An Intro to North American Mentors and Funding Ecosystem

If you are ready to prove your entrepreneurial mettle as a global leader, look no further than the North American market. Canada, in particular, has a world-class entrepreneur ecosystem with competitive advantages in many areas, such as strong government support, an active mentor and funding community, a consumer market full of early tech adopters, economic stability and highly skilled talent. According to the Global Entrepreneurship Monitor, the Canadian population thinks that entrepreneurship is an upstanding career, with 75% of the public regarding entrepreneurs as having high status.

Slack, Shopify, Wave, Hootsuite, Vidyard, Wealthsimple and Freshbooks are just some examples of Canadian Start-ups that have gone global. 

Starting, building, and scaling a business in a new country is not necessarily easy. But equipping yourself with the right people, guidance, knowledge, and tools can help you prepare a path to victory. It has been proven that the most effective way to integrate a business into a country’s landscape is through local mentorship and funding. It also helps that the funding community in Canada is proactively on the lookout for the next big start-up. Government programs like Start-Up Visa Program invite entrepreneurs into the country with great benefits. Incubators like Toronto Business Development Centre even offer mentorship programs with access to VCs, industry insights, and mentors.

Who is a Mentor?

At this point in your Start-Up Visa Program journey, you would already have defined your business plan, model, financials and, to some level, your marketing strategies. But before you start execution, you must strongly align yourself with the Canadian market. Although mentors are helpful for guidance at any stage of a company’s lifecycle, a mentor would be a foolproof way to hit the ground running at such a crucial stage of business relocation to another country.

But first, let’s understand who a mentor is (and isn’t)

Mentors are not your boss or a replacement for an executive team. They are not responsible for making decisions on your behalf. They do not provide support beyond their time and expertise. Mentors should not be viewed as a source of funding. 

Mentors provide guidance, advice, feedback, and support. Mentors are generally individuals with experience, knowledge or skills that can help you reach your goals. Mentorship is a structured relationship. Mentorship can be formal or informal but is most successful when expectations are pre-decided for the Mentor and the Mentee. The most successful mentorships are built on trust, commitment, proactivity and clear expectations.

Do Mentors Expect Payment?

This depends on the expectations laid out in the mentorship structure. Mentors who spend less than a couple of hours on your business monthly don’t necessarily expect compensation. However, if a Mentor offers support in the form of Network Capital or more than 10 hours a month, you should be prepared to pay. If the Mentor wants to commit to you long term, you can offer them equity, generally in the range of 1 – 5%, or come up with other standard payment structures by the hour or month.

What can I expect from a Start-Up mentor?

The following are considered reasonable expectations from North American Start-Up Mentors:

  • Be a sounding board for ideas and problems
  • Share knowledge about North American systems 
  • Give realistic industry perspectives
  • Constructive Criticism
  • Encourage productive discussions and dialogue
  • Motivation and encouragement
Start Up Mentor Goal Setting Question

The following are best avoided as expectations from Start-Up Mentors:

  • Taking the lead for you
  • Provide personal connections to their network
  • Spending more time than committed

How can I set goals for what I want from a Mentorship relationship?

An easy way to set Mentorship goals before approaching one is to ask yourself the following questions: 

  1. The reasons I want a mentor are …………..
  2. I would love to discuss with them the following ……………………………..
  3. Their support will help me in these ways …………………………………
  4. I need their support for the following stages of my business……………..
  5. I would need the following amount of time with them on a weekly/monthly basis …………..

Goal, set, match. How do I find the right Mentor?

Canada has a variety of mentorship programs that help you find the right mentor match. They are designed to support your professional and personal immersion. Government organizations like TRIEC (Toronto Region Immigrant Employment Council) and OCISO (Ottawa Community Immigrant Services Organization) have mentorship programs that are not specific to start-up founders but can help other aspects of your life in Canada. For example, OCISO’s Get Settled program can support you with housing, schools, neighbourhoods, transportation, etc. 

To find Mentors for your start-ups in Canada, these are some of the best formal and informal channels:

Industry Gatherings or Events: Websites like MeetUp, and Eventbrite can provide you with options for informal networking setups with mentors and other founders. Events like Collision Conference bring together some of the world’s best entrepreneurs and mentors. Spaces like HackLab, Interaccess and ThinkTankLab can also bring you face-to-face with people who may find value in a mentorship relationship.

