Jo Van Betsbrugge, PhD - Innovation Advisor Jo.vanbetsbrugge@cnrc-nrc.gc.ca

District 3 Innovation Center February 12 2015

Raising $1M Without VC Money Bootstrapping Your Way to the Top

About NRC Concierge Service Provides personalized, expert advise

Guide small businesses and start-ups on funding programs and resources

Provide general advise to support growth

Referrals to 75+ federal, regional, provincial and local programs and industry partners

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o Not all *SMEs are Ventures

o Not all SMEs require VC funding

o There are 1 million SMEs in Canada

o Most SMEs will never need or receive VC funding

*Small and medium-sized business: 500 employees or less

Raising $1M without VC Money

#VC Deals and $ by Province - 2014

Source: Canadian Venture Capital & Private Equity Association

Bootstrapping a company with non-dilutive funding

“Bootstrapping a company with non-dilutive funding, i.e. from private foundations or public sources, is a way to create initial value and focus on the minimum viable product. Some also successfully sell their consulting or other activity related services such as clinical trial design to generate cash inflow while establishing at the same time contacts with future customers. Although not conventional for every business, bootstrapping does build great companies!” Faris Sabeti, Vice President at Comission for Technology Innovation, Switzerland

Ref: “About the Gaps in Early Stage Financing”, by Eugène Schön http://www.ctistartup.ch/en/networks/cti-picks/2012/10/02/about-gaps-early-stage-financing/

Funding sources

Start-Up Grants/

Competitions

Research Grants

Debt financing

Hiring grants

Tax Refunds

Clients

Crowd funding How to

obtain public funding?

Alternatives to VC Money

Government funding

Incorporated?

Innovation?

Full Time

Employees?

Business Plan?

Investment? Sales?

- Cost sharing - Risk sharing

Basic Table Stakes for Public Funding

Step 1 : Read a few books about your industry, get inspired….

… and learn from past successes and mistakes.

Case study: Steps to starting a company and raising $1M (non-VC) funding.

Step 3 : Start a company

Find a suitable name Incorporate Create a logo, website,… Put skin in the game!

Step 4 : Get noticed Start networking Get in the news… Get letters of support Start a funding road show (be selective)

Step 2 : Develop a business plan

Team, technology, total market How you’re going to make money? Identify funding requirements & sources of funding Get help!

Funding Case Study

$1M total financing

$720,000 public $$

$216K CLD

$125K IQ

$150K CSBFP $50K

SIJ

$30K grants (IRAP, EQ)

$50K SR&ED

$150K CED

$150K seed

Pre-revenue

First revenues

Working capital

Equipment loans R&D Marketing

$1M

$130K 1st clients

5 months

7 months

YEAR 1 YEAR 2

(non-dilutive, 24 months)

Funding Case Study

$216 CLD

$50K SIJ

YEAR 1

$125K IQ

$150K CSBFP

$541,000

$16,000 Young Promoter

grant, CLD

CLD

BMO/SIJ

BMO/IQ

BMO/IC

$525,000 debt

$200K, CLD, unsecured 24 month moratorium

$50K, BMO, personal loan Loan guaranteed by SIJ

$125K, BMO loan Loan guaranteed by IQ

$150K, BMO equipment loan Loan guaranteed by Industry Canada

DEBT financing

CLD: Centre local de développement SIJ: Société d’investissement jeunesse IQ: Investissement Québec IC: Industry Canada

Funding Case Study YEAR 1

CLD

BMO

BMO

BMO

$525,000 debt

$200K, CLD

$50K, BMO/SIJ

$125K, BMO/IQ

$150K, BMO/IC

Advantages of DEBT financing

9Non-dilutive, you maintain company ownership

9Often comes with moratorium on repayment of principal amount

9Limited personal guarantees (gov.guaranteed loans!) 9Pressure from banks to perform, to generate revenues, and respect financial ratio’s keeps you on track with your business plan

9Relatively inexpensive to obtain, quick decision turnaround from financial institutions

9Many solutions exist (incl. government)

‘Too often, young entrepreneurs dismiss debt financing as an option to fund their business, thereby missing excellent opportunities to capitalize their business’

Funding Case Study: The First Year

$525,000 in loans in year 1

How did I convince financial institutions and banks to lend money to my start-up?

Pre-revenue First revenues First

investments YEAR 1

Maximized every seed $ (bootstrapping), diligent $$ management

Create early successes (first products & services on the market, profit)

First products distributed by world-wide distributor (Traction!)

Leveraged in-house technical expertise and equipment to offer value-added services to SMEs that were in need of those services

Hybrid business model: products and services – a winning combination

Key success drivers:

A year of intense bootstrapping… that validated the B2B business model

Funding Case Study: The First Year

Bootstrapping Tips Generate revenues (sales) Maximize SR&ED Conserve cash (there will be rainy days…) Spend wisely (beware of success) Keep retained earnings in the company to pay for R&D Negotiate favorable payment terms (30, 60 days) with suppliers Make sure you get paid in time by your customers

“No matter what your industry, going it alone can be a huge challenge. But when the struggle is over and the business is running smoothly, you'll have the incomparable pleasure of knowing that you did it yourself. Those feelings of control, ownership and accomplishment are often worth more than all the VC dollars in the world”, Bootstrapping your Startup; http://www.entrepreneur.com/article/55776

• Shnarped is a social media platform that connects athletes to their fans

• Funding history: • 2011 - $35,000 co-founder cash and “sweat equity” • 2012 - $120,000 family&friends equity • 2012 - $50,000 IRAP financial contribution • 2013 - $5,800 Get Youth Working grant • 2013 - $380,000 additional equity from family, friends, angels • 2014 - $352,000 Recoupable Investment Canada Media Fund • 2014 - $80,000 SR&ED tax credit

• $1,022,800 total financing to date, with $487,800 from government funding programs

Funding Case Study

Where to find $$ for a company?

