Startups need more than money to succeed… They need smart money !

Funding a startup is no small task: Building a great product or service is one thing, but finding and securing the resources that will allow your business to grow is another. 

If you don’t know where to search, finding funding for your startup may seem like an almost impossible task or like a full time job, but fortunately, in Canada, and Montreal in particular, there are many resources to help entrepreneurs like you fund & grow their business without having to work 50 hours a week on a side gig just to pay the bills.

Since the dot com boom in the 90s, there has never been such a major influx of investment capital, or government incentives for small and medium enterprises like yours.

This guide is a compilation of everything you should know when it comes to financing a startup in Canada, and a list of every important resource : (who to talk to, where to go, useful links etc.) for funding a business in the early stages of growth.

Find inspiration, support, partnerships, everything you need to make your project a success!

Bootstrapping: Does your company really need funding right now?

For certain very innovative startups, the cost of the early stage development is so important that receiving outside funding is an absolute must. Other business models can usually work just as well (or even better most times) by bootstrapping and working on a tight budget.

A Bootstrapped business will usually grow a bit slower than a Fully funded startup, but think about it: holding on to equity, maintaining control and having only your own skin in the game can provide many benefits for your business / team spirit on the long run.

It might surprise you to know that most start-ups, even some of the most famous ones, were bootstrapped (see the fascinating story of GitHUB) . Founders cash and savings usually represent a good chunk of that seed capital needed for bootstrapping a business, but there are many other ways to fund your startup while developing it.

One interesting way of bootstrapping your startup is by selling your services. As the founder of your company, you’re most likely talented in at least some key area, and this is the area you should focus on to keep your business afloat. Many startup founders fund there business by doing consultation work or other services related to their field of expertise.

First you must figure out the monthly needs for your business in terms of cash flow, and then figure out a way to secure this income in the most time efficient way. This could be anything from website development, graphic design work, blog writting, SEO, marketing, PPC to programming etc.. It pays to think creatively and test the waters with different freelancing gigs. 

Anything you can do to reduce your startup cost is also good for your business on the long run.

How much money am I willing to invest into my business? 

Equity financing 

Equity financing is one of the most common forms of early funding for innovative startups. This means raising capital through the sale of shares.

This basically means the company sells part ownership of their company in return for funding. We often hear the term equity referring to the stock market, but, in the world of startups, equity is traded privately between the founders and investors like VCs and Angels.

There is nothing more important  in the world of equity financing than understanding the fundamentals of funding rounds:

The basics of Startup Funding Rounds

There are many stages to seed funding rounds, and every stage represents a stage of a company’s life cycle. 

Pre-seed funding stage

Pre-seed is usually the term given to the founder’s initial investment out of his own pockets to fund his startup. In some cases Angel Investors and in some cases VC’s are now getting involved in the pre-seed funding, but for most cases, it is usually  a mix of the founders savings, and friends & family who invest at this stage.

The 3 F’s (Family, Friends & ”Fools”) are usually the ones who dare to believe in your dreams & invest in your projects before anyone else ! So do not count them off ! According to statistics on the Fundable crowdfunding site, friends and family are the major funding source for all entrepreneurs, investing over $60 billion into new ventures in 2014. 

The Founder Institute is a great accelerator for pre-seed stage startups: The Founder Institute.

Seed funding stage

The seed stage is the first true funding stage : usually, a group of investors will get together and fund the early development of an idea. At this stage your business must already be showing at least a little bit of traction with clients. Convertible notes, preferred stock or straight equity are all typical ways of paying back your investors at this stage. 

At Seed stage, having the option to access the knowledge and the connexions of investors is a great advantage, so it pays to take your time, negotiate and pick the right people on your team. This opportunity to lay the groundwork for your business only arises once, and to succeed you must do it right.

Most common seed funding sources are Accelerators, Angels and specialised VCs but many banks and major technology corporations offer VC and other type of private equity seed funding in order to capitalise on the next big innovations.

Series A funding Stage

Series A funding usually comes from a smaller number of VCs and Angels who will invest seed funding, usually in exchange for equity.

If the seed round is dedicated to laying healthy foundations for the business, Series A funding will truly start up the eninge and start scaling the initial growth of the company. 

