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Hey, guys. My name is Nishant Raizada. I’m a Director, Technology and Innovation Banking lender at Desjardins. My role at Desjardins is to lead our initiative for getting debt loans out to tech companies. Mid-stage and early stage tech in Ontario. Really excited for this.
One is market potential. So like almost what is the problem you are trying to solve and is it big enough? Is it big enough for folks to get interested in. So market potential, you know obviously what is the solution that you’re approaching it with? Which is important because it kind of indicates, okay, well are you on the right path?
However, by the time you end up going to market, your solution is probably not going to look anything like what you started with. So investors aren’t probably looking to invest in your specific solution at hand. They’re still trying to see, are you brought enough and is your solution then adaptable enough within this broad market to go for the second thing that I think is very important is founder competency, founder experience.
They’re really looking to see, are you the right person to solve this big problem? Are you the right person to adapt it similarly and take on feedback to be malleable to the problems that arise as you end up growing and scaling?
I mean, a couple come to mind right off the top. You know, IRAP the SH&ED tax credit. So Scientific Research and Experimental Development. Any company can claim that doesn’t even matter if you have revenues so long as you have R&D expenditure. So that’s probably the biggest one I mentioned, IRAP right beforehand, so that’s through NRC and federal program Fed Dev on the provincial side and its affiliates to the economic development agencies.
Those are great for no interest loans, etc. BDC and EDC as far as Crown corporations go, are excellent. Not only do you get plugged, not only are the actual solutions there as far as helping lenders leverage more from EDC’s angle or providing direct debt itself in the form of term debt from BDC as well as venture capital through BDC.
So not only is out the case, but then there’s also the indirect, you know, ecosystem that goes to Crown Corp’s end up providing. And you know, a lot of soft support as well. From there on out, it comes out to industry specific items. So like if you’re in clean tech or if there’s any kind of innovation that helps on sustainability. SDTC, I know there’s a pause right now on funding, but when that does come back, it’s, you know, a pretty amazing program that they have out there.
And yeah, other industry specific grants would be the way to go.
It comes down to timing more than anything. The timing of what stage is your business, what kind of money do you want to deploy. All of that translates to what kind of risk is your business presenting and how does that risk match with the capital source? So at really early stages we have if product market fit hasn’t really been established.
It’s very difficult to make the argument that you’d want to take on debt even not that a lender should give it. It’s difficult for you to even say, I’d want to take that on because, you know, principal and interest payments are around the corner. Do you want to then have that stress on the business while you’re trying to think long term, while there’s a short term obligation coming right at the corner?
Conversely, though, is that there’s many instances where debt and equity can be very appropriate, oftentimes together, and many balance sheets for, you know, growth stage companies have a good balance of both debt and equity. Again, though, it comes down to how the money is going to be deployed and what is the right fit.
I think a common pitfall that startups will end up making is not engaging with your lender or your investor early enough in the process. And by that I mean, you know, months ahead when you’re throwing things at the wall. You know, are these the right type of projections or does my company really meet what your funds thesis is looking at?
Getting a real sense of what is the right time to be engaging in a transaction not just, you know, is it the right company as well? A negative ramification of not starting the process early enough really is the quickest way to get a no from a lender or from an investor because they just don’t really understand your business well enough and they don’t have the time to understand it well enough either.
So they end up either a no or you get really disadvantageous terms conditions on your actual agreement valuation. There’s not a really a good meeting of the minds on that one either. So, yeah, start the process early.
Not underestimating the impact that market factors are going to have on your sales pipeline putting and then budgeting for that accordingly. So if you’re drawing up projections, really do a sensitivity analysis on your projections and say, well, what if this one big client that I’m thinking I’m going to be onboarding next month, if things fall on the way-side or someone who’s really in the midst of the process and the normal sales cycle is, let’s say, a couple months seeing that trail longer because folks internally on their end are going to be, you know, really questioning should they be deploying that capital from their own businesses or on the consumer side, do you
have the money to budget for it? So really adjusting for that sales cycle and then having that adjustment in your financial projections adjust accordingly to say, okay, well, do we need to raise more money, Do we need to run the ship leaner? Really, You know, running those numbers in multiple scenarios is really important.
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