For the last 9 years, I have been working as a VC investor and advisor to many technology companies in Atlantic Canada. As entrepreneurs in the region know too well, it has always been very challenging for companies in the technology sector to secure growth capital.
A few months ago, while at one of these companies, I came across Espresso and was impressed with the results of its investment programs. The knowledge and breadth of the team translates into a flexible and accelerated funding experience.
When I looked into Espresso further, I was impressed by the integrity of the team and values that the firm embodies. So, it is with the aim to give entrepreneurs in the tech sector of the region another option for growth capital (with Espresso’s targeted R&D dedicated funds) that I have decided to join the Espresso team as their partner in Atlantic Canada.

Here’s why:

Espresso has time and time again been a partner of choice for tech entrepreneurs looking for flexibility

Espresso Capital Partners (ECP) provides flexibility when a company needs a quick cash infusion. This proves invaluable when management needs extra time to improve revenue, ink another deal or land a marquee customer.

For growth companies or companies looking to hit the right inflection point and increase valuation – working capital financing is cheaper than equity in the long run.
In other words, Espresso working capital loans may either help the entrepreneur raise less equity than he otherwise would have or help increase the total amount of capital available to the company with less dilution. From a financial planning point of view, ECP growth loans can be an attractive insurance policy.

Funds are backed and managed by experienced angels, VCs and Technology Entrepreneurs

When I first began discussions with the Espresso team I was impressed by the breadth of experience and knowledge around the table. The team has directly been involved in multiple facets of company creation, fundraising, angel, early stage and venture capital investment, business development and technology company growth. In addition, the Limited Partners (LPs) in the fund are comprised of investors that are active angel investors, tech entrepreneurs themselves and Venture Capital investors.
In other words, the managers and the investors behind ECP have first-hand knowledge of the challenges and opportunities entrepreneurs face as they grow their companies. Therefore, the Espresso team is an ideal partner for companies that are looking for short-to-medium-term growth capital to supplement their working capital needs.

Impressive track record in less than 3 years

Very quickly, ECP has established itself as the go-to provider of working capital financing for entrepreneurs looking to get short term financing leveraging SR&ED Tax Credits and, more recently, Digital Media Financing. With the launch of Fund I in November 2009, Espresso participated in more than 68 in transactions totalling $20 million in Financing. In November 2011, Espresso announced the first close of its second fund (Fund II), with a target to raise $30 million. Fund II has already invested in tech companies in Ontario, Quebec, BC, Alberta, Saskatchewan, Nova Scotia and PEI.

Espresso will be expanding their lending product line to supplement current funding from traditional lenders and equity investorsEspresso will continue to evolve its lending product offering and provide loan and revenue stream credit facilities that fit the particular needs and circumstances of SaaS or subscription–based service or product companies. The business models of emerging tech companies can sometime be capitalized much more efficiently with growth loans. Therefore, Espresso is looking to address the short/medium term growth-capital needs of companies that do not want to fund their growth with equity only, but rather the right mix of Venture Debt and Equity.

Tech entrepreneurs in Atlantic Canada now have an established independent specialty financial partner to increase working capital quickly

In a recent transaction, A VC-backed startup based in Quebec partnered with Espresso Capital Partners and secured a Growth Loan to accelerate the completion of key operational milestones. The investors, in this case, recommended to the management of this startup in the digital mobile media space that Espresso was best suited to meet the working capital requirements of the company.
Espresso has already been active in Atlantic Canada. I was involved in a recent transaction in Nova Scotia and was impressed to see how the whole team at Espresso Capital Partners was able to come up to speed in no time. From term sheet to close, a $400K financing was completed in just 10 days.

To summarize

Espresso has been active across Canada and is backed and managed by experienced tech entrepreneurs, VCs and angel investors.
Companies in the tech sector at different stages are often looking to secure growth financing and increase working capital to supplement an equity round or buy some time to achieve a milestone that will increase valuation.
With the recent launch of Fund II, ECP continues to evolve and is now looking at ways to further expand and innovate by introducing new financing solutions that will help capital efficient companies further leverage their equity or their future revenue streams.
It is for all these reasons I have made the decision to join Espresso Capital Partners. I look forward to working with tech companies that stand to benefit by partnering with Espresso to optimize their capital structure and help them meet their funding needs.

Ben Forcier
Espresso Capital Partners

Experienced tech veteran, director, advisor, and former VC joins innovative technology financing firm

Espresso Capital is pleased to welcome Ben Forcier as Partner with primary responsibility for Atlantic Canada. Ben has extensive experience in technology finance as a former VC partner, investor relations professional, finance professional, and Director on technology company boards. His background and experience provide a welcome addition to Espresso’s unique technology financing solutions in venture lending.

