As the new year begins to pick up steam and move full speed ahead, plenty of businesses and startups across British Columbia, Ontario, and throughout Canada are actively pursuing their next (or first) venture capital raise. With the Government of Canada initiating new tax initiatives like the Clean Tech Credit in 2023, now is the perfect time to explore your opportunities for financing and take full advantage of what the market has to offer. From equity capital to tax incentive financing to relationship-based funding, there are many ways to ramp up your capital to fund your research and development (R&D) work.
At Easly, we know that it’s not always straightforward to find your best source of funding, whether it’s your first go around, or you’re a seasoned firm. Below, we’ll explore ways to secure funding so you can pursue the best solution for your business and set yourself up for success throughout the year. Read on to learn more!
Select the Right Source
Businesses can pursue funding through several different avenues, including equity-based investors, government funding through grants and tax incentives, and debt funding like bank loans and alternative financing. While equity-based funding can be an essential resource, it’s important to know what kind of partnership (or mix thereof) works best for your specific needs. Common sources of equity-based funding include:
An angel investor may be an individual or a dedicated fund that specializes in offering capital to startups in their early stages of development. Angel investors typically require a compelling proposal and often give funding based on an agreement of convertible debt or equity. Angel investors may join forces with other investors as part of a group or network, giving you further access to diversified capital.
Venture Capitalists (VCs) are similar to angel investors in that they may be individuals but are far more likely to be part of a firm with consolidated funds. VCs typically partner with more mature startups that show high growth potential, usually in exchange for equity in the business. New companies often utilize VCs to help fund scaling, aggressive research and development (R&D) efforts, and commercialization.
Crowdfunding has become a more publicly known option for businesses looking to support their efforts. As the name suggests, crowdfunding allows you to source capital from multiple donors. It can also be a particularly good source of initial market feedback as your prospective investors provide their insights and enable you to pivot along the way.
Knowing how to leverage your personal network to borrow capital can be essential for small companies looking to take their first steps forward. It is important to remember, however, that details around any personally sourced capital should always be firmly clarified and documented to explicitly state what is being received, what amount of equity is being given in return and any other relevant information.
As an additional note, even if you don’t use personal networks directly for investing in your current stage of development, it is always wise to cultivate your relationships and focus on forging relationships that may open doors in the future. Be open and transparent with potential investors, and remember to highlight your current achievements as you build your case-to-invest portfolio; you never know when you might find yourself in the right place at the right time.
Analyze (and Diversify) Your Capital Stack
As you secure funding, it’s imperative to constantly analyze your capital stack and be vigilant when looking how to optimally structure it for your current and future needs. In the simplest of terms, your capital stack is the structure of all capital invested into your company. Every business’ optimal stack and allocation will look different depending on their respective industry, financing, and stage of growth; a capital stack reflects all funding decisions to date. A healthy stack will include a mix of debt investment, equity investment, and other sources of capital, including government grants and tax incentive programs, like the Scientific Research and Experimental Development program.
Documents and Data
If you want to secure viable funding, you will need to be prepared to show your homework. Data-backed cases and clearly documented objectives, accomplishments, and analytic-based projections do far more when it comes to winning over potential investors and debt partners. While a passionate pitch may get you in the door, investors want to see proof that you can deliver results. Whether you’re claiming SR&ED credits with the government (more on that below) or pitching to independent investors, be prepared to share detailed financial statements, revenue retention details, expenditures, long-term plans, and more, depending on the funding source you’re pursuing. The more accurate and refined your information is, the more likely you are to succeed in securing the cash you need.
Covering the Gap Between Expenditure and Funding
While government initiatives like the SR&ED program can be an extremely valuable asset for small businesses, the reality is that there is a long gap between when expenditure begins, and the refund is received. The unfortunate challenge of SR&ED is that your funds are only available once a year, and your refund can months to arrive from when you submit your claim. For those actively pursuing R&D, the waiting period can be detrimental. Financing your refund with a Capital-as-a-Service (CaaS) firm like Easly can help to alleviate the stress of waiting and bring balance to your cash flow. SR&ED refund financing with Easly is a smart form of non-dilutive capital that provides positive cash flow with no personal guarantee required. At Easly, we ensure you’re able to get your funding fast. Our underwriting team constantly review applications and ensure that approved clients receive their capital in as little as two business days.
If you’re looking to expand your access to capital in 2023, Easly is here to help!
Learn more about the role SR&ED refund financing can play in your company’s growth by contacting Easly today.