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

Espresso Capital is seeking a dynamic individual to lead the business in Alberta, Saskatchewan and Manitoba.  The successful candidate will be responsible for growing Espresso’s venture debt portfolio and all aspects of managing the client relationship.  The ideal candidate is currently involved in the financial sector, is well connected in the technology community and possess excellent client management skills.

Candidate competencies

• Excellent customer engagement ability
• Understanding of corporate cost of capital and 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

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

Compensation

• Attractive, commission-based package

Location

• Calgary or Edmonton, Alberta

Education

• University degree required
• MBA and technology degree preferred

Company background

Espresso Capital Partners was founded in Vancouver in 2009 and has grown into Canada’s leading financial services firm providing SR&ED-backed loans.  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 $10million in bridge loans 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.

How to apply

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

• 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?

To better understand why so much money is being spent on consultants, one only has to look at other government processes.  A vast majority of companies retain professional accounting firms to complete their tax returns.  Why?  Because the skill of understanding the tax law and ensuring compliance is better suited to be outsourced than retained in house for most companies.  One may argue that the professional services are overly costly, but on the Canadian free economy, you get what you pay for.  Looking at the SR&ED consulting business, there are a number of highly skilled firms helping companies navigate the SR&ED system and if the system was sufficiently simple, the need for the consultants would diminish.  We would all like to see simplified systems which allow for companies to spend less on the back office and more on R&D, and customer-focused activities.

Mr. McKenna asserts that “…the program generates almost no economic benefits.”  While I don’t have not conducted a comprehensive survey, from the hundreds of companies claiming SR&ED that I have been involved with, I can assure you that without the program Canada would commercialize fewer technologies, employ fewer people, and be less competitive on the global stage. The SR&ED program allows a Canadian company to employ Canadian researchers and developers and not be forced to outsource those high paying jobs to lower cost jurisdictions such as eastern Europe or India. The majority of start-ups model their cash flow, financing and milestones projections to include some SR&ED component to offset costs and expenses.  A vast majority of my experience is with technology companies who rely on SR&ED to effectively compete with lower-cost or higher capitalized jurisdictions (read Silicon Valley) to bring their solutions to the global market.  If the SR&ED program did not exist what sources of funding would these young, passionate entrepreneurs turn to?  The returns in Venture Capital over the past decade have underperformed, banks have tightened their criteria for lending and the angel community is more cautious.  The government must play an important role in supporting R&D and commercialization in Canada to compliment other forms of capital and build world-class companies.

As a component of the start-up and mezzanine financing landscape, we play an important role to a small number of companies who would like to leverage one of the few assets they have.  With the choice of raising equity in a challenging environment, or bridging a cash flow shortage for a number of months, many companies find it clearly economically advantageous to take on debt and finance their SR&ED.  Very simply, with a few extra months of growth, the value of a typical company increases so significantly, that the cost of borrowing is minimal by comparison.

Reducing the number of fraudulent, overstated or misguided claims will help everyone from the government to the Canadian economy to the claimants themselves.  Mr. McKenna quotes, “CRA officials contacted by The Globe and Mail confirmed the account and acknowledged they’re facing “a growing trend” of bogus and fraudulent claims.”  The question that is not addressed is how to rectify this issue.  Will adding consultants, similar to auditing financials be of benefit or reduce the benefit to the intended recipient?  I believe there is a multi-directional approach that is needed:

• Clarify and educate.  The CRA can do a better job at achieving consistency across all the offices in Canada and providing more clear guidelines.  If a certain routine manufacturing process is not acceptable under the SR&ED program, no matter how big or small the claim, no matter who files it, no matter who reviews it, it should be rejected and an information circular should clearly back up the reasons behind the decision.
• Simplify.  Reducing the number of words describing a project, as the CRA has done in the T661 in 2008, is a step in the right direction.  Continual improvement of the forms and de-mystifying the qualification criteria will allow more claimants to complete the paperwork in-house.
• Penalize.  Simply put, if you’re caught with a fraudulent claim, hand out stiff penalties to everyone involved with preparing the claim.  Some companies have the attitude “Let’s see if this sticks” as they are uncertain in the project qualifies.  There is nothing wrong with this as long as the CRA has the systems in place to ensure that claims that are bogus are rejected.  SR&ED should be administered by CRA in the same way they administer income tax. It is OK to be tax efficient in your filing. It is Not OK to be making fraudulent claims and if caught, you will be punished.
• Consistency. One area that all parties agree, is that CRA has to be consistent in the way it handles claims. No one likes guesswork when it comes to tax claims, and a more uniform and consistent approach would benefit the program and its beneficiaries.

