According to Forbes, within the first 16 to 18 months, 8 out of 10 entrepreneurs fail due to lack of funds and 50% of small businesses that began in 2011 failed in the first four years. It is no secret that becoming an entrepreneur has its fair share of challenges. It can be a daunting task figuring out the funding for a startup when confronted with these discouraging statistics. Despite this data, there is no need to worry because Guaraná Technologies has mapped out the solutions and come up with helpful resources to help get that initial money coming in.
Before we get started, it is important to know how much funding you want to ask and so here are a few business startup cost calculators to give you an idea of what you are looking for:
Starting Cost Calculator
Business Startup Cost Calculator
New Business Startup Costs
Government grants are financial awards given to eligible grantees to stimulate the economy in providing support to various programs such as the arts, educational institutions, innovative research and agricultural projects.
In comparison to a loan, government grants are not expected to be repaid by the grantees. Canadian government grants can help provide funding support anywhere from small businesses to large corporations.
The most popular government grants for small businesses are separated into four funding categories:
Top funding programs offered in Canada within the four funding categories:
Canada Media Fund: Experimental Stream Innovation Program:
What it is: government grant for developing and promoting innovative and interactive software development projects in Web 2.0 or higher such as software apps, mobile apps, virtual reality and video games.
When to apply: The program launches twice a year with submission dates in the fall and spring. Eligibility: Eligible to for-profit canadian companies with projects developed in Canada. Must have a letter of intent from a market channel partner committing to take the project to market and actively promote the project if the applicant does not host the digital media on their own internal network or infrastructure.
Amount: 50-75% of project costs (maximum $250k – $1M), Prototyping (75%/$250k), Production (75%/$1M), Marketing and Promotion (75%/$400k), up to $1.2 million if prototyping projects lead to production.
Canada Small Business Financing Program
What it is: this program is part of the Canada Small Business Financing Act and was created to help support business growth through business loans with competitive interest rates.
When to apply: Applications are accepted year round and you must apply at a financial institution or a credit union.
Eligibility: small Canadian businesses making less than $10 million annually in gross revenues can receive funding for expansion. The decision is based on personal credit scores and you may require a business plan to apply.
Amount: Up to $1M for business expansion activities, including the acquisition of a building, leasehold improvements, purchasing new or used equipment, and software components.
Canadian International Innovation Program
What it is: supports collaborative research and development projects that lead to the commercialization of new products, processes, or services and hopes to match Canadian businesses with international partners such as Brazil, China, India, Israel and South Korea.
When to apply: each partner country has its own application deadline.
Eligibility: Incorporated within Canada with less than 500 employees creating technologies with an international research and development partner for healthcare, cleantech, water tech, information and communication technologies and manufacturing technologies.
Amount: maximum $600,000 per project.
IRAP Mid-Size Projects
What it is: the Industrial Research Assistance Program (IRAP) provides research grants to Canadian businesses for internal development and the improvement of innovative technologies for mid-size projects.
When to apply: federal funding released April 1 every year.
Eligibility: located in Canada, 1-500 people on payroll and to have been operating for at least two years.
Amount: 65-80% of internal labour costs which covers the cost of salaries paid to employees directly involved in research and development activities.
IRAP Accelerated Review Process
What it is: performs the technical research needed to solve any internal innovation challenges such as process or product/technology improvements. Funding supports adoption of new and advanced technology, software implementation, productivity improvements, and production design or marketing projects.
When to apply: federal funding released April 1 every year.
Eligibility: 1-500 people on payroll and to have been operating for at least two years.
Amount: $50k non-repayable grant with 80% of direct labour and 50% sub-contractors.
OMDC Interactive Digital Media Fund
What it is: the Ontario Media Development Corporation (OMDC) supports the development of high-quality interactive digital media products such as software and games (video games, mobile applications, websites and web series).
When to apply: the upcoming deadline is August 27, 2018. Call for proposals are periodic. Projects must begin within 90 days of approval and should be completed within 2 years of OMDC’s decision on funding commitments.
Eligibility: Must have more than 3 years of professional experience in the Ontario interactive digital media content production industry.