That’s why the main question to ask before going in for a Series A is: Can this business scale? VCs and Angels will want to see that you truly know what you’re doing which means having a track record with clients and a well orchestrated plan on how you will grow your revenue in the next coming months to repay your investors.

Series B funding stage

While in a Series A funding the goal is usually to support a business model that already works, scale it and prove that the company can reach their goals and repay their investments, the Series B is there to add fuel to that fire. 

Startups that access a Series B are usually starting to make profit, and the biggest challenge at this point is scaling fast with the limited funds they have. 

While in Series A, most of the investment still rests on the “promises” of the new company, in a Series B, the investment is based on facts and statistics, like market share, revenue, growth, profitability, the company’s assets, etc. That is why, many companies that get Series A funding, don’t necessarily make it to Series B.

Series C funding and beyond

Most small startups don’t make it to Series C or don’t need it. It is the first of the “later stage” rounds, reserved for companies with huge traction and potential to make a huge imprint into the international market. A series C can lead into a D, E, F if the company is interesting and growing in a stable enough way.

At this stage, hedge funds and banks start to become much more common as the investments become more and more important.

Important Seed Funding Ressources

Founder Fuel

Investor and accelerator with a 13 week program focused on the pre-seed to seed stage. The investment terms for 2016 are 100K for the equivalent of 5% in equity. FounderFuel is powered by Real Ventures, the most active seed stage VC firm in Canada.

White Star Capital

White Star Capital is committed to startups in the new technologies sector.They invest at Seed and Series A and typically write checks from $500k to $5m.  They can be the lead investor or co-invest with other investors.

Five angel investors in Montreal announced a new fund, Interaction Ventures, to help startups in the city.

Angel Investors

Angel investors are usually high net worth individuals and philantropists who invest in startups in exchange for equity or convertible debt. There are angels from every area of business, but they are usually either former entrepreneurs themselves or professionals who have recently retired and are interested in helping the next generation of startups.

Contrary to Angels, VC’s are bound by strict rules and operating procedures . Angels usually invest out of their own pocket, in contrast to Venture Capitalists  who are basically  fund managers. That assures the investor is more engaged in the growth of the company and it also allows for more flexibility in how the deals are being set. Angels are usually much more flexible in the deals they offer, but they this also means more equity is usually given away since Angels are more engaged in the actual company than VC’s which are usually only involved in the funding side of the business.

Angel investments are one of the most expensive form of capital, since they usually invest at earlier, riskier stages of a startup’s development and have a much higher target ROI (10-20X more) than Venture Capitalists.

Important Angel Investor Ressources

Anges Quebec

Founded in 2008, Anges Québec is the largest group of angel investors in Canada whose mission is to invest capital and expertise in innovative Québec-based companies.

Montreal Angel Investors

Montreal is home to important VC firms and angel investors. In case you are thinking about starting, establishing or taking your startup to Montreal, this website has a list of angel in the city: https://angel.co/montreal/investors.

Venture Capital funds

VC funds are funds invested in start-up companies with high growth potential. 

The main ways each VC differentiates themselves is in these 3 dimensions:

• Geography (ex. Canadian, North American, Global), 
• Stage (Seed, Series A, Late Stage), and 
• Sector (medtech, IoT, cleantech). 

It is important to keep this in mind so that you approach the right kind of VC at the right stage growth.

Important VC Ressources

Inovia Venture Capital

Inovia Capital is a venture capital firm specializing in investments in early-stage, seed, mid venture, late venture, growth capital, and start-up stage companies.

BDC Business Centre – Venture Capital

BDC is the only bank devoted exclusively to entrepreneurs. They offer financing, venture capital, growth & transition capital and consulting services.

Champlain Financial Corporation

Champlain is a flexible and entrepreneurial private equity firm focused on small and mid-market companies

Investissement Quebec:  

Investissement Québec invests in innovative, visionary projects that promise a bright future. This funding, which is vital for businesses, may be contributed directly or indirectly through specialized funds.

Incubators and Accelerators

Startup Incubators and Accelerators are basically growth programs for startups at different stages in their lifecycle. 

Accelerators “accelerate” growth of an existing company, while incubators “incubate” disruptive ideas with the hope of building out a business model and company. So, accelerators focus on scaling a business while incubators are often more focused on innovation

Both of theses types of programmes guidance, connexions and, most of the time a coworking space and some startup capital. 

