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What Funding Should I Seek Before Going to Investors?

Startup Talk · September 17, 2024

Show Notes for Episode 161 of the Startup Talk Podcast: “What Funding Should I Seek Before Going to Investors?” In this episode of the Startup Talk Podcast, we explore the essential question every founder must address: What funding should I seek before approaching investors? This discussion provides valuable insights into the various funding options available […]

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What Funding Should I Seek Before Going to Investors?

Show Notes for Episode 161 of the Startup Talk Podcast: “What Funding Should I Seek Before Going to Investors?”

In this episode of the Startup Talk Podcast, we explore the essential question every founder must address: What funding should I seek before approaching investors? This discussion provides valuable insights into the various funding options available to early-stage startups, with a particular focus on non-dilutive funding, government grants, and sector-specific programs that founders should consider before seeking venture capital or angel investment.

Key Topics Discussed:

  1. Bootstrapping and Non-Dilutive Funding:
  • Before approaching investors, it’s critical for founders to explore non-dilutive funding options, which provide capital without requiring equity exchange. This helps founders retain ownership and control over their businesses.
  • Bootstrapping: Using personal savings or business revenue to fund operations is one of the most flexible ways to build a startup. This method keeps founders independent from external pressures early in their journey.
  1. Government Grants and Incentives:
  • SR&ED (Scientific Research and Experimental Development): One of the most advantageous funding programs for Canadian startups working on tech development or innovation. Eligible companies can receive tax credits up to 63 cents on the dollar, which are refundable and can be reinvested into the business.
  • IRAP (Industrial Research Assistance Program): A popular grant program that offers support to tech companies at various stages of development, even pre-revenue startups.
  • Canada Summer Jobs Program: This program offers startups the opportunity to hire interns with 50% of their wages covered by the government. It’s a great option for early-stage companies looking to expand their team without significant financial risk.
  1. Sector-Specific Grants:
  • Founders in industries such as MedTech or AI may find sector-specific funding options. These grants are often more readily available to startups that operate in niche industries.
  • Scale AI is an example of an AI-focused program that provides support to companies working in the supply chain space. However, for pre-revenue startups, there may be challenges, such as needing a customer to sponsor the application.
  1. Challenges for Pre-Revenue Startups:
  • Many funding programs require startups to have been incorporated for at least two years, and in some cases, already generating revenue. This presents a challenge for pre-revenue companies, as they may be ineligible for some of the most significant grants.
  • Early-stage founders should focus on leveraging grants like hiring programs and exploring sector-specific opportunities to build momentum before seeking external investments.
  1. Balancing Dilutive and Non-Dilutive Funding:
  • Founders are encouraged to maximize non-dilutive funding sources before turning to investors for capital. This ensures they maintain equity and control while building the business.

Key Takeaways:

  • Explore non-dilutive funding before seeking investment.
  • Programs such as SR&ED, IRAP, and Canada Summer Jobs can provide substantial financial support but may have complex eligibility and application processes.
  • Sector-specific grants for industries like MedTech and AI are available, though some require customer support or prior revenue.
  • Be strategic about the timing of your fundraising, and use every available resource to extend your runway.

Speaker Contact Information:

1. John Irwin:

• Preferred Contact: LinkedIn

• Canadian Companies book a free assessment for Government Funding  

2. Jeff Hodeman:

• Preferred Contact: LinkedIn

3. Alex Morsink:

• Preferred Contact: LinkedIn

• More resources available at the Equivesto Learning Center 

4. Graeme Barlow:

• Social Platforms: @Graemebarlow on all social platforms, LinkedIn, IG, X  • Website: GraemeBarlow.com

This episode is a must-listen for founders navigating the often complex world of pre-investor funding. Learn how to secure the right funding to keep your startup growing while preserving equity.

Links Mentioned:

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Got a startup story to share? Want to be a guest on the show? Reach out to us at Craig@TorontoStarts.com.

Tune in next time for more insights and actionable advice from experts in the startup ecosystem!

Additional Resources

For those looking to dive deeper into the world of tech and entrepreneurship, we recommend checking out the following resources and links:

Episode transcript

Read the full transcript

So you mentioned, you know, coming to the investors and being on the rocket ship and looking for a million dollars to get started. Before coming to an investor, what funding options should founders be looking at? John, that's yours. Yeah, I was going to say, John is the non-dilutive funding. Yeah, so the biggest one that is the easiest, but obviously. So let me just set the stage here. When it comes to non-dilutive funding, there's a disconnect between what the government sees as a startup and what an actual startup is. When we're talking pre-revenue startup, there's not much out there. um unless you are bootstrapping and you can you could pay for expenses yourself um because then you've got the best r d tax credit in the world the most lucrative which is shred um it's the most difficult to get but it's also the most lucrative if you're a canadian-owned company at sixty three cents on the dollar refundable in your pocket you will buy a new car or reinvest that if you're smart um But Shred is great if you're developing new tech or if you're improving on tech or products. There are other ones out there. For the most part, if you are a pre-revenue startup that's incorporated less than two years, your best bet is if you're in the niche kind of areas. So there's some med tech ones that you could potentially go after if you're in the med tech space. The most general one for for investors or for investors, for for startups are hiring grants. There's one that opens up every December, January called Canada Summer Jobs. You can leverage that to hire some summer interns to get them to do some grunt work stuff. That's a really, really good one because you can hire as many as you want. You get fifty percent of their wage covered. But when it comes to anything else, most grants you need to be incorporated for at least two years. And for some, you even need revenue. IRAP is one where it's like Shred, but you don't have to. It's a grant as opposed to a tax credit. And when you think about grants... Before, there used to be grids where they would cover a hundred percent of a project cost, but nowadays that's few and far between. So you're looking at a fifty fifty split, sixty forty split. There's different ones. They still I actually does you if you are pre revenue and you're building something that is a value chain proposition in AI and value chain means pretty much anything nowadays. Then scale AI is one that you can go after. They have a new accelerator stream, well, newer that you can go after, but you'd need a customer. You need the application to go through your customer, but that's one that if you're pre-revenue and you're, you've got this great idea and you want to get some funding, that's one, but there's few and far between.

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