Archive for Technology Startups

EBC’s – Important Notice- Budget Update.

Written by on February 23, 2009 | Technology Startups

On Feb 12th, Rick Manifold from the BC Investment Capital Branch sent out word to all the EBC’s that until March 1, 2009 investors can get 2008 refundable tax credits for their investments in eligible BC businesses!   Eligible business owners are strambling to drum up some investments given this significant investor incentive but is it too late….

This should really be a no brainer investment if you can find the right eligilbe company to invest in… therein lies the problem.  

Here’s how the program works:

  1. Find an eligible  BC tech startup- (there should be a published list somewhere?) (or a fund like WUTIF or Bootup Labs VCC) and determine whether you can invest- friends & family exemption, accredited investor, Offering Memorandum, etc.
  2. Determine merits of the investment- how, when and how much money will you get back… this can be risky in which case you may want to look at Wutif or Bootuplabs which will diversify this risk and keep a sophisticated investor team evaluating the merits of the investments.  Both have very low management fee structures (will work on a comparison table for a future blog entry).
  3.  Pay for your investment ex. $10,000 (but consider doing it through your self-directed RRSP) for a kicker return.  If you had a good 2008 and were at the top tax bracket (example over 123k salary) this RRSP investment will yield a $4,370 tax refund.
  4.  Get your EBC/VCC tax credit which is a 30% refundable tax credit or a further $3,000 refund on a 10k investment.

So your net investment is $2,630 for a $10k investment… wow!

But it doesn’t stop there!  Eligible Tech startups are generally eligible because they are developing technologies that would qualify for the SR&ED corporate tax incentive program.   So let’s look at how that works in this example.

  1. The Company takes your $10k investment and pays programmers/engineers etc. to help develop the technology.  
  2.  The Company files a tax return and a claims for the Federal and BC SR&ED tax credit which can generate up to $6,847.50 (assuming Proxy space is available) of additional refundable tax credits to the Company.

Let’s recap- you spend a net out of pocket $2630 which provides your investee company $16,847.50 of cash to build technology that can be then marketed and sold generating a return on your investment!  

You will have to hold this investment for a minimum of 5 years but that is the typical length of time that would be needed to bring such technology to market anyway.    

Compare this to your $10k mutual fund RRSP investment in the last few years… LOL’s.

  1. $10k immediately followed by your broker’s trailer fee (1.5% per year) plus the Mutual Fund Management fee of 2.5-5% per year…. good start!
  2. They invest the money for you in public Companies that hire professional executive teams to run them.  They take off the top their salaries and incentive programs which have received much notariety over the last 12 months.
  3. At least you have the investment in a liquid market… but wait you’re holding this investment in an RRSP so no real benefit there…?

Morale of the story is more effort needs to go into helping communicate and generate investor awareness for these investment programs.   The public VCC’s which are good at this communication because they can leverage the investment brokerage community but this makes them more expensive to operate and they are investing in later stage businesses, often public companies which cannot capitalize fully on the SR&ED program for example.  

Programs like Bootup Labs and Wutif are helping solving this problem but the securities exemption limitations are precluding average investors from taking advantage of these programs which is very unfortunate.    Accredited investors please setup up.  

Two additional recommendations to open these incentives up to average investors, to help EBC’s get financing and to spread the risk include:

  1. Change the accredited investor rules such that normal investors can invest up to $10k per year without exemption requirements.
  2. Increase the number of shareholders to 100 before a company is deemed to be a “reporting issuer”

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Top Ten Lessons from PACT 2008!

Written by on October 26, 2008 | Technology Startups

Had the pleasure of attending last weeks Plug & Play Acceleration & Collaboration Track (PACT for short) event down in Sunnyvale, CA.  The event included start ups from Spain, Japan, China, Australia and Canada and was organized on Canada’s side by Guillaume Parent from the SFO Consulate.  For a first time event it was extremely well done- primarily in that it happened! and without a whole lot of excessive logistical requirements!

Top ten lessons:

10. Thumbs up to the Toyota Prius Hybrid- takes a little while to get use to booting up your car but handled 100 mph on the 101 and comfortably seats 5 and 1 in the trunk (beauty Wayne) so very much impressed! 

9.  A bundle of valuable pitch advice from Chris Gill the CEO of SVASE a Bay-Area NFP helping start ups get funding and a bunch more.  Key points I got, not included in the hand out.

a.  Don’t specify your value in your pitch – “The market will set the value of the business”  

b. Ultimate pitch is 10 minutes.  

c. Sales cycle average- Awareness (3mnths), Consideration (3mnths), Trial (6 mnths), Approved (6 mnths), Purchased (6 mnths) so pitch viral marketing and sales accordingly.  

