deal size" is $5M+ and many start at $50M+. The VC space or "sweet spot" is companies that present high risk-and high reward. Generally VCs seek an exit-a way to liquidate their shares through a strategic sale or initial public offering (IPO)-within five to 10 years. Venture capital is only applicable to a tiny percentage of companies with business plans that suggest capital returns well in excess of the public market returns. The VC portfolio is designed to complement yields from more reliable sources such as bond markets. VCs tend to favour proprietary technology companies which almost uniquely have the potential to generate these stratospheric returns. VCs generally invest in early-stage companies to open themselves up to the longest possible growth run. VCs get intensely involved in their portfolio companies-wouldn't you if you had millions on the line?-and only entrepreneurs who are willing to share and perhaps relinquish decision-making control over key decisions should consider going "the VC route." The positive side of that coin is that VCs bring extraordinary knowledge in areas that tend to complement in-house expertise and their thirst for high returns can be of great financial benefit to the company and its shareholders.Canada's Venture Capital and Private Equity Association
(CVCA) is an important resource for businesses considering venture capital. With more than 1800 members, CVCA is the largest association of VC firms and individuals in Canada. And check out "Fund Finder" which is hosted by the Ontario Venture Capital Fund
Banks and Commercial Lenders
Banks and commercial lenders should be the last stop on a business' funding continuum because they usually deal in debt. Bankers look for companies with a strong business plan, a good track record and good credit. Each bank presents its own advantages to customers, so businesses should review their options to find the best fit. The Canadian Bankers Association
(CBA) provides a directory of banks and the Business Development Bank of Canada
(BDC) provides start-up financing as well as financing for different projects such as e-commerce activities or market expansion. All such funds can be quickly identified and accessed through Find It
In order to learn more about how your business or organization can use government funding to leverage private sources of financing along the funding continuum, contact
The Funding Portal about using its Leverage It service.