Incubators tend to work with startups at the earliest stages, usually before the company is even making money. 

On the other hand, Startup Accelerators usually work with startups that already have somewhat of a  proven track record, and stable way to generate profit. 

Though it may be very attractive to find an Incubator to help your startup, you might want to think twice before getting involved or committed: Startup Incubators will most of the time ask for some equity in your business in order to help you in the initial stages of growth. Giving up equity is a major decision for any business, but it’s also a useful tool to get people truly involved in the success of your company. 

Important Incubator/Accelerator Ressources

EcoFuel Acceleator & Funding

Ecofuel is a venture capital fund and a specialized and personalized accelerator dedicated to seed stage cleantech startups. In addition to seed financing of up to $75,000, Ecofuel Accelerator offers training workshops, networking sessions, and an experienced mentor ecosystem.  

Rho Canada Ventures

Rho Canada Ventures is a division of Rho Capital Partners focusing on early-stage investing in Canada’s most innovative technology companies.

Tandem Expansion

Tandem Expansion is a private growth capital fund seeking to invest in small and mid-sized Canadian companies in a variety of technology-based sectors. Their objective is to accelerate the growth of established businesses.

Equity crowdfunding

Equity crowdfunding means raising funds from many individual investors by selling securities like shares (or convertible notes) in a company that isn’t already  listed on a stock exchange. This type fo funding has many benefits for startups but also some potential drawbacks: Investors stand to make a profit if the company is successful, but they can also lose their entire investment if it flops. 

For companies, equity crowdfunding is a great opportunity to not only gain investment funds, but also get good feedback from potential clients, and a good PR/Marketing boost at the beginning. This adds usually gives alot of online visibility and credibility to the company, and often the initial investors will follow up their investments in further rounds.

Government funding

Usually most startup funding in Canada is made by the private sector, but there are also many opportunities for business’s to get government funding.

The canadian government has many funding programs in place to help fund innovation and regional development projects.

These funding programs offer pretty enticing investments for startups but the downside is that the application process is often very complicated and just like with anything government related, the money usually has to be used in a very specific way, following a strict set of rules and regulations.

Here is our roundup of the most important government gunding options for startups and scale-ups in Canada.

Government grants

The best place to check wether or not you’re eligibile for local or national grants is the Canadian Government’s website.

Canadian Government Grant Funding Directory

Innovation Canada

Canada Small Business Financing Loan

This is a government-backed loan scheme that can grant access to up to $1,000,000 to Canadian small businesses.

Futurpreneur Loans

Futurpreneur Loans are government backed financing options for entrepreneurs starting out.  Entrepreneurs from 18 – 39 can borrow up to $60,000 – $40,000 of which are provided by the BDC. Companies that secure these loans can also access to some mentoring programs and other ressources.

Other Interesting Entrepreneur Ressources in Montreal

Info Entrepreneurs

Info entrepreneurs supports the economic growth of SMEs in all regions of Quebecissance économique des PME de toutes les régions du Québec

PME MTL

PME MTL, a network of experts in financing and supporting entrepreneurs and businesses | Business Plan, Loans & Grants, Consulting Services.

Devenir Entrepreneur

Devenir entrepreneur is a platform that will allow you to acquire the inspiration and the necessary information to undertake.

Fundica

Fundica is a privately held Canadian financial services corporation based in Montreal, Quebec, that matches businesses, particularly startups and SMEs in the technology sector, with appropriate sources of funding. Fundica’s database of funding opportunities is accessible via a proprietary search engine on the website.

Réseau Capital

Réseau Capital, the Québec Venture Capital and Private Equity Association, is the only private equity association that brings together all stakeholders involved in the Quebec investment chain. The mission of Réseau Capital is to contribute to the development and efficient operation of the private equity industry, which plays a major role in the development and financing of businesses in Québec.

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Securing funding for a business plan is no easy task and we hope this article gave you some guidance and helped you make sense of the complex world of funding & venture capital!

We have curated this list after a thorough research, and each name in this list has been selected after much care and consideration. All these links & resources are beneficial for startups and small businesses looking to expand and take their service or product to the next level. We wish you great success!

Would you need more personalized information or simply some guidance, feel free to book a free 30-min call with us.