Amount: Up to 50% of eligible expenses to a maximum of $50,000 for Concept Definition projects and $250,000 for Production projects.
Best Practices when Applying for Startup Government Grants
If you want to find out which grants apply to your business take a look at this online tool and get a personalized grant list for your startup.
Finding a local angel investor is a great source for gaining capital for your small business startup. Angel investors are high net-worth individuals who invest their personal funds into potentially successful startups or entrepreneurs.
They invest in industries and sectors they understand within their geographic proximity. This can be a one-time investment or they can provide constant financial boosts through the early phases of the company.
Other forms of investment are through venture capital and private equity. With venture capital, instead of receiving investment from wealthy individuals, it is coming from large, affluent financial institutions and firms, such as investment banks, who are willing to help provide funding for up and coming startups. Private equity usually involves funding larger and more established companies.
Some of the criteria angel investors are looking for in companies is a strong probability for future growth in annual revenues, high returns on investment, an experienced and coachable management team, funding requirements, potential exits and other firms that are investing.
The one downside to angel investors is having to give up full control of your startup since they have a say in how the business is run. Despite this one drawback, angel investors are highly active in providing their professional business experience, valuable connections and advice toward making your startup a success.
To begin the process of seeking out an angel investor you must send in an application to give them an overview of your business and the kind of investment you are looking for. These online application forms can often be found on angel investor websites.
If the application is accepted, this will lead to doing a proposal presentation in front of members of the angel group you reached out to. For example, the Peterborough Region Angel Network gives a list of requirements for a presentation:
Here is a list of angel groups in Ontario and their contact information:
Angel One Investor Network (Oakville)
Phone: 905-630-2200
Email: admin@angelonenetwork.ca
Capital Angel Network (Ottawa-Gatineau)
Email: Info@capitalangels.ca
Georgian Angel Network (Collingwood)
Phone: (416) 407-4324
Email: michael@georgianangelnet.ca
Golden Triangle Angelnet (Cambridge)
Phone: 519-740-8500
Email: info@gtan.ca
Maple Leaf Angels (Toronto)
Phone: 416-646-6235
Email: info@mapleleafangels.com
Niagara Angel Network (Niagara)
Phone: 905-834-2173
Email: tkadwell@niagaraangels.com
Peterborough Region Angel Network (Peterborough)
Phone: 705-536-1101
Email: pran@innovationcluster.ca
Ryerson Futures (Toronto)
Online contact form only
Spark Angel Network (Whitby, Oshawa, Cobourg)
Phone: 905-754-0550
Email: info@sparkangels.ca
Southwestern Ontario Angel Group (London)
Phone: 519-858-5043
Email: info@swoangel.com
York Angel Investors (Vaughan)
Phone: 905-532-0617
Crowdfunding is a form of crowdsourcing and is considered to be another great approach to funding your startup. It is a way to raise small amounts of money from a large group of people over the internet.
Business and entrepreneurship remains the most popular category for crowdfunding campaigns which brought in $6.7 billion in 2014.
Fluent Forever is an example of a successful app startup that got started on the crowdfunding platform Kickstarter. The app helps you become fluent in whatever language you choose. So far the campaign has gained 4,434 backers and raised $587,785.
There are a few simple steps to follow to put your crowdfunding page together and create a campaign:
Here is a list of the top 6 online crowdfunding platforms to choose from:
Startup competitions are investment opportunities to help launch your startup by pitching your business ideas live in front of a panel of judges (including professional business leaders and investors).
Successful pitch presentations are rewarded with a variety of monetary prizes to help support the startups. Guaraná has compiled a list of annual competitions that can be helpful to your startup.
ElevateR Pitch: AI Edition
Location: Toronto, Ontario
Application deadline: August 14, 2018
Date(s): September 21-27, 2018
Description: Canada’s top AI startups compete for the attention of international investors and global tech leaders by pitching live on stage in front of a panel of judges. Over $1 million in funding is available for select finalists in the competition. Your company must be Canadian, AI focused and to have raised less than $10 million.