Ben began his career at BCE Inc. in treasury management which then led him to roles in business development and venture investment at Bell Canada and BCE Capital (VC). More recently, he was Vice-President of Investment of Innovacorp, a seed and early stage venture capital fund and start up incubator.  At Innovacorp, Ben secured co-investors participating in rounds of financing that totaled over $35 million, put in place a successful EIR program and expanded Innovacorp’s scope by implementing a strategic fund of funds investment strategy.

In addition to his duties at Espresso Capital, Ben is also an advisor to a number of technology companies in Atlantic Canada and is on the Board of Nova Scotia-based Medusa Medical Technologies. Originally from Montreal, Ben is based in Halifax and has been living with his wife and two kids in Nova Scotia for the last 9 years. During the summer months, Ben spends time with his family along the Northumberland Strait in New Brunswick or golfing in the Dieppe-Moncton area.

http://www.techvibes.com/blog/no-worries-canada-sred-is-here-to-stay-2012-03-30

There was much sturm und drang in the Canadian technology community running up to this week’s federal budget. The Jenkins reports and hints from the government had many wondering if the SR&ED program, a major source of funding for tech companies would be cut.

But when the smoke cleared, any changes made were essentially fine tuning of the program. Not only is SR&ED here to stay, it is now being made simpler and more predictable. The overall program will be a bit smaller but more focused and easier to claim for technology companies.

I’m not sure if the tech community, which is notorious for its disdain for anything governmental, can claim a “victory” here, but it’s certainly good to see that it can rally around an issue when needs be. A much more proactive tech community may be in our future.

That said, let’s look at some of the budget’s effect on the SR&ED program:

General SR&ED Investment Tax Credit (ITC) rate

Most tech companies are Canadian-controlled private corporations (CCPCs ) and will be happy to know the 35% rate for qualifying CCPCs remains unchanged. The rate applies to the first $3 million in qualifying expenditures and is refundable.

SR&ED capital expenditures eliminated

This was always the dodgy end of SR&ED claims that flagged the most audits as some companies claimed all kinds of equipment as capital expenses. Eliminating capital expenditures will simplify claiming considerably. However, it will likely penalize the cleantech and other capital intensive tech sectors. It’s hoped the government will recognize this problem and mitigate it.

Overhead proxy rate reduced

There are two ways to claim SR&ED – item-by-item listing (traditional method) or the proxy method where companies claim as SR&ED overhead expenses, 65% of the total salary and wages of employees engaged in SR&ED.  The proxy rate is being cut to 60% for 2013 and 55% the next year. Most companies use the proxy method because it is easier, but may want to consider the traditional method given the reduction in proxy amount.

Companies may also want to consider putting some contractors on staff as the contractor rate of claim is being reduced from 100% to 80%. Making them employees will allow them to claim associated overhead expenses using the proxy method.

Contingency fee arrangements

The SR&ED program has been criticized for being overly complex, which forces many applicants to retain consultants on contingency fee to help them file claims. The budget proposed that the Government conduct a study of the situation and determine what action is required. Given the elimination of capital expenses in future years, this should make claims easier to file and potentially leave more money in the company’s hands. However, professional  tax and accounting advice will still be a good thing to have for any company filing SR&ED.

Enhancing predictability

One of the biggest complaints of the SR&ED program has been the somewhat subjective and seemingly arbitrary way in which CRA has been administering eligible expenditures. The budget ordered and funded the Canada Revenue Agency, which administer the SR&ED program, to take steps to make application results more predictable.

Other relevant budget aspects

The budget also touched other funding issues in the tech community. It is injecting $110 million a year into the Industrial Research Assistance Program (IRAP). It is also providing $500 million for venture capital in early stage companies in Canada — $100 million for Business Development Bank of Canada (BDC) and $400 million for venture capital companies.  This is in line with the Jenkins Report which recommended a balance of broad based incentive programs like SR&ED and more direct investment in the form of grants and contributions.

Summary

Despite the proposed trimming, the Canadian government is committed to early-stage technology companies and SR&ED is their primary vehicle to support growth in this sector. When combined with the various provincial R&D tax incentives, Canada continues to have a generous, broad based, incentive program to support R&D and technology growth in this country. The tech community now has to do our part to demonstrate why this government support will deliver a kick-ass return on investment for the taxpayers of Canada.

The $30-million Espresso Tax Credit II Fund was created in response to increasing demand from technology and digital media companies for funding alternatives.  Espresso Capital financing can complement or replace traditional equity financing for many companies in Canada.

Espresso’s first fund, Espresso Tax Credit I Fund, provided loans to companies involved in technology development based on their SR&ED tax credits, or money refunded by the Canadian government under the Scientific Research and Experimental  Development (SR&ED) program. During the life of Fund I, Espresso financed over $20 Million of loans to over 68 companies across Canada.

