NON-DILUTIVE FINANCING

As you build those projections you will want to estimate how much non-dilutive financing you are likely to secure to help advance your plan. Non-dilutive financing is money you secure that does not dilute the ownership position of investors. This type of financing is sometimes called “leverage” and includes instruments such as grants, company loans and refundable tax credits. Simply put, if the money is not revenue from operations and is not in exchange for ownership in the company (now or in the future) it is non-dilutive funding.

Non-dilutive funding is the friend of start-ups and their investors. If you read my blog about fundraising and your cap table, you got my central point that understanding the impact of fundraising on your cap table is important for many reasons. I won’t rehash that here but if you want to take a quick peek at the importance of modelling your cap table you can do that here – Cap Table Blog.

When the Atlantic Canadian start-up scene was younger, start-up founders struggled with understanding what their options were for non-dilutive funding. I think start-ups today have a somewhat better idea of the assistance that is available to them.

SOURCES OF NON-DILUTIVE FUNDING

If you are a technology start-up in Atlantic Canada there are three sources of non-dilutive funding you need to know about from the moment you incorporate your business. Sure, there are other sources of leverage, and you should explore them, but these three sources of non-dilutive finding stand apart from the others if you: are a start-up technology company, plan to commercialize your technology and want to maximize the support you get (which can support include the relationships, advice and knowledge).

Before I say a few words about three important organizations that offer non-dilutive funding, please know this – the best relationships in life occur when you put an effort into them. No effort in will equal something less than you hoped to get out of the relationship. As you foster relationships with any financing partner be it a lead investor or non-dilutive funding partner, remember to not mail it in. Partners need to trust you, so put the effort in, respond to inquiries, give them what they need to help you and most importantly… do not forget about them once you have their money.

There are no surprises below. What is described is the value I think these organizations can bring and why. I submit that if you are an Atlantic Canadian start-up, you need a relationship with each of them.

1. ACOA

ACOA or the Atlantic Canada Opportunities Agency is an economic development agency that helps technology start-ups and innovative companies in Atlantic Canada. If you want to speak with a program manager you can begin by reaching out to ACOA here – ACOA Info.

My experience with ACOA has been excellent and many start-up CEOs would tell you the same. For the start-up company ACOA has tools that help leverage private fundraising activities in the form of loans which have favourable terms (versus commercial banks and that is assuming a start-up could even qualify for a loan from a bank) and non-repayable project contributions (grants). Additionally, I have found their program managers and other team members to be very helpful in all activities from pre to post project funding. ACOA project funding can support payroll, certain business costs and even some equipment purchases depending upon the project in question.

Project costs they fund can be a little broader in scope than the next two sources of non-dilutive funding described below both of which fund technological innovation and support costs related to them.

2. NRC IRAP

NRC IRAP is the National Research Council of Canada Industrial Research Assistance Program – NRC IRAP Info. If you are a technology start-up company in Canada developing technology to sell, you need to be speaking to you an ITA (Industrial Technology Advisor). ITA’s can offer business advice, referrals, and more including a pathway to non-repayable contributions if you have a project that meets their criteria for funding. This funding can be significant and may cover technology development costs from employees, contracts and project overhead.

Like the ACOA program managers, ITAs help business formulate projects that are fundable and help in many ways in between.

3. SR&ED

SR&ED stands for Scientific Research and Experimental Development (program) and is a tax credit available to companies doing SR&ED eligible work. For many people, SR&ED is the most difficult of the three sources of non-dilutive funding, described here, to understand, owing to the fact the program is administered by the CRA (Canadian Revenue Agency) and defined within the Income Tax Act – subsection 248(1). Borrowing from the SR&ED definition in part – “‘scientific research and experimental development’ means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis…”. The definition continues but suffice to say that if you are a start-up company doing SR&ED eligible work, you need to investigate this tax credit which may be refundable. In this context
“refundable” means getting a refund from CRA even if your company does not pay income tax.

If your company qualifies for a SR&ED tax credit, then the company would “apply” for this non-dilutive funding as part of its annual tax filing.

SR&ED claims can be lucrative to companies, especially start-ups. I highly recommend looking through this site – SR&ED Info. Alternatively, reach out to me at my email address if you have questions and I will do what I can to help.

