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2023 federal and provincial budget digests

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2023 federal and provincial budget digests

In March, the federal and provincial governments unveiled their highly-anticipated budgets. With both plans moving from COVID-19-specific funding and focusing on lightening deficits and combatting inflation, we now have glimpse into what the road to a more robust economy looks like.

DMZ has reviewed the Ontario provincial and federal government budgets and identified key commitments that impact the startup and innovation economy.

Here’s what you need to know about both budgets:

Federal budget highlights

The full federal budget can be found here.

Small business support

  • Lowering credit card fees: The federal government has reached an agreement with Visa and MasterCard to reduce credit card fees by up to 27%.
    • This reduction will help small businesses save $1 billion over the next five years.

Innovation

  • Canada Growth Fund: The government intends to introduce legislation to enable the Public Sector Pension Investment Board to manage the assets of the Canada Growth Fund to deliver on the Growth Fund’s mandate of attracting private capital to invest in Canada’s clean economy.
  • Supporting Canada’s leadership in space: The government invested just under $2.8 billion to get Canadians — and Canadian technology — into space, onto the moon and beyond.
  • Canada Innovation Corporation: The government invested $2.6 billion for the new Canada Innovation Corporation, which will support Canadian businesses in investing in research and development.
  • Scientific Research and Experimental Development Tax Incentive: The Department of Finance will continue to engage with stakeholders on the next steps of the SR&ED program to ensure it is providing adequate support and improving the commercialization of intellectual property.

Transition to the green economy

  • Clean electricity investment tax credit: A 15% refundable credit to support non-emitting generation systems, storage and transmission.
  • Clean technology manufacturing: A 30% tax credit for new machinery and equipment used to manufacture or process key clean technologies and extract key critical minerals.
  • Clean hydrogen: Up to 40% tax credit for projects producing clean hydrogen.
  • Strategic Innovation Fund: A $500 million commitment over 10 years to support the development and application of clean technologies in Canada.
  • Smart Cities Challenge: The government will be launching a new round of the Smart Cities Challenge later this year, which will focus on using connected technologies, data, and innovative approaches to improve climate resiliency.

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Provincial budget highlights

The full provincial budget can be found here.

Innovation

  • Underserved entrepreneurs: Investing an additional $15 million over three years for the Racialized and Indigenous Supports for Entrepreneurs (RAISE) Grant Program that includes support for Indigenous, Black and other racialized people, as well as an additional $3 million in the Black Youth Action Plan
  • Innovation hubs:
    • Providing an additional $1 million per year for three years to Invest Ottawa, starting in 2023–24, to expand into a Regional Innovation Centre hub for Eastern Ontario.
    • Committing an additional $2 million in 2023–24 to Futurpreneur Canada.
    • Providing $4 million in 2023–24 to support the City of Brampton in attracting more entrepreneurs and business investment to help drive economic growth.

Skills development

  • Mitacs: Investing an additional $32.4 million over the next three years to support 6,500 high‐quality research internships through Mitacs.
  • Skills Development Fund: Providing $224 million in 2023–24 for a new capital stream of the Skills Development Fund to leverage private-sector expertise and expand training centres.

International talent

  • Ontario Immigrant Nominee Program: Enhancing the Ontario Immigrant Nominee Program with an additional $25 million over three years to attract more skilled workers, including in-demand professionals in the skilled trades, to the province.
  • Ontario Bridge Training Program: Expanding the Ontario Bridge Training Program with an additional $3 million in 2023–24 to help internationally trained immigrants find employment in their fields and get faster access to training and support towards a licence or certificate.

Manufacturing

  • Ontario-made tax credit: A 10% refundable Corporate Income Tax credit to help local manufacturers lower their costs, invest in workers, innovate and become more competitive.

Business savings for Ontario employers

  • Tax relief for small businesses: Improving competitiveness by planning to enable an estimated $8 billion in cost savings and support for some Ontario employers in 2023, with $3.6 billion going to small businesses.
    • This would provide Ontario’s small businesses with additional Ontario income tax relief of $265 million from 2022–23 to 2025–26.

Electric vehicle investments

  • Electric vehicles (EV): Attracting over $16 billion in investments by global automakers and suppliers of EV batteries and battery materials to position Ontario as a global leader in the EV supply chain.

Are you a founder trying to navigate the startup ecosystem? Learn more about programming DMZ offers here.

What contracts do you need for your startup?

Building a startup is challenging. You need to balance cash flow control, product development, go-to-market strategies, talent, branding and working in perpetual ‘go’ mode. And then there is the back-end work—the part that you don’t look forward to—financial records, information management systems, documents, policies and procedures, and, of course, contracts. Although a good contract doesn’t feel quite as rewarding as building your product or closing a deal, it’s an essential building block for a successful startup.

The best contracts are always ones that are drafted with your product, business model and consumer base in mind. Early-stage startups can be tempted to use online templates, but templates can leave you vulnerable. Most templates favour one side or are drafted ambiguously in a way that leaves interpretation up for debate.

We thought we would break down a few key contract non-negotiables to always keep in mind.

Your service offering and crown jewels

  • Services: The agreement should clearly describe the services that will be provided and what is included or excluded as part of the project scope. For example, will your service include software licenses, hardware, software, professional services, training, installation/integration, or maintenance and support? The agreement should be clear about allocating responsibilities, development milestones, and milestone deadlines.
  • Intellectual property: Your intellectual property (IP) is your most valuable asset. Investors will closely scrutinize your IP clauses to confirm that you actually own your IP. Here’s what to look out for:
    • Effective license rights if you are licensing your IP to customers via service agreements or if you require the customer’s data to deliver the services. 
    • Ensure your IP clauses in employment agreements and independent contractor agreements are clear about ownership. In Canada, the default for IP ownership developed by an employee is ownership by the company unless the contract says otherwise— however, the opposite is true for contractors and consultants.

Managing data

  • Confidential information: The definition of confidential information typically covers any information disclosed by or on behalf of a party to the other party that is marked as confidential or that reasonably should be understood to be confidential. Confidentiality terms are crucial to ensure that the person you are negotiating with won’t steal your secrets.
  • Customer data: If you are dealing with customer data as a part of your service, be prepared to answer questions on privacy and security. Customers will likely want to know the security requirements you have in place to protect their data. If you will be collecting, accessing, using, or disclosing personal information, consult a privacy expert to ensure that you’re compliant with appropriate privacy laws. Certain jurisdictions, such as the EU, UK, Switzerland and California, have specific requirements that companies must follow if they deal with individuals in those jurisdictions.

Mitigating risk exposure

  • Disclaimers: Disclaimers notify your users that you will not be held responsible for certain damages from their use of your website, products, or services. They need to be carefully structured to have legal effect. One that is too broad may be struck down by a court as ineffective. Well-crafted disclaimers go a long way in protecting a business from liability.
  • Indemnification: Put simply, an indemnification clause requires one party to compensate the other for putting that party in harm’s way. For example, if you are a software developer, your customer may ask you to indemnify them if they receive a copyright infringement claim for using your software. You would be asked to “step in the shoes” of the customer and manage the dispute. If you agree to offer an indemnity, you should limit the categories of claims that you are willing to indemnify for, put caps on the damages and consider purchasing insurance as a way to limit your financial risk and exposure. 
  • Limitation of liability: Limitation of liability clauses allow parties to limit the amounts owed by one party to the other in the face of a claim. The type of damages due or claims brought can be limited. This allows a party to avoid a “bet the business” situation by allocating risk between the parties. There are typically three parts to a limitation of liability clause to look out for: 
    1. Waiver of Indirect Damages: This clause states that a party will not be liable for any indirect damages that arise under the agreement, including any damages for lost revenue, lost savings, or lost profits. 
    2. Cap on Direct Damages: Agreements typically limit the maximum amount of damages that can be claimed as direct damages. This amount is typically tied to the fees paid under the agreement. 
    3. Exclusions: The parties may agree to exclude certain types of damages from the above circumstances. If these types of claims occur, whether directly or indirectly, the party will be exposed to unlimited liability. Parties will typically negotiate excluding claims for gross negligence, willful misconduct or fraud.  
  • Governing law & forum: The agreement should state what substantive law governs the rights and obligations of the parties and which country’s courts will hear disputes. You should consider the most practical and convenient jurisdiction if a dispute arises. If you choose a jurisdiction that is not your home court, make sure you are comfortable with their procedural system and how difficult it may be to enforce a foreign judgment domestically.

How you do business

  • Subcontracting: A contract is between two parties, and typically the rights and obligations under the contract cannot be imposed on a third party. However, third parties can sometimes be brought under a contract. For example, a subcontracting clause can be used to allow a party to assign or outsource parts or all of the obligations under a contract to a third party. You may need to rely on this clause if you have a third party hosting provider or even independent contractors working for you. Take note of language that requires you to obtain the customer’s consent before subcontracting (or to notify the customer in advance). 
  • Non-solicitation: As an early-stage company, almost all of your employees directly impact the bottom line. Non-solicit clauses protect your employees from being poached by a customer. The clause should define the timeframe, be limited to employees related to the services being provided under the agreement, and exclude situations where an employee responds to a general recruitment advertisement. 
  • Assignment: An assignment clause governs whether and when a party can transfer the contract to a third party. While agreements typically limit the ability of a party to transfer the contract without some form of prior consent, startups should ensure there is language that permits it to assign the agreement to a purchaser of its assets or shares without consent.

Many startups offer game-changing products and services to solve inefficiencies in the market, but overcoming the growing pains of launching a startup isn’t easy. A well-thought-out risk management tool often makes the difference between a successful startup and a struggling one. Good contracts are part of your risk management toolbox. A great technology contracting lawyer should be able to leverage sector knowledge and their own experience to advise you on which terms are negotiable and what is market in the industry.

Are you a startup founder with contract questions for Torys? Reach out to Wendes Keung today to get your questions answered.

 

This article appears on Torys’ Startup Legal Playbook: a guide to issues founders face as they grow their company, from ideation to exit. For more actionable insights on operating your startup, raising capital, building a team and going cross-border click here.

The trickle effect: what the collapse of Silicon Valley Bank means for early-stage Canadian founders

Now that the initial shock has settled from the second-biggest bank collapse in U.S. history, we can start to process what the demise of Silicon Valley Bank means for the Canadian startup ecosystem. And while a majority of the Canadian tech sector will come out of this relatively scot-free, there will undoubtedly be a trickle effect that will impact founders north of the border.  

The downfall has created an environment of uneasiness for the startup community, and founders are concerned that this will spook investors. 2022 was a challenging year for startups, and while there were small glimpses that we were on the up-and-up, an event of this magnitude does not help the perception of the space. Just from a mere 2 weeks ago, founders are feeling an increased sense of uneasiness. 

It’s important to remember that the ecosystem has been fighting inflation and rising interest rates. In an industry where cash is king, founders were already hanging on for dear life.

So, what’s at stake? Stunting the growth of early-stage founders. In times like this, investors become more risk-averse and want to make safe bets, meaning funding supply at the top of the funnel becomes rare. While many Canadian founders may not have dealt with Silicon Valley Bank directly, losing a key player in the space translates to less funding to go around overall. 

Now is the time to double down on high-potential early-stage founders and their businesses to fuel their growth. Supporting startups when the ecosystem is on a high is one thing, but helping them through bad times is a whole new ball game. 

Early-stage companies are the lifeline to Canada’s startup and innovation ecosystem. At the DMZ we’re doing everything we can to equip our founders to be the next camel startup –  resilient, resourceful and balanced.

If you’re an early-stage tech startup looking for tangible support, learn more about our programs here. 

Top tech journalists to follow right now

Keeping up with where the tech space is headed, startup raises in the field, acquisitions, government initiatives and thought-provoking commentary will not only keep you informed but allow you to make better business decisions.

Here’s DMZ’s top-ten tech journalists to follow right now:

Sean Silcoff | Technology Reporter, Globe and Mail
Focus: technology and innovation

From startup raises, government initiatives, acquisitions and emerging industry trends, Sean Silcoff is known as one of the GOAT reporters at the Globe.  He is the winner of three national newspaper awards and is the co-author of Losing the Signal: the Spectacular Rise and Fall of BlackBerry, which was released in May 2015.

Looking for in-depth, objective and emerging tech news? Look no further than Sean.

 

Tara Deschamps | Business Reporter, Canadian Press
Focus: business, technology, real estate
 


Tara Deschamps currently writes for  the Canadian Press and is no stranger to major outlets, including the Toronto Star, the Globe and Mail, and the New York Times. Oftentimes bringing in a startup perspective, the bilingual reporter has covered various topics in the business sector, from technology to banking and insurance, retail and food. If Tara Deschamps is one thing, it’s versatile.

 

Rebecca Gao | Tech Update, Toronto Star
Focus: technology

Rebecca Gao wears many hats, three of them being a writer, an editor, and a digital content creator. These hats also include being Editor-In-Chief of the Strand and an Associate Editor at Best Health Magazine. She is also the master mind behind your bi-weekly innovation tech updates. 

Explore Rebecca Gao’s technology hat through Toronto Star’s Tech updates.

 

Meagan Simpson | Senior Editor, Betakit
Focus: Canadian technology
 

Meagan Simpon has over 6 years of experience in the journalism and technology industries. Meagan is passionate about helping startups and entrepreneurs reach their goals, and works to share their stories with BetaKit’s readers. Her work has appeared in the Globe and Mail, Toronto Star, CBC, Techvibes, and many others.

Turn to Meagan Simpson and take pride in the Canadian tech scene.

 

David Skok | CEO & Editor-In-Chief, The Logic
Focus: innovation economy

David Skok has over 15 years of experience in the media industry, having worked as a reporter, editor, and content strategist. He has an extensive background in media strategy, content creation, and digital publishing. A big name in journalism, he sits on the advisory board of the Nieman Foundation for Journalism at Harvard and as a juror for the Pulitzer Prizes in journalism. 

High-quality reporting and analysis might as well be David Skok’s middle names.

 

Lance Chung | Editor-In-Chief, The Bay Street Bull
Focus: Canadian entrepreneurship

Recognized as one of the top Canadian financial journalists by Canadian Business Journal, it only makes sense that Lance Chung is the architect and  behind renowned publication Bay Street Bull. His two decades of experience award him expertise in stock markets, currency markets, and macroeconomics.

Looking for reads that perfectly intersect Canadian business, technology, entrepreneurship, lifestyle and culture? Look no further.

 

Temur Durrani | The Globe and Mail
Focus: creator economy, Big Tech, Web3
 

Temur Durrani has reported from five continents, publishing work in the New York Times, the Guardian, and the Washington Post. He is the recipient of numerous awards, including the National Newspaper Award, the Michener Award, and the Canadian Journalism Foundation Award.

Objective journalism, informed by his unique perspective as a South Asian-Canadian, is the name of Temur Durrani’s game.

 

Camille Dundas | Co-Founder, Editor-In-Chief, ByBlacks
Focus: racial equity, Canadian businesses and entrepreneurs

ByBlacks provides a platform for Black Canadian voices to be heard and their stories to be shared. The Co-Founder and Editor-In-Chief, this venture led to Camille being named one of Toronto Metropolitan University’s “Media Makers,” an honour given to Journalism grads who have made exceptional achievements in journalism. Before ByBlacks, Camille was the Features Editor at CBC Life and, before that, the Arts Editor at NOW Magazine.

Over the course of a decade, Camille Dundas has built a career focused on creating meaningful content that engages and inspires readers.

 

Stephanie Hughes | Financial reporter, Financial Post
Focus: business news and finance

Stephanie Hughes is a financial reporter for the Financial Post, specializing in coverage of the Canadian economy. She has been covering business and economic trends since 2013, making financial news accessible to the public as an advocate for financial literacy. Her work has been recognized by the Canadian Association of Journalists and the National Newspaper Award.

All founders could use Stephanie Hughes right now as a source of insight into economic uncertainty.

 

Sarah Bartnicka | Head of Content, The Peak
Focus: business and finance, technology, economics

Sarah Bartnicka is a highly sought-after speaker on a variety of topics related to content creation, media, and entrepreneurship. She is committed to helping bring readers quality content that is both timely and engaging as Head of Content at The Peak, a five-minute newsletter on Canadian business, finance, and technology.

Wasting time is impossible with Sarah Bartnicka’s quick yet high-quality picks.

 

Want to hear our top-pick stories too? Sign up for our bi-weekly Tech Talk newsletter here!

 

 

 

 

 

 

 

 

 

 

 

Announcing DMZ’s 2023 Women of the Year

At the DMZ, we’re constantly inspired by the incredible women driving innovation and progress in the Canadian tech industry. That’s why we’re proud to present 2023’s DMZ Women of the Year award, recognizing inspirational women who have made remarkable contributions to the tech ecosystem.

With over 800 nominations from around the country, this year’s honourees represent diverse industries and backgrounds. From go-getting startup founders to top-notch corporate leaders and non-profit trailblazers, this year’s lineup is a true reflection of the diversity and ingenuity of Canadian women in tech.

A heartfelt congratulations to all the nominees and winners for their outstanding achievements.

Join us in honouring DMZ’s 2023 Women of the Year:

Mining a recession: how tech startups can strike gold

The reality is, being a startup founder is no longer sexy. Today’s economic climate is dramatically shifting across industries — especially in tech — from layoffs and inflation to rising interest rates and a looming recession.

We all know a recession produces a range of negative impacts. However, it also presents opportunities to revolutionize and transform for those who look. The key is to be resilient, adaptable, and innovative through changing market conditions. Think Microsoft, Airbnb, Slack, and Zoom, all hugely successful companies that started during recessions. There is no question that new problems will arise, but with that, new industries, products and services will come to life — and for an entrepreneur, that’s gold.

For a long time, a startup’s ultimate goal was to achieve unicorn status, characterized by rapid growth and high valuations. In today’s climate, operating with this mindset isn’t realistic nor sustainable — inflated company evaluations do no favours to startups, especially on the heels of a recession. Instead, companies need to embody the camel, a future-orientated animal that conserves its resources to endure harsh conditions and adapt to any environment. This concept was originally coined by venture capitalist Alex Lazarow, who encourages startups to focus on building resilience and flexibility to survive and prosper long-term.

Want to strike business gold? Here’s how to embrace the camel mindset to set your company up for long-term success.


Be bullish.

Problem: Startup originality is rare. As the number of tech businesses grows, it is increasingly more work for startups to differentiate from the competition and offer truly innovative products, services and value. A more saturated market means increased competition for funding, customers and talent, leading some companies to replicate already successful business models.

Opportunity: With a recession comes new consumer needs and new problems. Now is the time to be proactive and address these needs. Stand out to investors and tap into new customer segments with a unique offering.

  1. Look for untapped needs: Be more obsessed with the problem than the solution. Identify problems that still need to be addressed or solved effectively. Unique problems = unique solutions.
  2. Seek out diverse perspectives: Look beyond your industry and sector; connect with people with varied backgrounds and experiences to gain fresh insight.
  3. Experiment: Don’t be afraid to take calculated risks and experiment with different approaches.


Optimize your human capital.

Problem: Layoffs and financial insecurity may hit your company – a recession is the time to feed the winners and cut those who are underperforming. It’s easy for team members to feel discouraged and disconnected from a company’s mission. Your company is your community; nurturing your culture in challenging times is more important than ever.

Opportunity:

  1. Prioritize honest communication: Be transparent about your startup’s position; open communication is vital to trust. Involve all levels in finding solutions to create a shared sense of purpose and belonging.
  2. Recalibrate your team: Build the right data systems, structure and practice to improve quality assurance, program execution, and team communications. This also means a smarter team to help deliver what is needed now.
  3. Remove silos: Encourage cross-functional collaboration and create opportunities to connect through events, lunches, team-building exercises, etc. Measure success and failure as a collective.
  4. Show appreciation: Recognize and reward your team for their contributions. Boosting morale is key to culture, motivation, and productivity.


Get scrappy.

Problem: Funding has always been challenging to secure as a founder, especially with the recent boom of tech startups. Throw economic uncertainties into the mix, and you have a recipe for dry capital as investors like Venture Capitalists (VCs) and Angels become more risk-averse to investing in new startups.

Opportunity: Finesse your business strategy and get scrappy.

  1. Focus on your competitive edge: Execute a clear, well-defined value proposition that demonstrates your startup’s advantage in the market.
  2. Showcase your adaptability and leadership: Investors are interested in companies that can adapt to a changing economic environment. Highlight your leadership skills, from navigating the recession to making smart business decisions.
  3. Build relationships with investors: Establish relationships before seeking funding to understand their criteria better and increase your startup’s visibility.
  4. Consider alternative financing options: Now, many financing options are available for startups with lower barriers to entry and greater flexibility. These include crowdfunding, grants, revenue-based financing, debt financing, and incubator and accelerator programs like the DMZ.

Facing a recession as an entrepreneur can be daunting, but you don’t have to do it alone. Join a startup incubator like the DMZ and participate in a community of diverse startups, mentors, and industry experts. Access resources like office space, funding, mentorship, and networking opportunities to refine your business with expert guidance.

Check out how the DMZ can help propel your business forward, even in the most challenging times here.

Want to stay up to date on the latest tech news? Sign up for the DMZ’s Tech Talk newsletter.

What Startups Need to Know about SAFEs

Fundraising is a thrilling time for any entrepreneur, especially early-stage founders. But with it comes numerous questions and challenges – most commonly, does my startup need a valuation before I can collect investment?

A SAFE (Simple Agreement for Future Equity) is a founder-friendly financing contract for startups in early financing rounds as an alternative to a convertible note. Rather than pricing the round, companies give investors the right to receive shares at a valuation set by future equity financing. 

While equity financings trigger the SAFE to convert into equity, other triggers, such as a liquidity event or dissolution, allow investors to receive their money back in cash. This flexibility makes SAFEs a beneficial funding strategy for early-stage founders like you, who are still determining how to value their company. 

Before we dive into specifics and must-know items about SAFEs, it is important to note that SAFEs are not the only vehicle used for pre-seed fundraising. Despite SAFEs being, as the name suggests (simple), not all investors use SAFEs as investment vehicles. SAFEs are still a relatively new legal invention with fewer guarantees which may result in some apprehension in the investor community. Utilized well, SAFEs can be an alternative to the Convertible Note that is more beneficial for founders and easier to understand. This article intends to teach you how and how not to use SAFE.

Why are SAFEs an important equity fundraising option for founders?

SAFEs simplify early-stage financing by

  1. Enabling you to raise capital when your company’s value is not certain.
  2. Using a standardized form that does not require significant modification.
  3. Minimizing the need for expensive and extensive negotiations.

SAFEs are a form of equity financing: As a founder, it is important to consider how much of your company you may give up with each SAFE you enter into. This is because the rate at which a SAFE converts to equity depends on several unknown factors. For example, if a SAFE converts to shares at a low valuation/share price, then the SAFE holders may end up with more shares in the company than the founder may have anticipated. As such, you must be aware of how future equity rounds will impact your cap table. 

The number of shares a SAFE holder receives on conversion depends largely on the structure of the SAFE. A SAFE can have a valuation cap, a discount rate, both or neither. If both a discount and cap are present, a SAFE will convert under the option that provides the biggest discount, not both.

How to negotiate a valuation cap

While a SAFE is mostly standardized, one of the few negotiable terms is the valuation cap. Setting a post-money valuation cap determines the minimum level of ownership that a holder will receive at a priced round of financing. You can calculate ownership using the following formula: 

As a founder, you may strive for higher valuation caps to retain more equity. However, investors may negotiate a lower valuation cap to ensure they receive a bonus for investing early. You should strive to find a balance to keep investors incentivized while ensuring you don’t dilute your ownership more than intended.

How to negotiate a discount rate

The discount rate is another common negotiable feature of a SAFE. It gives investors a direct discount on the price per share the SAFE will ‎convert at relative to the price that the priced round investors will receive. 

The discount rate for a SAFE is generally between 75-90% (reflecting a 10-25% discount). As a founder, you will want to negotiate a lower discount to retain more ownership. If you need urgent financing, the discount may be higher as the investor will have more bargaining power. However, keep in mind that an excessively high discount on SAFEs (30%+) can dissuade potential investors from investing in future rounds because the SAFE holders may be overrepresented in the capitalization table after a priced round of financing.

How to determine the SAFE conversion price on a pre or post-money basis

When the company closes a priced round of financing, a SAFE converts into company shares for SAFE holders. The number of shares a SAFE investor is entitled to is determined based on the conversion price (the valuation cap divided by the company capitalization, i.e., the total number of shares and options). You can do this on a pre or post-money basis. 

What is the difference between a pre-money and a post-money calculation? 

  • Pre-money SAFE: the company capitalization excludes the shares that would be issued to the holders when the SAFE converts. This makes it more difficult to determine your ownership dilution as each conversion price is calculated independently. 
  • Post-money SAFE: the company capitalization includes all shares issued to holders when the SAFE converts. You will better understand your ownership dilution as all SAFEs will have converted into company shares. 

The conversion price should be the same whether you calculate it on a pre or post-money basis. It is also important to note that pre and post-money only refer to the exclusion or inclusion of the shares subject to the company’s SAFEs, not the shares subject to the equity financing trigger.

Example: Post-money vs. pre-money valuation caps

ABC Inc.’s only outstanding securities are common shares comprising $6,000,000. 

ABC Inc. wants to raise $4,000,000 through a SAFE round. 

John gives ABC Inc. $2,000,000 on a SAFE with a Post-Money Valuation Cap.

Sara gives ABC Inc. $2,000,000 on a SAFE with a Pre-Money Valuation Cap.

John’s ownership:

John’s minimum ownership of ABC Inc. will be 20% before the equity financing.

Sara’s Ownership:

Sara’s minimum ownership of ABC Inc. will not be 33% before equity financing as the pre-money valuation cap does not consider John’s or Sara’s equity in ABC Inc. once their SAFEs convert. Sara will not know what her ownership % will be when she invests in ABC Inc.

SAFEs vs convertible notes

It is also common for startups to secure pre-seed or seed funding using convertible notes. A convertible note is a short-term debt that converts into equity. Investors loan money to the company, and instead of being repaid with interest, they receive preferred shares. Like SAFEs, convertible notes may have a valuation cap and discount rate. 

A key difference between a convertible note and a SAFE is that a SAFE does not have an interest rate or a maturity date (the date the loan must be repaid if there has not been a conversion into equity). The interest that accrues on a convertible note must be repaid if the shares do not convert by the maturity date, or the interest rate can increase the number of shares the noteholder receives when the note converts.

SAFEs are not debt. Under a SAFE, the company is not obligated to repay the investment unless a liquidity event or dissolution occurs. There is no guarantee that the SAFE will convert into company shares. Therefore, with SAFEs, the pressure to repay the investment as a maturity date approaches is not a concern, as it may be with a convertible note. SAFEs provide an alternative to convertible notes when a company is averse to debt. 

Interested in discovering more on SAFEs, Convertible Notes or all things startup? Email MT>Ventures at info@mtventures.ca.

The content of this article is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers of this article are advised to seek specific legal advice by contacting members of MT>Ventures (or their own legal counsel) regarding any specific legal issues. Neither McCarthy Tetrault nor the DMZ warrants or guarantees the quality, accuracy or completeness of any information contained in this article. The information in this article is current as of its original date of publication but should not be relied upon as accurate, timely or fit for any particular.

Your 2023 Manifestation Guide to Founder Success

If you’re an avid social user — or even an occasional scroller — you’ve likely heard of manifestation. What is believed to have started as a Hinduism practice has now turned into a worldwide phenomenon trickling into the world of business.

So, what is manifestation? Simply put, manifestation is the practice of turning thoughts into reality. It requires you to be intentional with your emotions, beliefs, habits, and of course, actions. But it’s not as easy as it sounds.

Whether you believe in manifestation or see yourself as more of a goal-setter, there’s no denying the power of positive intent followed by disciplined action. Dreaming is one thing, but the day-to-day grind of a startup can be dark and challenging.

If you’re ready to hustle, keep reading to discover your 2023 manifestation guide to founder success.

Let your mind wander

Ever catch yourself daydreaming about your startup becoming the next big thing? What about securing a million-dollar funding round or landing your next big client? Don’t stop! Exercising your brain to get excited about the future is key to manifesting. Take a few moments each day to sink into your daydreams and discover what truly fuels your passion.

