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Thinking about Canadian government programs for tech startups

Thinking about Canadian Government Programs for Tech Startups

Governments are well aware that funding programs and other types of assistance can mean the difference between a growing economy and a shrinking one. As Canadians we have been hearing about the ‘brain drain’ since we were in elementary school, and the phenomenon of moving to the larger market south of the border happens as much within the tech entrepreneurship community as anywhere else. But there are two sides to every coin, and Canada has some unique qualities and sources of financing that you can’t find down in the US or elsewhere.

For some, like our office-mate Katherine Hague, Co-Founder and CEO of ShopLocket, “Canada is the best place to start a tech company in the world.” The TWG team has known the good folks at ShopLocket for some time and was formally linked up with them as technology advisors when they were participating in an accelerator program. Like many of the companies we meet, whether through startup community events hosted here or otherwise, we’re happy they’re able to both maintain close relationships in the Valley and international markets while growing their company effectively from Toronto. Here’s a bit of their story…

Companies need money and people, and not necessarily in that order

Before we get into the government funding side of things, let’s mention what makes Canada truly awesome: we have great engineers, scientists and creative people. And though it’s not necessarily easy to find the right product team, Canada is pretty far removed from the talent wars happening in Silicon Valley.

After committing to her business idea and determining that she had a 10-month personal runway to get some money into ShopLocket, Katherine went out and found a technical co-founder. This isn’t easy, but Katherine had established great relationships in the tech community and quickly found the technical co-founder that she knew she needed in Andrew Louis.

ShopLocket CTO Andrew Louis and CEO Katherine Hague. The ShopLocket team took advantage of a range of Canadian government initiatives to build their business.

ShopLocket CTO Andrew Louis and CEO Katherine Hague. The ShopLocket team took advantage of a range of Canadian government initiatives to build their business.

Maximizing value from government programs: The right friends and colleagues help

ShopLocket knew they wanted to raise a VC round of funding and decided early on to pursue participating in an accelerator to increase their chances. There are many benefits to joining an accelerator, but we’ll focus on the government funding aspect here. In this regard there are basically two elements:

1. Getting support of government program administrators in your geography/industry. 

2. Getting your funding as quickly and painlessly as possible.

Point 1: It might be counter to an ideological public opinion, but in the world of accessing government programs it’s all about who knows you. There are some government programs that will grant you support without meeting you (like SR&ED, which we’ll mention again later), but most need to get to know you and your team before they can approve you for funding or other resources.

Many accelerator programs such as Extreme Startups, which ShopLocket was accepted into, and technology partners and incubators like TWG have built a position of trust with the administrators of government programs. Getting a warm introduction to a program administrator from someone who has pre-screened you is a great vote of confidence that these administrators appreciate.

Point 2: Getting to the funding quickly is another priority for any startup. ShopLocket was fortunate that by participating in the accelerator program they were on the radar for an additional $30K of funding from Ontario Centres of Excellence and a larger investment from BDC SSI, who joined the VC round ShopLocket raised during their time at the accelerator. Participation in the accelerator really streamlined the process of becoming aware of these sources of funding and ultimately receiving their support. Vetting the different options to know what would be a good fit and what wouldn’t eliminated the most time consuming part. As a result, there were fewer obstacles to getting the funding from the government. Any steps that entrepreneurs can take to speed up building the relationship and filling in the appropriate paperwork will make things easier.

In that regard, any company will benefit from a founder or employee who has the patience and attention to detail to navigate and complete the government funding journey, but “you have to be careful you don’t become a grant-writing organization.”

 

Finding the fit with government programs

It may seem rather obvious, but not only does your company’s industry, stage of growth, number of employees, revenues and criteria about the founders (e.g. their age and ownership %’age) determine what government programs you qualify for, but different government programs are good for different management teams.

Articulating your company’s to-market strategy and what it will take to grow to the right size and scale is the first step. But don’t put the cart before the horse and be sure to focus on your business objectives first, rather than how to get government funding.

Whatever your to-market strategy and type of company, there’s probably a government program you can benefit from. The Canada Business Network has a tool you can use to broadly filter programs across the country and MaRS Commons, which provides a variety of services to entrepreneurs, has a tool that incorporates sources of private financing in Canada and internationally, too.