Summing It Up

ACOA, NRC IRAP, and SR&ED are often the anchors in a technology start-up’s non-dilutive funding plan and for good reason. These non-dilutive funding sources can work together (there are stacking rules that govern how much government money your company can receive for the same activities) to help achieve your start-up’s milestones.

As you lay the groundwork to use and deploy non-dilutive funds, do not ignore the homework and work you need to do to get the funding or the relationships you need to build and foster with these vital funding partners. Getting non-dilutive support can mean so much more to your company the money received.

About Bill
I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.

If you would like to automatically receive this newsletter in your inbox, or if you have questions about how I can help you and your start-up company email me at bill.power(at)powerforward.ca.

Photo of Citadel Hill Clock – Hayley Parker via Pixabay

The post Leveraging Start-up Fundraising in Atlantic Canada with R&D and Government Incentives first appeared on Power Forward, Halifax Nova Scotia.

Fundraising is an important and, depending on the situation, very involved topic. Goodness knows there is a ton written about fundraising for start-up companies and much of it is worth reading – especially if you have not been through the process before. However, there is nothing quite like living through a financing and feeling the feelings that go with raising private capital – it simply leaves impressions on you that you wish you had understood a little better when you were just thinking about raising money. This blog is about understanding how a financing may affect your ownership – and the tool that helps you determine that before the financing happens. We are talking about the cap table and more specifically the importance of having a cap table model.

Start-up CEOs and their teams know that the relative complexity of fundraising increases as you move from one round to the next. For example, if you start by bootstrapping your business there can be a ton of personal financial stress associated but you are only accountable to yourself, your bank account, your significant other, your VISA bills, etc. When you start taking money from “investors”, well, things start to feel a bit different, perhaps more serious or accountable.

Many start-up founders go to friends and family for early money (or perhaps they approach a few angels or perhaps even a funding organization that is willing to come in and take an early bet on the company). In return for the money investors are typically offered a SAFE (Simple Agreement for Future Equity), a Convertible Debenture (CD) or Common Shares. Specific investment instruments have their pros and cons for the company and for company shareholders. Whether you have taken money from investors in the past or will sometime in the future, make it your business to understand the different investment instruments available for use as well as the potential
implications of them for your company and for your investors / shareholders.

For example, SAFEs and CDs have the advantage of allowing companies to avoid the effort of putting a value on the company until a future funding event. This can have appeal for companies that are relatively early in their start-up journey. Also, SAFE and CD financings can typically close more quickly than an equity round because they are relatively simple to execute by comparison. There is a “but”, however. The money from such investments come with terms that determine their conversion into company equity at some point in the future. SAFEs and CDs often include: 1) a “cap” on the valuation at which the investment (plus interest in the case of a CD) will convert into equity, 2) a threshold future equity financing amount that triggers the equity conversion, and 3) a discounted share price (for the SAFE holders or noteholders) with respect to the shares received at conversion. It is often not until the company is doing a financing round (like a Seed round or Series A) that the impact of the SAFEs or CDs are fully understood, seen or considered by start-up founders.

A model of your cap table let’s you do “what if” modelling and generally understand the scale of dilution that would be imposed by new equity financings (common or preferred share) well before the term sheet shows up. Your imagination, together with the model can generate countless scenarios. Afterall, nobody wants to be surprised where it comes to the dilution impact a SAFE or CD might have on yourself, other founders (and any other shareholders you have).

The power of having a model that shows the impact of a financing on shareholder dilution will serve you well. Such a cap table model not only considers the effect of converting CDs or SAFEs, but it will also show the impact of adding an ESOP or increasing the ESOP pool, the impact of new preferred series shares and how it all relates to pre-money and post-money valuations. And for those of you who may be reading this and have or plan to take on US investors, tools like this can help you understand the impact of financing to your CCPC (Canadian Controlled Private Corporation) status. Maintaining CCPC status offers benefits such as a lower corporate tax rate and an enhanced tax credit under the SR&ED program.

When start-up CEOs think of fundraising, they likely think of many things, I am sure. Is my pitch ready? Is it synced to my financial projections? How much money does the company need and what milestones will the money allow us to achieve? There are many important questions to be considered. I submit that an early understanding of how the prospective financing will affect your cap table will help avoid unwelcome surprises.

About Bill

I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.

If you would like to automatically receive this newsletter in your inbox, or if you have questions about how I can help you and your start-up company email me at bill.power(at)powerforward.ca.