8. “SaaS” or Software as a Service means a lot things depending on who you talk to- some say that only web applications are SaaS, some say executable applications that rely on online connectivity are Saas, some say hybrids like QCDocs are SaaS and some say that provisioning of services over the internet like Tandem or our new friends from Corefino are even SaaS.   We’ll leave it up to our new friends from www.theSaaScenter.com to figure it out!

7. QCDocs may have a bit more margin to be had- Professor Matsuo from Kyushu University picked up QCDocs to just share business cards he’s received with colleagues around the world -“$25/month… done.”

6. Redwood Technologies Inc from Calgary are building some whicked mobile apps (cellphone client/billing management- sorry clients I’m doing something about my $500/month blackberry bill now!) LOL’s. Chatted up Terry Hughes (kick ass pitch by the way for a Brit!) about how QCDocs and the paperless online backoffice could jump start a whole new domain of business related wireless apps- ie. our blackberry remote cheque/check signing, sick day, time and vacation submission/approval sync to payroll/billings, expense reporting and doc approvals, paperless receipt mgmt, remote EFT payments, workforce management, etc.)

5.  Other companies to watch- Simo (before travelling LD with your cell phone check them out!), 3rdwhale(Boyd chat with BigRoom) and you’ve got a winner!), Coveritlive (because Boris was intrigued with the live blogging for obvious reasons!), odijoo (looking forward to getting our online training ported into pro-version!), Dynamite (because we’ll use this at some stage), Ariane Controls (because of my semiconductor days but proof is in the engineering),  Applocation(because this would be a nice add on to QCDocs for end-to-end asset tracking), Visionnet (because this would be a nice add on to QCDocs for SMB’s to streamline multimedia sales and marketing initiatives) andAdhack (People-powered advertising…brilliant, practical adaptation of social networking!)

4. Get on Guillaume’s twitter account so you don’t miss the bus!?  Also there’s something weird about downloading Googlemaps in the Google parking lot to find your way to Plug&Play…!?

3.  Some great Bay Area resources to help Canadian Start ups that I met – Guillaume of course,  Rick Rassmussen, working with Canadian trade commission out of Palo Alto,  Gordon Smythe with Invest-BC also working out of Palo Alto. 

2. Plug & Play – Wow!  Kick ass facility for incubating start ups.  Great starting point for early stage Canadian Tech Bay Area point of presence.  Jupe Tan, Jackeline Hernandez and Saeed Amidi were great hosts!

1. Beware of Danny’s “5 more Mie Ties” at Tau Tau’s (happy, happy btw) the night before 2 minute pitch to Tim Draper and VC panel.  LOL’s

Risk Master

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BC Technology Startup in Journal Entries!

Written by on September 14, 2008 | Accounting Best Practice, Technology Startups

 
Note: All numbers & GST calcs are approximations and tax issues should be discussed with a qualified professional tax advisor!

Incorporate Business 
Dr. Incorporation Costs $1,000
Cr. Accrued Accounts Payable $1,000

Open bank and put in consideration for founder’s shares and some working capital
Dr. Bank $5,000
Cr. Shareholder’s loan 4,999
Cr. Common shares 1
 
Go to NCIX or Apple World and buy shwanky computer on credit card.  Go home and sign up for 30 day free QCDocs and crank out your first expense report using CSV download- Hey nice policy it reminded me to get my mileage and parking in there!!)
Dr. Computer assets $3,745
Dr. GST receivable 210
Cr. Shareholder payables $3955
Dr. Mileage & Parking expense $33.65
Dr. GST receivable 1.35
Cr. Shareholder payables $35
 
Few weeks later the legal bill for incorporation shows up… dam they never mentioned those Ministry of Finance charges and PST… what’s up with that… lawyers in the States don’t have to put up with that!?
Dr. Incorpation costs $250
Dr. Accrued Accounts Payable 1,000
Dr. GST receivable 119
Cr. Accounts payable $1,369
 
Set yourself up with payroll and bootstrap doing SR&ED eligible work for a while making monthly payroll remittances only.
Dr. R&D wages $5,000
Dr. Payroll expenses (just CPP if you own more then 40%)) 233
Cr. Shareholder payable $3,782
Cr. Due to Receiver General 1,451
 
Cut a cheque by the 15th of the next month to pay the Receiver General and pay the lawyers tab
Dr. Due to Receiver General $1,451
Dr. Accounts payable 1,369
Cr. Bank Account $1,451
Cr. Bank Account 1,369
 
Oh no cash running low better go convince Family, Friends or Angel you met at Bootup Labs to finance your build.
Dr. Cash $50,000
Cr.  Common Shares or Convertible Note (See Top 10 list)? $50,000
 
Carry on doing development only taking out what you need to live and file your tax return with SR&ED.  Remember to use QCDocs to track your time for SR&ED and bills/etc. along route so you can get Tandem Accounting to crank out some QB’s financials in a flash and shoot to Rolfe Bensen, Entrust or Strategix to crank out a T2 and T661for you.  Might call Ed Levinson who sits across from me at Bootup or Nick Arden somewhere along the line to tee up S
R&ED writeup!
Dr. SR&ED Receivable $22,825 (or there abouts)
Cr. Research and Development contra expense $22,825

Get a cheque up to 6 months later if you clear audits, etc. if applicable.
Dr. Bank Account  $22,825
Cr.  Cr. Sr&ED Receivalbe $22,825

Note: if you raise more money and do other stuff like marketing, business planning, etc. you will get the full benefit of the Proxy method for SR&ED and get even more money back!  Investors will be impressed that you can get extra mileage out of their investments and recommend you to their richer friends and you get more money.