Grants, Loans , Loan guarantees, Tax credits, purchases by Fed.Gov,…

Crowd Funding

Start-Up Resources in Montreal Help with business planning, coaching, mentoring, securing investment

A Closer Look at a Few Programs

Programs that fund R&D NRC IRAP SR&ED (R&D tax credits) NSERC (college/univ. partnerships) Mitacs (internships)

Programs that fund pre-commercialization Build in Canada Innovation Program

Programs that fund marketing

Canada Economic Development Program for Qc regions

Programs for start-ups Futurpreneur Société d’investissement Jeunesse Fondation Montréal Inc BDC Start-Up Loans

o Loans for up to $15,000 to start a business. An additional $30,000 is available through the Futurpreneur/ BDC Loan Program.

o Business planning support and mentorship along with the loan.

o Loans are based on good character, credit rating, and business plan

Futurpreneur

Société d’Investissement Jeunesse

• Personal Loan Guarantee (up to $75K/promoter, $225K/company) to start or buy a business, or to acquire a significant share of of a company’s common stock

• Age limit: 18-40 • The personal loan must be fully invested in the company • Recent businesses supported: Tactus, Frank & Oak, BiogeniQ, Lito

Green Motion

Fondation Montreal Inc • Startup grants: $5,000 to $30,000 and support services • Age limit: 18-35 • Over $400,000 in grants, and a value of $250,000 in support

services per year • Application: 2 entrepreneurship contests (Feb, Sept) • Recent laureats: ReelyActive, BiogeniQ, Heddoko,

Idénergie, Tactus Scientific, Beeye, LightSpeed,…

National Research Council– IRAP INDUSTRIAL RESEARCH ASSISTANCE PROGRAM (IRAP)

o Type: Financial Contribution (non-repayable) o Application Period: Open o Competitive, based on level of technological innovation,

market potential, and management team

YOUTH EMPLOYMENT PROGRAM o Type: Grant towards first year salary (up to $20,000) o Application Period: Open o Based on qualified candidates

BUSINESS INNOVATION ACCESS PROGRAM (BIAP)

o Type: Financial Contribution (non-repayable) o 75%, up to $50,000 o Application Period: Open o Technical or Business Services, offered by public labs

and certain Not-For-Profit organizations

Scientific Research & Experimental Development Tax Credits

Revenue Canada & Revenu Québec o Type: Refundable tax credit (35% fed, 30% prov) o Application Period: Open o Free pre-project eligibility reviews for first time

SR&ED users (pre-claim service) available o R&D projects are assessed for eligibility based on

documentation and time tracking o Really not that complicated to obtain

Research Grants - NSERC NATURAL SCIENCE AND ENGINEERING RESEARCH COUNCIL - ENGAGE GRANT

o Type: Grant ($25,000) o Application Period: Open o Research Project to solve an identified technical

challenge o Based on technical challenge match with prof

IUSRA GRANT (Industrial Undergraduate Student Research Award)

oType: Coop hiring grant ($4,500) oApplication Period: Open oHire an undergraduate science/engineering

student for 16 weeks

Minimum eligibility requirements for Start-Ups: 2 years in existence, or 2 FTEs

Research Grants - Mitacs MITACS ACCELERATE PROGRAM

o Type: 50% matching grant ($7,500) o Application Period: open o Scalable 4 months research internship by a

graduate/PhD student o Based on project interest by prof/student o Any (publishable) research topic/department

MITACS ELEVATION PROGRAM o Industrial Post-Doc, up to 2 years o Application: next call: Spring 2015 o $25,000 industry partner contribution o Post-doc fellows receive stipend of at least $50K

Public Works and Government Services Canada – BCIP

BUILD IN CANADA INNOVATION PROGRAM (BCIP) o Type: Purchase of product/service (up to

$500,000) o Aim: bridge the pre-commercialization gap o Next application period: Summer 2015 o Competitive proposal process based on

level of innovation o Technology Readiness Level: 7-9 (late-

stage innovative goods and services)

Canada Economic Development for Quebec Regions Program

IMPROVE BUSINESS PRODUCTIVITY, INNOVATE, MARKET OR EXPORT

– Up to 50% of authorized costs for SMEs – Type: Repayable loan (SMEs)

• Usually unsecured • Interest-free • Possibility of moratorium (18-24 months)

– Application period: open – Average project size: $250K (marketing), $300K

(business productivity)

Business Development Bank of Canada

BDC START-UP LOAN SMEs in start-up or first 12 months of sales To qualify for financing, you must:

– Demonstrate realistic market and sales potential – Provide a solid business plan – Have experience or expertise in your chosen field – Demonstrate key personal characteristics of a successful

entrepreneur – Have a competent management team – Have a reasonable financial investment in the enterprise – Provide personal and credit references

Jo Van Betsbrugge, PhD Twitter: @jovbetsbr

Email:Jo.vanbetsbrugge@cnrc-nrc.gc.ca Phone (514) 283-3040

National Research Council

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