N100
Location: Venture 13 in Cobourg, Ontario
Application deadline: July 13, 2018
Date(s): Live pitch contest September 13, 2018 and winners announced November 2018
Description: Open invitational technology startup competition where winner(s) receive up to $250,000.
The Queen’s Entrepreneurs’ Competition
Location: Toronto, Ontario
Application deadline: October 30, 2017
Date(s): January 17-20, 2019
Description: This competition is available to students currently enrolled full-time in university or college. It is a chance to develop networks and share ideas in workshops with professors, advisors and entrepreneurs. The top 15 teams are invited to pitch their business plans in front of a panel of Canadian business leaders with the chance to win over $75,000 in prizes.
World Angel Investment Summit
Location: Toronto, Ontario
Application deadline: N/A
Date(s): September 25-27, 2018
Description: Hosted by the National Angel Capital Organization attracting over 700 investors, partners and industry leaders. Angel investors give emerging startup companies guidance and funding.
Ignite Capital
Location: Toronto, Ontario
Application deadline: N/A
Date(s): N/A
Description: Annual competition inviting Ontario entrepreneurs with limited access to financing to compete for up to $15,000 in funding. Must have been in business for no more than two years with little to no sales and be 18 years or older.
Innovative Solutions Canada Challenge
Location: N/A
Application deadline: January 1, 2020
Date(s): N/A
Description: Provides support to Canadian entrepreneurs, innovators and small businesses. Can receive up to $150,000 to support the development of a proof of concept. If this is approved, you could receive up to $1 million to develop a prototype.
Bank loans involve borrowing money from a bank with the agreement of repaying the loan at a specified later date (this date is detailed in your loan agreement with the bank). Bank loans have interest rates, meaning you pay a percentage of the loan every month to the bank until it is repaid in full.
Banks consider startups and entrepreneurs to be high-risk, therefore making it very difficult for them to acquire loans. The majority of the time startups have cash flows issues, making banks very cautious when handing out loans. This is confirmed during the application process when your credit is checked and the lender assesses whether you can repay the loan.
If you have a high credit score, lenders will see that you are more reliable in being able to pay back the loan on time. Furthermore, when pursuing a lone it is vital to know your own credit history and current credit score.
There are a few loans offered that are specifically geared toward startups or small businesses. These loans offer key benefits to grow your business such as receiving funding for business expansion, purchasing and improving leasing properties and commercial properties as well as funding for acquiring equipment.
Applying to these loans must be done over the phone or in person at your preferred bank where they will explain the process and what you must prepare for the application.
It is important to remember your financial limitations and be realistic in what you can afford to repay because missing loan payments can be a risky business and in serious cases can lead to bankruptcy.
Business loans are positive for business expansion but it is also important to remember the many risks that go along with choosing this option for startup funding. In general, according to the Now Finance blog, If you miss a loan payment you will receive a call from your creditor, and depending on your loan agreement, you may be charged for missing the payment.
If your payment is over two weeks late, a notice will appear on your credit report which will affect your credit score. When your payment is over 60 days late, you will be contacted by the creditors’ collections department demanding payment. Your credit file will then fall into default which inevitably leads to difficulties securing credit for several years.
If payments continue to fail to be paid this will lead to court action and possibly filing for bankruptcy.
Here is a list detailing small business financing loans from the major Canadian banks and their criteria of eligibility:
RBC
This a government-sponsored loan program which is commonly used for new businesses looking for funding to support their company’s growth. RBC offers up to $1 million to small businesses in Canada. 85% of the loan is guaranteed by the federal government, previous purchases are eligible for financing and they offer flexible repayment options.
Scotiabank
This loan is for small businesses or startups located in Canada bringing in an annual revenue of less than $10 million. Up to $350,000 is offered for leasehold improvements and equipment financing and up to $1 million is offered for property purchase and improvements. However, this program does not finance inventory, working capital, goodwill, franchise fees and research and development.
BMO
This loan helps provide support to start or grow your business where 85% of the loan is covered by the federal government. Small businesses bringing in a gross revenue of less than $10 million are eligible. Previous purchases (180 days prior to loan approval) are eligible for financing as well as floating and fixed rates. The loan offers up to $350,000 in funding to buy equipment, vehicles and make leasehold improvements and up to $1 million for buying and improving commercial property.