Eventually you build some skookum tech and you get aquired by Google for obseen cash and you and your investors each walk away with at least the minimum $750,000 tax free capital gain for having developed such a successful qualifying small business corporation.

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Which Bank for a Tech Startup in BC?

Written by on September 13, 2008 | Technology Startups

Either Coast Capital or Vancity and a “no brainer” for startups for these reasons:

  1. Lowest fees by a long shot!  
  2. Affiliation with “Big Bank” because “we’re going to be a Big Company” is a myth- big banks don’t look at you unless you have more than $500,000 in your chequing account.  They will happily bring you on when you can afford them and even then it is questionable whether it is worth it given how far Vancity and Coast Capital have come in establishing a really good business banking offering…!  The exception is when your investors have some “relations”! LOL’s
  3. Online services are free (GST, payroll remittances, and viewing cleared cheques)
  4. Transactional history goes back forever not just 3 months like big banks.
  5. Easier to get credit line/credit card or other forms of financing if you need it.
  6. Exchange rates and wire transfer rates are better although everyone uses Globex anyway.
  7. Fully Quickbooks, Simply Accounting and QCDocs compatible of course!
  8. Great service!  I’ll give the nod to Coast Capital as I personally bank with them.

Big bank order of preference:

  1. TD Bank (because of TD Waterhouse- easier to setup US ops)
  2.  Bank of Montreal (overdraw services is great but only for big companies.)
  3. CIBC- I still haven’t figured out their online statement system yet.
  4. Royal Bank- unless you establish debt with them they won’t give you an account manager?

US Banks

  1. Toronto Dominion NY, NY (if with TD only)
  2. Bank of America (Pain free experiences)
  3. Citigroup (Personally bank here but limited Corp experience- big is good presumably but suppose subprime exposure should be checked for all US banks.. see 1.)
  4. Silicon Valley Bank (I’d love to recommend these guys as dealt with them lots over the years when I was in Bay Area and back in Vancouver but their online system is unreal and they still got nailed although I think it was an E-Trade problem?



