On May 21, 2020, the National Angel Capital Organization (NACO) hosted a virtual discussion as part of its weekly roundtable series featuring experts “united in attacking the economic effects that are impacting all sectors and levels of society” with attendees from across Canada.
The discussion was hosted by NACO CEO Claudio Rojas, and featured experts Michael King, Finance Professor at the Gustavson School of Business at the University of Victoria; Frances McRae, Assistant Deputy Minister of Innovation, Small Business and Marketplace Services at Innovation, Science and Economic Development Canada (ISED); and Laura McGee, founder and CEO of technology solutions provider for diversity and inclusion, Diversio. Amanda Filipe, Director of the National Initiative for Women Entrepreneurs at NACO, also attended and supplied questions later in the discussion.
The experts discussed funding that is available to small businesses in this challenging time, focusing on the difficulties associated with and the importance of start-up companies obtaining funding. It is commonly known that many start-up companies use funding to help develop and protect their intellectual property, a key component of growth and sustainability.
Dr. Michael King spoke to the difficulties facing start-up businesses because early-stage companies are not included in the current government funding packages being offered, and because there is an overall shortage of investment capital owing to the pandemic. He focused on three recommendations for future government funding packages that would directly benefit start-up businesses in Canada and help keep the entrepreneurial ecosystem alive:
- Leverage angel investment to ensure that early-stage, high growth companies will survive and thrive despite the pandemic by setting up a co-investment fund whereby the government matches each dollar invested by angel investors.
- Introduce a federal tax incentive program for angel investors (noting that such programs are already in place in certain provinces) which matches investment with the goal of encouraging angel investment across the country at a time when it is needed most.
- Offer convertible notes as opposed to loans so that, instead of putting companies at risk of default, the convertible notes will serve as short-term loans that convert into preferred shares when more equity is raised, also benefitting the investor.
Assistant Deputy Minister, Frances McRae, touched upon several new Federal economic assistance programs. The Canada Emergency Business Account (CEBA) program is available to provide interest-free, forgivable loans of up to $40,000 to “small” businesses (namely, those that paid under $1.5 million in employment income in 2019) that are suffering a temporary loss of revenue. The aim of this $25 billion program is to provide small businesses access to sufficient capital to remain solvent during the Covid-19 pandemic. The Regional Relief and Recovery Fund (RRRF), which was originally developed for those who are ineligible for CEBA, is a nearly $1 billion program and is available to provide assistance to businesses in sectors such as manufacturing, technology, tourism, and others that are key to particular economic regions (Atlantic Canada, Quebec, Canada’s North, Southern Ontario, Northern Ontario and Western Canada). The Canada Emergency Commercial Rent Assistance (CECRA) program is available to provide unsecured, forgivable loans to commercial property owners who receive rental payments from “small” business tenants (namely, those paying less than $50,000 in monthly gross rent per location) that have suffered at least a 70% decline in pre-Covid-19 revenues, in exchange for a reduction in rent of least 75%. Assistant Deputy Minister McRae indicated that these programs are continually being revised in view of the ever-changing Covid-19 situation. Up-to-date information about each of these programs is available on the Government of Canada’s Covid-19 Economic Response Plan website.
Laura McGee answered questions about the importance of the innovation sector to Canada at large. She provided two main reasons for keeping the innovation economy thriving during the Covid-19 situation and developing support and programming specifically for this sector:
- Over the past few years, there has been significant investment to create companies that will power Canada’s economy and many of these companies with the potential to return that investment are now at risk of failing within the next few months without government intervention.
- The pandemic has created a number of unprecedented problems that need to be solved (e.g. PPE, healthcare, remote working needs, safety implementation) with many solutions coming from the tech community.
Ms. McGee also discussed some positives of the currently available funding, stating that funding has been easy to access and that the government has been agile with its response, modifying solutions according to feedback.
Another topic discussed was the risk the pandemic poses in erasing the gains Canada has made in supporting diverse entrepreneurs. Aside from the moral case to support these businesses, Ms. McGee suggested that assisting minority-run businesses will position the economy for a quicker recovery.
In summary, while start-up companies face unique challenges owing to the Covid-19 pandemic, the Government of Canada recognizes the importance of small businesses and entrepreneurs to the national economy, and is actively listening to individual needs for funding. Small businesses and entrepreneurs are encouraged to explore the various government economic programs that have been introduced in response to Covid-19, as well existing resources pertaining to funding for intellectual property development, such as:
