When CEO Adam Froman wanted to expand his 24-year-old business, Delvinia, he says the banks told him the company would have to give up equity if he wanted a straight senior debt financing loan.Thomas Bollmann/The Globe and Mail
As co-founder of SpacesShared, Rylan Kinnon has big plans to build his technology-based business, but has discovered that securing the funding for his startup can be almost as big a challenge.
“Our funding so far has been based completely on the relationships we built in our own network. Otherwise, it would be really hard to get backing,” says Mr. Kinnon, chief executive officer of the Toronto-based firm.
“We were lucky because our funding actually started with a conversation with my next-door neighbour, who liked our idea and got together some angel investors.”
SpacesShared, launched in 2023, is an online platform that connects homeowners with spare rooms to students and others who need a place to rent. Its algorithm matches potential hosts and renters for compatibility, takes a $25-per-month cut from each rental agreement, and partners with several colleges and universities that help promote the service to students and nearby homeowners.
Mr. Kinnon and co-founder Jackie Tanner got started by securing just under $100,000 in funding from Mr. Kinnon’s neighbour’s group of investors, who took a minority share in the startup.
Without risk, there’s no innovation; if something isn’t risky, someone would already have done it.”
— Rylan Kinnon, CEO, SpacesShared
“From there, we bootstrapped,” he says – the business term for using your own money to keep a company operating. They brokered three home-share agreements within months of launching and now have a growing list of partner schools raising awareness of their services, which helps build their client base and their potential network of funders.
“We got additional investment after that, through networking at one of our college partners’ events,” says Mr. Kinnon. “We still feel lucky because we know first-hand how difficult it is for startups in Canada to get initial funding.”
Being risk averse is part of Canadians’ nature, he says, “and decision makers on funding, including our banks, can be particularly risk averse.”
“Whether it’s policy-makers, potential lenders or investors, there’s a tendency to focus on the potential downfalls more than the opportunities,” he says. “But without risk, there’s no innovation; if something isn’t risky, someone would already have done it.”
Startups can seek help from banks and credit unions, and the federal government’s Business Development Bank of Canada (BDC) has an online application form for an open loan that can be approved and deposited within as short a time as five business days.
There are also online services such as Grant Match, a hub that helps paid subscribers identify government grants and incentive programs that may fit their needs.
Interest rates can be steep right now, though, well above the Bank of Canada’s key lending rate of five per cent. Alternatives, such as venture capital funds, look to hold a share in the business, which some entrepreneurs are reluctant to agree to because it might involve giving up independent decision-making or control.
Even well-established tech firms can find it challenging to rustle up funding for expansion.
Rylan Kinnon, CEO of SpacesShared, a digital service that matches students looking for rental space with homeowners.Supplied
“At the end of 2020 I was looking for about $5-million in debt financing from the bank,” says Adam Froman, founder and chief executive officer of Delvinia, a Toronto-based digital firm that runs surveys and provides research technologies to corporate clients.
“Our lines of business were taking off and I wanted to raise capital to go to the next level,” he says. “I wanted capital, but I didn’t want to dilute ownership because that’s a problem with Canadian tech companies – they get diluted and foreign investors come in.”
Mr. Froman says he went to every major bank in Canada seeking funding but was told repeatedly that the company would have to give up equity rather than receive a straight loan. “Every one of them said ‘You’re an equity play’,” he says.
“That was unacceptable. We were a successful business for 24 years at that time; all we needed was extra cash to accelerate revenues in one of our new business lines,” he explains. “I ended up financing the expansion myself by putting up other assets [unrelated to Delvinia] as collateral.”
Programs such as the National Research Council’s Industrial Research Assistant Program (IRAP) can be helpful for startups, Mr. Froman says. But even when startups secure funding from programs such as these, conventional lenders still are reluctant to offer top-ups.
“If our governments really want to help Canadian companies grow and stay in Canada, they need to find ways to make it easier for them to access senior debt financing without having to give up control of their businesses.”
There’s a “big gap” between where the government is with senior debt financing and where the banks are, he says – “and technology entrepreneurs fall into that gap.”
“The typical funding journey for a startup can be a vicious circle,” agrees Lloyd Rang, founder and president of Curious Public, a Toronto communications firm that works with SpacesShared and other tech firms.
“You don’t necessarily need cash for expanding and hiring; your main challenge is liquidity. You’re looking to lenders to give you some flexibility when your cash flow is going up and down in the early days,” Mr. Rang says.
“You might be able to a secure line of credit, but that can be hard to get unless you already have a few years under your belt as a company.”
Tech entrepreneurs need to be as creative in finding funding as they are in technology innovation, Mr. Kinnon says.
“It’s all fortuitous. We think our tech can put a dent in the housing crisis, but we can only do it with support,” he says.