The post Fundraising and the Importance of Modelling Your Cap Table first appeared on Power Forward, Halifax Nova Scotia.

There are so many things to think about as you begin your start-up journey. The mental load seems to never decline as you figure out how to get from here to there and navigate your road daily. With that in mind, don’t set yourself up for issues when a little planning can help you avoid some pretty big problems and time sinks. Here is some prescriptive advice to make your days ahead a little more manageable.

1. Find the right founder(s) and then plan for the break-up

If being a founder is tough, and it is, then how tough do you suppose it is to be a solo founder? Starting a high growth technology company is best done with a trusted co-founder.

Ideal co-founders will necessarily bring complementary skills to the company. Your co-founder or co-founders also need to be people with whom you like spending your time, because you will be relying on them in ways you may have never thought you would have. And will spend a lot of time together. Some co-founder relationships work out splendidly – all parties like each other, they all make fair and expected contributions to the company and generally everyday is a joy. This utopian outcome for founders is unlikely. What is more likely than a utopian co-founder relationship is the possibility that a founder may leave the company somewhere along the company’s journey. Most co-founder relationships involve many ups and downs and, if your are fortunate, your shared purpose and like for one another will endure while you knock out milestones together.

As noted, not all co-founder relationships work out and it is helpful to be aware of this possibly as you enter the relationship. A little planning can go a long way if it happens that one or more of the co-founders want to leave (or are required to leave) the company. The day may come when you appreciate the effort you put in up-front to ensure there is a mechanism and agreed upon methodology for you or your founder(s) to part ways and exit the company. A document like a founders’ rights agreement can be worth its weight in gold when founders decide to leave. Speak to your corporate lawyer as you are incorporating and learn about why having an agreement that dictates how founders would leave the company is so important.

2. Pay attention to pay

If you have raised some money, it may soon be time to hire an employee or to start taking a salary. Generally, I am all for folks being paid for their work 😊. But please, put in the time to set up payroll correctly, which includes withholding money for CPP, EI and personal taxes, which as a company you are obliged to remit to CRA. Not only must the company remit employee taxes, plus CPP and EI deducted from employees’ pay but the company is expected to kick-in employer contributions for CPP and EI. All of this may sound like a no-brainer, however, if this is your first company you may not be familiar with your payroll obligations as an employer.

I have seen a lot of mistakes made in this regard from not withholding statutory amounts, to not keeping records of payroll, to not remitting money owed to CRA and many things in between. The good news is this does not have to be difficult. Step 1 is to ensure you have a payroll number. Just make sure you have a business number (BN) first. A few Googles and a bit of reading will send you on the right path if you don’t already have one (or either). With a payroll number and other basic information about the company at the ready, sign-up for an online payroll service. There are many such services. Wagepoint is such a service with which I am familiar. Once set-up, properly running payroll is a piece of cake and you won’t have to worry whether CRA is getting their money – it will be automatically taken from your company’s bank account. When the calendar year rolls over most payroll services also produce T4s for all employees.

3. Don’t wait to do your bookkeeping

You have a great idea, and your pitch deck (and a bunch of practice pitching) has landed you some money to get started. Time to start spending money. Maybe you even have a few sales, who knows? Perhaps you must buy yourself a computer, or rent space, or hire a contractor, get materials to do experiments – but no doubt you need to spend money to build your business. After all, there is a reason you raised that money, right?

Think about bookkeeping as your way of remaining accountable to the investors that gave you the money. Think about it as a way be organized when it is time to file a corporate tax return and prepare year-end financial statements. Bookkeeping allows you to keep track of HST paid on purchases (or charged on your sales). If you are paying more HST than you are collecting then the CRA will return the difference to you. Bookkeepers and online bookkeeping platforms can help you keep track of HST and help prepare your reports for CRA. Companies that want to raise more money, achieve goals, get acquired, become unicorns need a bookkeeping system. Decide to not put a bookkeeping system in place early at your peril. Choosing to put it off can lead to unneeded work, inaccuracies in your accounting, bills you forgot to pay, problems with investors and would-be investors and the list goes on. This is something you to which attention must be paid. Not to worry, it isn’t hard to put a system in place – just be committed to doing it. It is a commitment that will pay off.

As a start-up CEO or founder there are already enough items in a day to occupy your time. With a little early planning and a smart approach to business operations you can avoid many problems and minimize others.