Top 10 Tips for Bootstrapping a Tech Startup in Canada

Written by on September 11, 2008 | Technology Startups

  1. First and foremost be building technology that qualifies for SR&ED (Scientific Research & Experimental Development Credits”!  Let’s just say you’re building something that all you’re buddies with comparable technical backgroundwould be impressed with ie. “Peer test”  How this works is you do the qualifying work, pay the developers/scientists, file your corporate tax return (T2) and up to 6 months or so later (for first time filers), you get a cheque in the mail from CRA (Canada Revenue Agency) even though you may not have even generated any revenue yet… sweet!  Several caveats so see my Top 10 things you need to understand about SR&ED!
  2. All nice but you have to pay everyone first and wait 6 months after you file…need some working capital!? Well, given that you’re doing, or think you’re doing cool, qualifying tech- go hammer on the door of NRC-IRAP (National Research Council- Industrial Assistance Program).   If you get through their sniff tests you can get typically 50-75% of your developer/scientist salaries comp’d (employees get higher % so plan accordingly!!).  A cheque will come every month following the month after you incur the costs!  They audit you so get a good bookkeeping system going- we recommend QCDocs!  See top 10 things you need to know about NRC-IRAP Programs! 
  3. Okay now things are looking hopeful!  With NRC contract (actually NRC will want to see this first so timing needs to be perfect!) in hand go talk to Mom and Dad or your rich Uncle, also known as a Friends & Family round!  Treat them just like regular investors and you’ll go a long way! Now hopefully you’ve got enough cash to get a development program started!
  4. Now enroll for GST with quarterly filing!  While you’re losing money guess what- you get your GST back for everything you pay GST on- ie. Legal fees, cellphone, mileage, meals & entertainment (only 1/2 though!), office supplies, etc.)  File each quarter and get your cheque!
  5. Now you need some space- work from home!  (Note: rent is backed out of SR&ED proxy so getting swanky office in Yaletown not good for Bootstrapping!)  Alternatively find a good incubator- I recommend Bootup Labs for obvious reasons!  Danny, Boris and Jordan have it going on so try to squeeze on in!  SFU Time Centre is good as well across the street at downtown campus!  Part-timers use Workspace in gastown!
  6. If you work from your apartment where you’re paying rent/mortgage interest then apportion a reasonable amount of space out and get some of that rent, utilities, etc. deductible!  Some tricks here so see my top 10 Tax tip links
  7. Telephone- oh my dear god don’t get me started!  Get a cheap Rogers home phone plan with call forward! Get 1 or 2 cellphones and start the juggling act or better yet get skype and never leave your desk!  Whatever cell phone plan you do get call every 3-6 months to find out what discount they are offering that they don’t volunteer until you call…baaah!? 
  8. Health Benefits- MSP is what it is so no help there…pay your monthlies personally to minimize T4 taxable benefit pains at year end!  Hook up with www.vipmd.ca and get low cost insurance for risky stuff- ie. long term disability, AD&D, critical illness and life insurance ($12-$25/month) plus a Personal Health Spending Account (PHS) for $25-$50/month.  The PHS program is cool as it allows you to pay using after tax dollars for utilization items like prescription drugs, dental work, contact lenses and everything else covered by the tax act with no “deductibles and restrictions” often bundled with insurance packages.  You just go online, enroll, set your thresholds up for your employees and they just log in and submit their receipts and get reimbursed.  You’re company gets billed monthy and builds up a trust account that you can pull back into the company if you don’t use it all!  Sweet!
  9. Bookkeeping- Do it yourself using excel and a shoebox!  If you believe your time is better spent building your technology/core competency and you don’t want an outrageous year end tax bill that grinds your SR&ED refund then think twice!  Guess what, technology is fixing this problem too!   Shameless self promotion for our sister firm Tandem Accounting Group Ltd.  powered by QCDocs!  Point your mail to PO Box # and receive all your mail by “email” while simultaneously having all your bookkeeping requirements maintained in QuickBooks.  All your accounting, HR and legal docs are filed online for your ease of reference with a virtual A/P setup and maintained through your own QCDocs Portal! Each month you use QCDocs to manage your expense reporting using CSV uploads from your online credit cards where you put all your startup expenses so you can maximize your air miles or cash dividends!  Developers log their time in QCDocs timetracker to document time for NRC-IRAP and SR&ED compliance requirements.  The lovely and talented Tamara, Lindy and Gail take care of the rest spitting out your cheques/payroll when and where you need them and firing you investor ready financials each month.   Cash management Monday reports keep you bootstrapping along!  Negotiate partial pay in equity… the owner is a bit of an entrepreneur himself!
  10. Bank with Vancity or Coast Capital to minimize egregious bank charges  – see top 10 list of recommended banks.

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Top 11 Compliance and Setup things to do for BC Startups

Written by on September 8, 2008 | Technology Startups

  1. Register your business here. Note: Most Lawyers don’t do trademark searches just Provincial name searches. Check US and Canadian Trademark sites to size things up or count on doing this process all over again in short order!
  2. Phone 1-800-959-5525 and Register for GST (if you’re going to be losing money initially) and Payroll (if you’re doing SR&ED work!). See top 10 GST lessons and top 10 SR&ED lessons!
  3. Setup a bookkeeping system (See QCDocs)- Expense reporting is key process at this stage. See Expense reporting top 10 list!
  4. Buy a shoebox, binder or file folder and stuff all your receipts, bank statements and CRA correspondence files in it or use QCDocs and have a virtual bookkeeper take care of it. See top 10 Manual Filing Systems
  5. Open a Bank Account as soon as possible to simplify separation of expenses between personal and business. See top 10 bank lessons. Get cheques with stubs and complete the stubs and don’t lose any- write void on voided cheques so they are accounted for! Business accounts return cleared cheques or copies of them- never, never lose them as there is no replacements (except copies (ie. Vancity and Coast Capital))
  6. Buy bookkeeping software- Quickbooks- no brainer, see my top 10 list why Quickbooks is better than Simply Accounting. Try out Clarity accounting as well… and tell me if it is good!? Looks good to me but haven’t tried it yet!
  7. Go online and register for WCB (the earlier the better so you can get “no claims” history for when you actually need to hire people.
  8. Continue to pay MSP (BC Medical Services Plan) personnally until you have at least 5 employees as it is a taxable benefit and will complicate your payroll.
  9. Sign up for VIPMD Personal Health Spending Account www.vipmd.ca. Pay for dental cleanings, prescriptions, contacts, massages with aftertax dollars!! Sign up for your “Risk Insurance” at the same time- see top 10 lessons about Canadian extended Benefits Plans!
  10. If you’re going to raise some financing from BC investors enroll here as an EBC. This will give your investors 30% tax refund for investing in your business- nice start!
  11. If you’re doing tech stuff call the NRC-IRAP to chat about helping you out. See top 10 lessons about Government funding

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