Incubators & Accelerators: Organizations like TBDC have mentors on their team specifically onboarded to navigate entrepreneurs as they relocate their business from their home country to Canada. Incubators and Accelerators create opportunities for entrepreneurs to meet, mingle and connect with these curated mentors. They also typically organize workshops or sessions with mentors for topics that help you grow your business in North America. TBDC has 50+ mentors who are established entrepreneurs or experts in industries ranging from HealthTech, Advanced Manufacturing, FinTech, EdTech, Pharmaceutical, Sustainability and more. You can view the complete list of TBDC mentors here.

What does the Canadian Start-Up Funding Landscape look like?

Canada is one of the most active countries in North America when it comes to funding startups. Canada is said to be ‘in a venture explosion’ today, with funding beating all its previous records in several deals and dollar amounts in the country.

In 2020 Canadian start-ups raised $2.9B with 617 deals. In 2021, just the first half, Canadian startups raised $6.3B across 414 deals. In the first half of 2022, Canada has already seen $6.2B  across 371 deals. Canada has government grants, funds, VC, and Angel networks looking for promising start-ups. Bookmark these for your reference:

Canadian VC & Private Equity Funding

BDC Capital: BDC provides business loans to companies in operation starting at less than 12 months. They offer quick and easy online loans up to $100,000, working capital for cash flow infusions, and funds for equipment purchases or technology purchases. BDC is also the most active fund in Canada as of 2022.

Inovia VC: Inovia has funded some of the biggest Canadian start-ups in the past, like Lightspeed, Clearbanc, Future Family and Clearpath. They offer fund support to start-ups from the seed stage up to IPO. 

The51 Ventures Fund: A venture fund that makes investments in women-led early-stage companies. The investments are generally equity or debt related. 

Golden Ventures: A seed-focused venture fund based in Toronto. They have already made over 70 investments in seed-stage start-ups.   Here’s a directory of 270 firms and individuals representing venture capital and private equity firms, angel and family offices and more curated by the Canadian Venture Capital Private Equity Association. Click here.

Canadian Government Funding Programs

The Canadian government has hundreds of benefits, grants and funds available to eligible start-ups. Below is just the tip of the iceberg. 

Accessible Technology Program: A Canada-wide fund that supports the development and testing of affordable technology for people with disabilities. A non-repayable grant of up to $4M per project/year.

Advanced Manufacturing and Innovation Competitiveness (AMIC): An Ontario-based fund for  SMEs in advanced manufacturing, providing up to 15% of eligible project costs or up to a maximum of $5M in grant or loan funding.

Strategic Innovation Fund (SIF): A Canada-wide fund aimed at substantial companies that can advance Canada’s strategic technological advantage and promote clean technology. Some streams are eligible for up to $10M in contributions. 

Proof of Concept Program: A grant that supports the commercialization of innovative natural products and technologies applicable to food production, wellness, water, waste management, agriculture, bioproducts or health. This grant offers up to 40% or $250,000 of the total cost to develop a proof of concept. 

Innovative Solutions Canada Program (ISCP): A fund of up to $150000 to solve a problem the Canadian government is facing. If the proof of concept is approved, start-ups can get up to $1M to develop the prototype. 

You can find a complete list of grants, funds and programs here.

How to Value your business for Canadian Investors

When valuing your business, choosing a couple of different methods is best, as one size rarely fits all.  Valuations can vary based on the stage of your business, the business model, the founding team, pre-revenue or post-revenue, competitor landscape and many more factors.  Since valuation is not an exact science, it is advisable to portray a range of valuations for your investors and other stakeholders.

Here are some pre-revenue and post-revenue start-up valuation methods

Pre-Revenue Start-Up Valuation Methods

Start-up incubator valuation methods

The Berkus Method

This method judges 5 aspects: Concept, Prototype, and Quality Management. Connections and Launch Plan. Each aspect can be rated up to $500,000, capping the potential valuation of a pre-revenue start-up at $2.5M. This is a straightforward estimation that works better for tech start-ups. 