There are a number of larger programs that will apply to a wide variety of companies, the largest of which is the SR&ED program (or “shred” as it is usually called). It is the largest single source of federal government support for industrial R&D in Canada. Period. It can return a significant amount of your technology development costs (often in the 40% range) and there’s nothing like it in the States. You might need an outside firm to help with your application; but in our view, if your technology startup isn’t taking advantage of this you’re missing out.

 

It’s by no means a sure thing

It’s a competitive market for government funding, and ShopLocket found this when they applied for FedDev Investing in Business Innovation money to match their Angel round. Unfortunately the fund had been oversubscribed in the Toronto area.

ShopLocket also found that some programs required processes or writing documents that might not fit at the time. For example, they didn’t want to subject all of their investors to a credit check as part of the CYBF Start-up Program requirements, and completing an extensive business plan would have been a distraction at the time they applied. (Apparently the only business plan they ever had was written by an intern.) Speaking with other members of the startup community who have received funding can save entrepreneurs and management teams a lot of time.

 

Keep your eyes on government initiatives as you grow

There are many non-financial programs that startups can take advantage of, too. ShopLocket built and maintained relationships in the Valley with a desk down there courtesy of the The Canadian Technology Accelerator. There are a wide variety of trade missions, international technology co-funding agreements and other government-supported programs that may fit your business as your needs change.

Hiring is another business activity that has specific government support, and on the radar for ShopLocket as they grow are programs like Mitacs Enterprise and the IRAP Youth Employment Program, both of which are contribution grants to lower the cost of hiring technical employees.

 

Conclusion

The funding landscape may seem daunting and complex, but with a bit of research, and a few well placed conversations, you’ll likely find the most appropriate funding sources for your business. To recap:

  • Talk to members of the startup community about what programs they take advantage of and who the administrators are
  • Remember you’re running a business, not maximizing government incentives (especially in front of investors)
  • Keep your eyes open to programs, financial and otherwise, as your company goes through different stages of growth

Subscribe to our feed, and stay on top of our new Startup Funding blog series, which we’ll be posting here over the next couple months. We’ll look at different companies, sizes and industries, and which funding programs best fit their scenario.

If you have any questions about Canadian funding for startups, or you have any good tips to share please leave a comment below!

If you’d like to hear more from Katherine about tactics for funding your startup, startup marketing, customer acquisition and product development, please join us on May 2nd for Startup Stories: An Evening with ShopLocket. This event is free but spaces are limited – find out more and grab your ticket today!

Poster: Startup Stories

About the author: Lee is a Toronto-based entrepreneur and current Entrepreneur-In-Residence at TWG. He is co-founder of Quinzee, a gamified energy tracking and benchmarking tool, board member of not-for-profit teaching initiative Tomorrow’s Business Leaders in New York City, and producer of things film-related through his company Listening Duck Productions.

TWG is an Internet software company based in Toronto. We design, build and maintain web and mobile applications for a growing list of happy clients. We also incubate startup companies and host events for our community. Our mission is to be the best software company in the world to learn, work, and grow at.

4 Responses to Thinking about Canadian Government Programs for Tech Startups

  1. Holly says:

    This is a great post, Lee – thank you so much for putting it together! I’m looking forward to more insight from you into navigating the various funding opportunities in the future :)

  2. Dom says:

    Nice post Lee, and thanks to ShopLocket for sharing their story and experiences.

  3. Great article; tech startups looking to develop commercializable innovations is a growing trend both in tech clusters (ie. Kitchener-Waterloo, Toronto) and in rural Canadian areas. Although Mitacs Enterprise and the Youth Employment Program are no longer available, there are a number of other grants and loans provided by the government to help improve the cash flow of growing tech companies. If you are interested in learning more about receiving funding, a list of prerequisites can be accessed here: http://www.mentorworks.ca/startups

  4. Lee says:

    Congrats to the Shoplocket team for their last milestone!

    http://techcrunch.com/2014/01/23/pch-acquires-shoplocket/

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