About Bill

I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.

If would like to automatically receive this newsletter in your inbox, or if you have questions about how I can help you and your start-up company email me at bill.power(at)powerforward.ca.

The post Three Mistakes CEO’s Should Try to Avoid as they Begin Their Start-up Journey first appeared on Power Forward, Halifax Nova Scotia.

In between those two points in time, I had a lot to learn about the local start-up community and what place I might occupy within it. Of course, I did a lot of secondary research, reading everything I could about the start-up community in Halifax and its then-stars. More importantly, I networked non-stop, meeting everyone that would tolerate me and my questions, often over a coffee. I talked to start-up founders, investors, folks that worked for government agencies and I expanded my network. Of course, not every conversation was gold, but I tried to leave those conversations with an introduction to another person or a suggestion for a future meeting I might want to pursue.

I am grateful to all of those people that met with me before Power Forward was even a thing. In part, because of that networking experience in 2007 (and because of the time many other kind people have given me over the years), I try to pay forward, as much as possible, the generosity I was shown by those folks.

When I started down the road of meeting start-up community people in Halifax, I got an early introduction to contacts at NRC-IRAP and ACOA. I remember those first few meetings and how open the folks at these agencies were to my story and to assisting however they could. Helping me, from my perspective, meant learning a little about how the ecosystem worked, perhaps offering me a glimpse into their personal network or just knowing they would answer my call or email the next time I tried. The folks at these agencies did all of these things for me because, I suppose, they wanted to be a part of growing the innovation/start-up community in Nova Scotia. They were also just really decent, helpful people.

Those first few meetings were foundational as my relationships grew with them over time and as I worked with companies that were funded by these agencies. It would be wrong of me to not mention Innovacorp and NSBI, who did then and do now offer excellent support to Nova Scotian companies. I will talk more about the non-dilutive funding support these groups offer in a future blog.

My point is simple, it is always worth it to meet new people and hear new stories. Any one conversation you have as you network has the potential to: advance your goals, open your eyes to new perspectives, or set up new opportunities you were not initially contemplating. Occasionally a conversation allows you to offer your support or talent to someone who needs it.

I would suggest you embrace the opportunity to help others as they network and fortify our community. My bet is you will be glad you answered that email, call or took that coffee meeting. Taking time for one another is one of the ways we keep our community strong.

About Bill
I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.

If would like to automatically receive this newsletter in your inbox, or if you have questions about how I can help you and your start-up company email me at bill.power(at)powerforward.ca.

The post Grow Your Network, Grow Your Community, Grow Your Business first appeared on Power Forward, Halifax Nova Scotia.

Financial Modelling

I admit that I am very biased when it comes to the importance of building a reasonable set of financial projections that include, at their core, a cash budget for the activities of your company. The model, projections… whatever you wish to call them, are the manifestation of your plan to hit milestones, achieve results and move your start-up towards a sustainable and repeatable business model. Financial projections align with your plan, your business model canvas, Gantt charts or other preferred planning tools bringing them to life in a way that shows probable costs, revenue and timing. It is a powerful tool in the toolkit for all companies, whether a start-up or not.

Cash is the lifeblood of companies so having a tool that helps you understand cash needs is crucial to success. If you are an early stage or pre-revenue company then financial modelling helps you understand your cash need as you work toward your company’s unique milestones. Good, well constructed models will reveal your cash cliff (when you will run out of cash) and as importantly, how much money is needed to achieve the goals you have set for your company post financing. Investors want to know you have a plan to turn their investment into more money some day. Useful financial models that are congruent with your pitch deck and give investors confidence are gold.

Financial models go into more detail than does the pitch deck. The detail the model captures helps CEO’s and teams understand and plan for their future operations. When investors have filled out your round and are relying on regular investor updates from the company to let them know how you are progressing, the financial model can be helping to leverage the investors money with non-dilutive funding – i.e. as you pitch to and are successful in getting funds from government agencies such as ACOA or IRAP. Projections can even help you understand whether you might get a SR&ED refund from CRA well before you file your tax forms. Perhaps you are wondering when you are going to outgrow current space and want to figure out your options around that? Financial projections can help, with that and many other things. What has been your experience with how financial models have helped your company or companies you know?

