Government program helps fledgling businesses raise funding
Financing early stage Ottawa companies isn’t easy. No one knows that better than Craig Fitzpatrick, the vice-president of product development with social media analytics firm Source Metrics.
Laurie Davis, managing director of the Capital Angel Network. (Provided photo)
The company first started looking for funding in the first half of 2011 but had limited success.
“It was kind of bleak,” Mr. Fitzpatrick said in a recent interview. “It’s tough to raise money around here.”
Fast forward more than two years later and the company now has $1.5 million in both private and public sector money to add new staff that will further help to commercialize its product.
What changed? Mr. Fitzpatrick said a large part of it has to do with a federal government program called the Federal Economic Development Agency of Canada – or, as it’s more colloquially known, FedDev.
Source Metrics was one of three Ottawa companies, along with a group of local angel investors, to receive funding from the government body last April.
It and another company, Therapeutic Monitoring Systems, were eligible for $500,000, and 360pi Corp. could receive up to $750,000.
That followed a maximum of $3.67 million committed to local companies under a separate FedDev program a month earlier.
Firms are eligible to receive all the money, which comes in the form of low-interest loans, if they raise twice as much from other sources. Source Metrics was able to get $1 million in venture capital funding, for example, so Mr. Fitzpatrick believes it will receive the full $500,000.
The possibility of receiving a helping hand from taxpayers made a huge difference for the company as it sought to raise funds from private groups such as angel investors, he said.
Without the possibility of money from the government the financing deal “might not have closed,” he said. “It was a huge help.”
But while those companies that have benefited from FedDev money are only too willing to sing the agency’s praises, others doubt the wisdom of committing public money to the private sector in such large amounts.
Those who oppose the program point to a 2011 study by accounting firm KPMG that found many of the projects it funded since its inception in 2008 would have gone ahead anyway.
Others, such as Mark Milke of the right-leaning Fraser Institute, say governments are traditionally terrible at picking winners and losers when using public dollars to back risky ventures.
That’s what makes FedDev so intriguing, said Laurie Davis, a local investor. He leads the Capital Angel Network, which is set to receive as much as $100,000 from the agency.
It’s a more efficient way of allocating government investments in the private sector than hiring bureaucrats to do it, he said.
FedDev assumes that “private investors are doing proper due diligence and, since they’re putting their own money into it, that they’re making good investment decisions, so the government then trusts that decision and matches it,” said Mr. Davis.
“It allows government to essentially piggyback on top of people they assume are knowledgeable investors.”
This also means the government doesn’t have to invest much in employing bureaucrats to decide where the money should go, he added.
Officials with FedDev did not respond to requests for how much money each company will be receiving under the program.
Alexander Rink, the CEO of 360pi, expects his company will eventually receive all of the $750,000 for which it was eligible. He hopes to use that money, in combination with the funding the company has received from private investors, to help grow the firm’s head count. It’s already jumped from just under 10 in 2011 to 40 today.
He expects the private sector will only be more interested in providing funding in the future.
Government funding, he said, “makes you more attractive as an investment opportunity.”