CIBC
CIBC business loans are available in any amount over $10,000 with convenient loan rates. You can choose a fixed rate loan or a combination of a loan and a line of credit. This loan is for businesses who need funding to buy equipment and fixed assets. The loan offers fixed or variable interest rates and a variety of repayment options. Once your application is completed, you receive a credit decision in the next business day.
TD Canada Trust
The small business loans are awarded to help with expansion plans, and purchase or upgrade business assets. Secured and unsecured options are offered. Unsecured loans range from $10,000 to $50,000 and secured loans range from $10,000 to $1,250,000. The loan includes flexible payment options as well as fixed and floating interest rates.
Startup incubators are facilities provided to startups in their early stages of development which are sponsored by private companies or public institutions such as colleges and universities.
Incubators support startups that have an idea they want to bring to the marketplace but they have no business model and it has not yet become a reality. These facilities usually contribute affordable work spaces with shared offices, management training and marketing and financial support.
Accelerators are more for existing companies that are past the early stages of development where they need help to further build on their foundations. They are of the same concept as incubators where they offer programs to new businesses giving them access to investors, mentorship, technical support and shared office spaces.
Joining a community of networks and communicating with mentors, advisors and business experts and leaders is a major key benefit to joining a startup incubator or accelerator.
Guaraná has compiled a helpful list of the top 10 tech accelerators in Toronto:
Be sure to try out this tool to help you find an accelerator or incubator that is best for you.
As mentioned above under the angel investor groups section, venture capital investments come from large affluent financial institutions and firms, such as investment banks, who are willing to help provide funding for up and coming startups.
It can be a difficult task to find funding for your startup through venture capital investors. When new companies are looking for investment opportunities, venture capital investors consider whether the entrepreneurs are coachable and have the ability to think critically.
Before making an investment, they check the strength of the team, their intellectual property, scalability, if they have a well detailed plan, a competitive advantage, problem solving skills and the potential for growth.
The vetting process to receive funding can take a long time, sometimes even months, before firms decide entrepreneurs can receive their cheques.
Going into a pitch meeting can be an intimidating task, so it is important to remember that entrepreneurs must do their research into exactly what the VCs are looking for before entering the meeting.
Have you ever seen television shows such as Shark Tank or Dragons’ Den? You may never have the chance to pitch on these major platforms, but watching them can give you a great idea on the dos and don’ts of pitch presentations in front of venture capital investors.
There are a few helpful steps to pulling off a great pitch:
Here is a list of Toronto venture capital firms:
Equity trading involves investing capital into a company and the purchasing of shares at a fixed price in exchange for a percentage of ownership of the startup and any profits it might bring in. Investors are willing to pay more money for shares if they see the startup has the potential for growth and success.
Like stock trading, equity trading is the purchase or sale of a company’s stock through a large stock exchange and is often done through a broker, an agent, a brokerage account or by the owner of the shares.
The investment options for equity trading offers direct access to the trading floor, trading skills, market research and trading systems.
In the beginning, the founders of a startup own 100% of their company and eventually they give away large chunks of percentages to employees, co-founders and investors.
There are different types of equity available to stakeholders in the startup with the most popular options being common or preferred stock. Both choices have their advantages and disadvantages with common stock being the most common option delivered by companies.
With this option, shareholders have voting rights and a stake in the company’s profits in the form of dividends.
Preferred stock is not considered to be as popular because shareholders usually do not have voting rights and are not as likely to benefit from profits. However, preferred stock shareholders receive higher dividend payments before common stock shareholders.
Here is a document template kit of convertible promissory note funding documents.
We hope the detailed information given in this ultimate guide will help you get started with finding funding for your startup. Overall, it is important to take into account the variety of options available in order to make your company’s growth a success.
Do your research, know your options, pick the one that is right for you and go out there and take action.
Which funding option are you leaning towards? Let us know in the comments below what you think, we want to hear from you!