Consultants and lenders to the industry should be doing more to assist the CRA and the SR&ED program to conduct due diligence and ensure claims are valid and substantiated.  Mr. McKenna quotes “Mr. Brideau would not confirm what percentage of claims are approved without thorough review. He said the agency’s “risk assessment criteria, coverage rates and review strategies” are confidential.”  Perhaps the CRA should consider complete transparency for the risk assessment criteria and review strategies?  We are happy to clearly explain our due diligence, risk scorecard and process to any borrower – the more they are aware of what we do, the greater the probability we will have a successful transaction.  As consultants and lenders our job is to dig below the surface, ask the right questions, and provide guidance which conforms to the CRA guidelines.

The SR&ED program is vital to the continued R&D and commercialization in Canada.  Let’s all work to ensure the criteria are clear, consistently applied, and achieve the desired economic results.

Innovative Canadian Funder Creates Unique SR&ED Claim Lending Program

Toronto and Vancouver, March 10, 2011 — Employing inventive funding methodology, growth capital financier Espresso Capital Partners has helped almost 50 Canadian companies, primarily involved in technology, cover short-term cash crunches.

The Espresso SR&ED-based bridge financing program provides a new method for technology companies facing cash flow problems to raise funds. Previously, young Canadian companies needing cash for growth had little or no access to this short-term financing.

In a little more than a year, Espresso has provided $13 million in short-term loans to Canadian companies that qualify for Scientific Research and Experimental Development (SR&ED) credits. SR&ED is a Canada-wide tax incentive program that rebates part of the cost of development and commercialization of new and innovative products and services.

The SR&ED program is the largest single source of federal government support for R&D in Canada.

“Companies are calling us because there is no real system for short-term bridge financing in Canada,” explained Espresso Capital partner Garron Helman. “Usually, they’re young, growing companies with a lack of tangible assets, so the banks won’t touch them. They either don’t want to or can’t raise additional equity from the venture market, and their only other source of cash might be if an angel investor extends some to them. But they do have a fundable asset in their intellectual property and an SR&ED claim.”

Exacerbating this problem is a background policy of tightened lending by most banks in the wake of the recession and increasing conservatism among venture capital funds. This has created a shift towards using SR&ED as a method to finance growth or bridge to an equity raise.

As a result, seasoned entrepreneurs and investors Helman, and partners Gary Yurkovich and Greg Smith, created a further shift to accrued SR&ED loans (loan prior to SR&ED being filed) to allow for improved cash management. “SR&ED has always been available, but most people didn’t realize they can leverage a SR&ED claim as an asset,” Helman explained.

SR&ED financing can be an untapped source of capital for Canadian companies engaged in R&D without the entanglement of equity investments, Helman added.

“For young companies that have cash flow constraints, this asset can mean the difference between standing still and continuing on the growth path.”

For Further Information, Contact:

Garron Helman

Tel: 647-404-5005

Email: garron@espressocapital.com

For more information on small business financing in Canada

http://www.techfinance.ca/

http://www.ic.gc.ca/eic/site/csbfp-pfpec.nsf/eng/Home

http://sbinfocanada.about.com/od/smallbusinessgrants/a/smallbizgrants.htm

http://www.bdc.ca/EN/solutions/financing/Pages/default.aspx

http://www.communityfutures.ca/index.html

http://www.wd.gc.ca/eng/home.asp

“When the opportunity to acquire Neptune’s FieldNet & ARCS solutions presented itself to Clevest, we needed to find a way to finance the acquisition without affecting the company’s working capital,” said Tom Ligocki, CEO of Clevest. “Using the financing from Espresso Capital, we were able to finance the acquisition with cash, maintain appropriate working capital levels to run the business, and put the company in a stronger position to raise additional growth capital at a later date.”

In addition to strong growth, Clevest has a strong history of innovation that garnered recognition by the CATA Alliance in Ottawa at the 2010 Innovation and Leadership Awards for its Outstanding Product Achievement in the “Content and Application Mobility (MoCo)” category.

“High growth companies, by their very nature are always starved for cash,” continued Greg Smith, Managing Partner of Espresso Capital. “We are pleased we could be part of the solution to Clevest, assisting in the execution of their growth strategy and leveraging their SR&ED claim with our financing to increase their enterprise value.  We think that Clevest is a good example of a company monetizing an asset on their balance sheet to increase enterprise value using our innovative financing solutions.”

About Espresso Capital

Espresso Capital Partners is the premier privately held specialty finance firm focused on financing SR&ED claims. Founded in 2009, Espresso Capital Partners services all areas of Canada with offices in Vancouver and Toronto with representation in Calgary.

About Clevest Solutions Inc.

Clevest Solutions Inc., is the leader in Smart Grid Deployment & Post-Deployment Maintenance Solutions software and is the fastest-growing provider of Mobile Workforce Management solutions in the utilities industry. Clevest’s application suite provides modular tools that include Dispatching, Scheduling, AVL, In-Vehicle Navigation, Mobile and a patent pending Configuration tool. The company’s award winning application integrates the latest innovations in software, wireless technologies and mobile devices to get jobs done faster, smoother, safer and increase efficiency and reliability. For more information on Clevest Solutions visit www.clevest.com.