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Funding Your Start-up

Posted on December 11 2014 | Author: Kelly Laidlaw

Being your own boss and following your true passion are among the many factors that entice thousands of Canadians each year to start their own businesses. In fact, a study by the Wharton School of Business found that grads who started their own businesses reported the highest levels of career satisfaction, regardless of how much money they earned. However, no one said that starting a company would be easy. Entrepreneurs often report that the hardest part of starting a new business is raising the initial start-up money. Luckily there are several ways to do this.

The Three Fs:
The first people that many entrepreneurs pitch to are the proverbial three Fs- friends, family and fools. This can be a fast way to get interest-free loans. However, mixing business with your personal life can get messy. To avoid ruining close relationships you may want to show them your business plan, let them know how much you’ve already invested into the business, and establish clear time lines as to when you’ll pay them back. If you find that your loved ones are weary of loaning money (perhaps they’re jaded from an annoying uncle’s get rich-quick-schemes) then take a look at the following options.

Personal Savings:
Many entrepreneurs start their businesses from their own savings. This is a good strategy since it allows you to maintain control over your company. It also shows investors and lenders that you have risked something of your own. This is a requirement to get many business loans. After all, if you aren’t willing to invest in your own company, how can you expect others to?

Bootstrapping:
Some businesses can be built up quickly enough to make a profit without getting investors involved. This can be done in some sectors such as the service industry, where there isn’t much initial capital needed for start-up expenses like employees or rent. Entrepreneurs can use their savings to get the business up and running, and then use the profits from each sale to continue to grow the company.

Debt Financing:
There are several types of debt financing, which are essentially loans that are paid back with interest. This is a good approach to getting funds relatively fast. Lenders want to make sure you have the following:

  • Personal collateral
  • A sound business plan
  • Realistic projected cash flow
  • A strong management team
  • Good credit rating
  • Commitment of your own money to the business

For more information on debt financing, click here.

Government Funding:
There are many options for government financing to either start or to expand your business. These include grants, contributions, loan guarantees and subsidies. The Canada Business Network site allows you to browse different government financing. The most desirable type of government funding is grants because they provide you with free money that you don’t need to pay back. It can take anywhere from 2 to 18 months to receive this funding. Understandably, you will need to be prepared to outline in great detail every aspect of your business and what the grant money will go toward.

Private Investors:
Angel investors are wealthy individuals who invest their own money in the hopes of getting a return from a business opportunity. Their investments usually range from $25,000 to $100,000.  Some angel investors act very quickly, while others take their time before investing. If you are comfortable giving up equity for financing, this can be a smart solution to raise capital. Though angel investors’ involvement levels vary, they can serve as a valuable mentor since many are entrepreneurs themselves who have successfully built and sold companies. Since they are risking their own money, it is in the angel investor’s best interest to coach you and to help your company thrive. 

Venture capital is money provided to start-ups from a fund, which is a pool of money that was raised through individuals or companies who have money to invest.  Venture capitalists usually invest larger amounts of capital than angel investors, and typically invest after the first round of seed funding.  They are looking to invest in innovative technologies with high-growth potential. Venture capital can be an excellent option for companies who are too small to ether raise money in the public markets or to complete a debt offering.

Harnessing the Crowd:
Crowdfunding is a valuable tool for entrepreneurs and businesses looking to bypass traditional sources of funding. Crowdfunding usually raises money through collecting funds from a large amount of people, or the ‘crowd’.  This is done via the Internet on sites such as Indiegogo and Kickstarter.  Project creators document their ideas on the website in hopes of getting donations and pre-selling their products. Crowdfunding can be a fast way to raise money, but even if your venture doesn’t get funded, at least you’ll get to test your business idea and get exposure. Keep in mind that you will need to carefully consider your company structure to ensure that you can maintain control of your business, since the number of shareholders could dramatically increase after crowdfunding. Recently, some provinces have been considering crowdfunding. In December 2013 Saskatchewan became the only Canadian province to have a crowdfunding specific prospectus exemption. Currently, there are no websites offering equity crowdfunding in Saskatchewan. Once equity crowdfunding websites are launched, the Government of Saskachewan’s Financial and Consumer and Affairs website will post them here, so stay tuned!

Kelly Laidlaw
Project Coordinator






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Due Diligence - An exercise in organization and presentation

Posted on December 04 2014 | Author: Ingrid Fung

At one point or another every company will require financing. While some may be able to access capital through founders, and personal networks, most will need to raise money externally.  Potential investors of every kind are likely to require a comprehensive analysis of the business to evaluate commercial potential prior to investing in a company.

Bioenterprise offers due diligence services to companies that are looking for investment. The goal of the process is to evaluate whether the claims made by a company are supported by the information provided.  While every project has it’s own challenges, invariably the key to a smooth due diligence process is providing well-organized, comprehensive information to evaluators.  

Organization of the information you provide is key to helping your evaluators understand your argument, and analyze your business. When providing this information, it is important to approach the process much like a presentation.  Organize your information by:

  1. Telling your reviewers what you are going to tell them. You can do this in the form of a pitch deck, business plan, or executive summary.
  2. Tell them.  Provide the information.
  3. Tell them what you have told them by summarizing the conclusions they should draw from each set of information provided.

Below are several tips that can help you better organize the information you provide:

  • Organize your documents in a similar order to the way information is provided in your business plan, pitch deck, or executive summary. This will make it easier for your evaluators to follow your lines of thought, and more likely to come to the same conclusions as you. It’s much easier to agree with someone when you are presented with support for their argument each step of the way.
  • For each section or type of information you provide (e.g. Intellectual property, Financials, etc.) Include an overview document that provides some kind of narrative as to how the information or documents came to be.
  • Take time to write out brief summaries or summarize complex data into easily referencable charts and figures. Basically, what you are doing here is providing a guideline for your evaluators, and then what they should be seeing in the information you provided and how they should be seeing it.
  • Take advantage of online file sharing services to organize your documents in easily sharable ways. This way when your evaluators look at the information, they will see it in the relative order, groupings etc. designated by you. Besides climbing into your brain, this is the next best thing.
  • Take the time to rename your files, giving them easy to understand, self-explanatory names. There is nothing more frustrating than to having to open dozens of cryptically named documents to decipher their contents.

There are a number of checklists and guidelines online that give a good overview of the information a company should provide (see end of document for some suggested resources).  However the organization, and presentation of information is just as important as the documentation provided.  Providing good written summaries of the information you provide will give evaluators and analysts a road map to refer to throughout the process. Well-organized information and data will make it as easy as possible for those evaluating your company to come to the same conclusions as you!

Ingrid Fung
Senior Business Analyst, Planting & Animal Science

Sample due diligence checklists:
http://www.pioneerbusinessventures.com/downloads/MASTER%20ACQUISITION%20DUE%20DILIGENCE%20CHECKLIST.pdf
http://www.grantthornton.com/staticfiles/GTCom/Advisory/Comprehensive%20M&A%20due%20diligence%20checklist%20for%20buyers.pdf
http://smallbusiness.findlaw.com/starting-a-business/buying-a-business-due-diligence-checklist.html
http://www.meritusventures.com/template_assets/pdf/diligence.pdf






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