E.g., If your idea offers basic value with acceptable risk, it can fetch a rating of $300K; if your Prototype proves it has eliminated technology risk, it can get a rating of $500K and so on until all aspects are rated, and you come as close to the $2.5M valuation. Below is a visual representation of the method. 

Please note: It does not consider the market, competition and other factors.

The Scorecard Method

The Scorecard Method, also known as the Bill Payne Method, compares your business to similar recently funded businesses in the market across essential categories. The categories include Team, Opportunity Size, and Product/Technology. Competitive Environment, Sales/Marketing, Need for more Financing, Other. Each of them comes with a weightage contributing towards the final valuation. 

Start-ups have to begin by conducting in-depth research into their competitors who may fall in the same category. Following this, each category must be compared to the competitor.

E.g., the Team accounts for 30% of the total weight compared to FreshBooks’ founding team; you believe your team stands shoulder to shoulder at 100% of their founding team. So you will multiply .30*1 to get the factor.  If the size of your opportunity is more significant than your competitor at 125%, you will multiply .25*1.25. If your competitive environment is 80% of your competitor, you will multiply .1*.8. All the factors are then summed to give you your total score.

The Venture Capital Method

The Venture Capital method is generally used for pre-revenue start-ups by VC’.s VCs who want to know at what multiple they will get back the funding they are investing in now. The formula to calculate this is

Pre-Money Valuation = Terminal value / ROI – Investment amount

You need to calculate multiple values before getting to this final formula. 

Terminal Value is the expected value of a company at a future date, and Harvest Year is the year when an investor wants to exit.  Terminal Value is calculated in the following way.

Terminal Value = Projected Revenue * Projected Margin * P/E

E.g., If a company’s expected revenue is $5M revenue in 5 years. Their profit margin is 20%.  The industry P/E ratio is 20. Then their Terminal Value will be

$5M*20%*20 = $20M

You can find PE ratios for Canadian Sectors here.

Pre-Money Valuation is simply the value of your start-up before any money is invested. Now enter your Terminal Value into your Pre-Money Valuation formula.  

Pre-Money Valuation = Terminal value / ROI – Investment amount

E.g., The company’s Terminal Value is $20M, and a VC’s expected ROI is 10. The VC is investing $1M today. 

$20M/ 10-$1M = $1M

By this calculation, we can understand that for the VC to get a 10x return on their $1M dollar investment in 5 years, the start-up’s current pre-money valuation is $1M

You can find more pre-revenue valuation methods like the Risk Summation Method, Asset-Based Valuation Method and Cost-to-Duplicate here.

Post Revenue Valuation for Start-Ups

EBITDA Based Valuation

The EBITDA formula may be handy if your business is already generating revenue. EBITDA stands for Earnings before Interest, Taxes, Depreciation and Amortization. The formula is:

EBITDA = Earnings + Interest + Taxes + Depreciation + Amortization

You need a multiple to multiply your EBITDA to arrive at your valuation. For this, find companies similar to yours that have recently been sold. Compare their selling prices with their EBITDA Information. Take an average of a multiple based on that.

E.g., If your EBITDA is $1M, the multiple is X5, then a valuation of $5M can be ascribed to your business. 

Note: This method is used more for traditional brick-and-mortar businesses.

Revenue and Growth Based Valuation

In the tech world, for a business already generating revenue, it is more commonplace to calculate a valuation based on the Revenue and Growth numbers.  It starts with your annual revenue, and a multiple is decided based on your growth rate. The higher the growth rate, the higher multiple your valuation can comfortably demand. 

E.G., If you did $1M in revenue last year and your YOY growth rate has been 40%, then it can drive up your multiple to 6-10. Your start-up valuation could be $6-$10M. However, if your growth rate is 10%, you would only be able to negotiate a multiple of 1-2, bringing your valuation to $1-$2M.

Are you looking to move your start-up to Canada?

If you think your start-up is the right fit for the North American market, we suggest connecting with our Toronto Business Development Center (TBDC) experts. TBDC is a start-up incubator that supports and guides international entrepreneurs to set up businesses in Canada. With solid government ties and access to 100+ mentors and funders, TBDC has helped over 9000 entrepreneurs. Contact us today.

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