“We have seen amazing demand for our services across Canada, and we realized a second Fund with an expanded mandate was required in Canada,” explained Gary Yurkovich, Managing General Partner of Espresso Capital. “This fund answers a need for technology companies who need financing alternatives to traditional equity raises to fund growth, and for investors who are looking for alternative methods of investing in the technology arena.”

Similar to the Espresso Tax Credit 1 Fund, the second fund is primarily focused on providing financing based on a company’s R&D expenditure and anticipated Scientific Research and Experimental Development (SR&ED) tax credits. However, Fund II expands its services to include other tax credit programs such as Interactive Digital Media Tax Credits (IMDTC) programs administered by some Canadian provinces. Espresso has previously provided financings to several Ontario-based digital media companies under that province’s OIMDTC program.

“Espresso provided Recon Instruments with timely bridge financing that provided us with the working capital necessary to support the rapid growth of our business,” observed Ray Smith, CFO, Recon Instruments. “They are quick and professional and I would recommend them to other firms looking for working capital financing as an alternative to raising equity.”

Already a prominent provider of innovative financial services to technology companies, Espresso Capital Partners (www.espressocapital.com) will continue to grow and provide more services for additional programs as they are required.

For more information, contact:

Gary Yurkovich

Managing General Partner

Espresso Capital

gary@espressocapital.com

604-889-8454

Key accountabilities

• Source companies conducting research and development who are interested in short term financing
• Manage funding transaction including preparation and tracking of documents, interfacing with legal counsel, and tracking accounting
• Build Espresso brand in the Prairies to be the premiere venture debt funding company
• Manage risk on portfolio

Candidate competencies

• Excellent customer engagement ability
• Understanding of corporate cost of capital and financing economics
• Ability to accurately and precisely determine financial, operational and people risks
• Comfortable with technology industry sector
• Clear thinker
• Ability to effectively convey value propositions
• Excellent listener
• Organized and process-oriented

Education

• University degree required
• MBA and technology degree preferred

Compensation: Attractive, variable package

Location: Toronto, Ontario

Company Background

Espresso Capital Partners was founded in Vancouver in 2009 and has grown into Canada’s leading financial services firm specializing in alternative, working capital solutions.  Espresso Capital Partners provides an alternate source of short-term financing for private Canadian companies active in research and development. To date we have provided over $20 million in financings to companies across Canada. The team behind Espresso is comprised of high-tech veterans and entrepreneurs. We know, from our time in the trenches, what it takes to build and grow great companies.

To apply please send your resume to careers@espressocapital.com.

Espresso has a new Calgary office located at:

Ste. 1000, 250 – 2nd Street SW

Calgary, AB T2P 0C1

Telephone: 1-877-604-7733

• Bootstrapping – common, but difficult and suppresses growth
• Debt – offers greater control over business, interest is deductable as a business expense
• Equity (Angel funding, Venture Capital) – suited for high risk businesses, no repayment or interest obligations, loss or profit accrues to investors, brings advice, experience, and contacts

While cash is always available somewhere, it comes at a cost. The truth is business financing is always cheapest when you don’t need it. So, sometimes that cost can be higher than you think.
For example, people in the technology industry in Canada often believe equity is their only option for financing business growth. If you live in Silicon Valley, this may be true because there’s more of it and the Bay area is geared toward supporting startups. Further, there is significantly more merger and acquisition activity to fuel the investment cycle in the Valley.
Here in Canada, it’s a different story. The cost of equity is much higher than in Silicon Valley. There is a more conservative approach to startup equity funding and a much smaller pot of gold to dip into. Therefore, equity comes at a higher price in terms of shareholder dilution and eventual cost. Because of this, other forms of financing are also commonly used by Canadian technology entrepreneurs.
The real cost of financing
As an entrepreneur, do yourself and your business a big favour by ensuring that you understand the full spectrum of financial options for your company and pick the best mix for you.
Just as important, understand the real cost of that money.

1. Cash in your personal bank account is the cheapest and is the primary source of funding in bootstrapping.
2. Revenue from customers is the next cheapest because, other than operational costs, there are no costs attached to it. This is also used in bootstrapping.
3. Next comes purchase order and export financing from corporations such as Export Development Canada. Purchase order financing frees up cash for critical business expenses. In a sense, financing SR&ED claims is a form of purchase order financing combined with debt financing.
4. After that comes traditional debt, which has some costs, but, as explained above, are deductable from taxes. Of course ,too much debt is always risky.
5. Finally, there is equity, the most expensive and intrusive form of capital. Taking on too many equity infusions can place unnatural pressures on growth, as well dilute existing shareholders.

So, before you take that cheque, ask yourself: Is this truly the best source and cost of capital, at this stage of my company’s evolution?