Great CEOs and leadership teams are constantly questioning their strategy to achieve stated goals. And we know businesses pivot, adapt and change on their path to profitability. You should have a current, up to date and flexible financial model available as strategic and operational questions arise and not just when you are raising money.

About Bill

I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.

If would like to automatically receive this newsletter in your inbox, email me at bill.power@powerforward.ca.

The post Financial Modelling first appeared on Power Forward, Halifax Nova Scotia.

The CEO’s Job Description

If you are a CEO and founder of a technology start-up company, there have most certainly been days when you wondered what your job was, and worse than that, wished there was someone else that would do whatever was occupying your time prior to that brief moment of reflection. A CEO, especially when starting is everything from chief cook to bottle washer – you do it all because, if you don’t, it simply will not get done.  At some point, you will need to find a way to stop doing everything and start doing what’s essential for success.  First, know what is important – i.e. define your priorities and give them your focus.  Be intentional about the attention you give them.  That’s how you get work done.

Being a start-up CEO is not for the faint of heart. If you don’t like responsibility and would rather not be held to account for just about everything you do, then look for another career because being a CEO is not for you.  If you do a few Google searches like “Start-up CEO’s Job” you may find a blog like I did about seven years ago that described the job of a CEO as: Strategy, Money and People.  It is difficult to argue with this point of view.  If you have a winning business strategy, and the money and best people to implement that strategy then you’re on your way.  Easy to say and so difficult to do.  I would add a fourth word to the CEO job description – Execution.

The point of a company is to make money.  You will never get there unless you build a company that hits milestones, works toward goals and tries every day to do what it has set out to do.  Successful companies have an execution bias, they hit milestones and they serve mission daily.  They have a culture of getting work done – they execute.  Companies that execute get funded.  Companies that don’t, well you can finish that sentence.  Leaders that commit and deliver attract similar behaviours in their people.

Just as start-ups are in search of a repeatable and sustainable business model, I would argue that from day one as CEO you need to do what you can to build a repeatable and sustainable methodology for executing the business of your business.  Structure, properly implemented in your business operations can add efficiencies and improve how you work, ultimately allowing you to focus on getting the work done and your goals achieved.  What kind of structure have you seen implemented that improved efficiency and therefore enabled execution?

About Bill

I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.

If would like to automatically receive this newsletter in your inbox, email me at bill.power@powerforward.ca.

The post The CEO’s Job Description first appeared on Power Forward, Halifax Nova Scotia.

What’s Trust Got to Do with It?

My early career in the construction industry taught me about how to focus, work hard and get things done. I really liked the business of construction. I liked the processes, procedures, and the execution of the work. There was an incredible sense of accomplishment when we were able to deliver a project that the customer was pleased to accept and pay for. It was thrilling to produce good, profitable work, and it was even more fun because I got to do it as part of a team.

If you are like me there are few feelings that are better than being successful as a team, especially when you feel as though you are a supported full participant of the team. Not just supported when things go well but supported when things don’t go well. The best leaders in companies know the importance of trust and that trust is a two-way street.

A conversation like this, about trust in a team, can go a lot of ways and trust me (pun intended), I have had a lot of conversations about trust with others and many more with myself. If you want to build a great team then trust must be the foundation. Trust in your leaders, trust in your managers, trust in those reporting to you and trust in your peers is essential to having a functional, high-performance team. There is much written on this topic, and I encourage you to dig in and learn all you can about how to foster trust on your team. I quite like the book – The Five Dysfunctions of a Team by Patrick Lencioni. It is written as a fable and for me it never gets old.

I would bet that most people would say they know what it feels like to be trusted. When I feel trusted, it is a strong, uplifting feeling that makes me feel as though I can do more, am not alone and that someone (my boss, co-worker, client, team, etc.) will always have my back. When I have trust from others, I am stronger. The opposite is true when there is a void of trust.

I have intentionally not been prescriptive where trust is concerned. That said, I want to share this thought – if you want to build trust and keep that trust then… make it a habit to do what you say you are going to do. Leader or subordinate, if you commit to doing something, which may include doing that something by a certain time, then deliver on your promise. Know that failure to do what you say erodes trust and that is bad for you, your team and business. What has been your experience with trust on teams?

About Bill

I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.

If would like to automatically receive this newsletter in your inbox, email me at bill.power@powerforward.ca.

The post What’s Trust Got to Do with It? first appeared on Power Forward, Halifax Nova Scotia.