“When you’re passionate about your dreams, it doesn’t feel like work. Organize your life around your passion, turn your passion into your story and use that story to leave a legacy.” — Ahmer Rafiq, CEO, Souqh

Be intentional with your goals

How can you map your aspirations? Goal-setting looks different for everyone — but whether you create a detailed Excel sheet, draw up a mind map, or jot down notes in your journal, being intentional is key. Set SMART goals (Specific, Measurable, Achievable, Relevant, and Time-Bound) to achieve your desired outcome, and don’t forget to stay disciplined.

Fail quickly, learn fast

As a founder, there’s no question you’re going to fail — we all do! While it may seem like the end of the world, failure truly is the secret ingredient to success. Think of failure as a tool that helps uncover next steps by telling us exactly what’s working and what’s not. After all, Yin doesn’t exist without Yang.

“With every failure, I’m one step closer to success.” — Kelly Emery, Founder & CEO, Troop

Stay positive

Turn “I wish” phrases to “let’s do it” and “what if I fail?” to “when I succeed.” Focusing on the negative is easy, especially as a founder who inevitably hits what feels like every bump in the road. When you catch yourself drifting to that place of negativity, shift your mindset to practice gratitude and confidence. There’s nothing more powerful than believing in yourself and your business.

“Success is not defined by the end result – within every initiative, you will find an opportunity to grow, to learn and to push yourself one step closer to your goals and your success.” — Ahmer Rafiq, CEO, Souqh

Put yourself in the driver’s seat

Be accountable and disciplined. Of course, the most essential practice in manifestation is action. Joining an incubator like the DMZ helps hold founders like you accountable to your goals and provides a playbook to put dreams into action. Take ownership. You got this.

“I meditate daily, allocate time for sales calls, and have regular touch points with advisors who hold me accountable.” — Kelly Emery, Founder & CEO, Troop

 

Can you really manifest your startup dreams? Try it.

If you’re looking for a sign to join the DMZ, this is it. Check out our programs here.

Your golden ticket to business success: customer relationships

As an early-stage founder, it’s all about your customers. Want to create a unique product? Looking to catalyze your startup? Ready to soar above the competition? Strong customer relationships are your golden ticket to business success.

Think customer values, needs, and wants. Is your product or service truly hitting the mark? There’s no one better to ask than your customers. Establishing relationships with users is a key competitive advantage — from real-time suggestions and feedback to brand advocacy and word-of-mouth marketing.

But it doesn’t stop there; the benefit goes both ways. Organizations working with early-stage startups get access to innovative products and services catered to their specific needs. Agile startups move fast, and recommendations are met swiftly.

It’s a win-win! 

We sat down with Leonard Ivey, Co-Founder of Softdrive (DMZ Incubator ‘23) and Michael Robinson, Chief Technology Officer at The Plus Group, to discover how they harness the power of relationships to drive business innovation and success.


Leonard, what inspired you to found Softdrive?


My professional career started in the architectural engineering construction industry (AEC). I held various roles at several companies within the AEC industry. 

There was a common theme at all of these organizations: the computer experience I had or the computer solutions I was given were not adequate for me to be productive in my day. Unfortunately, anytime I asked for a computer upgrade, IT responded with, ‘We don’t have the budget’ or ‘We’re stuck within a three-year provisioning cycle,’ leaving me unproductive and frustrated. This wasn’t IT’s fault, it was just the reality.

Alan Daniels [Softdrive’s Co-Founder] and I chatted about computer issues at our jobs and how we could improve the experience. We brainstormed and looked at the incumbents in the space but couldn’t find an adequate solution for the experience or price, so we built Softdrive in 2019.


Michael, what intrigued you about working with an early-stage startup? 


At The Plus Group, we enable staff to work from anywhere. A couple of years ago, we were looking into VDI [Virtual Desktop Infrastructure] software, previously called Remote Desktop. Over the years, I would test different VDIs, but I never found a solution where I could feel the difference. 

A year into the pandemic, Leonard approached us. We tested their software, and although it was very new, it was fast. 

They proposed a partnership where we would test their software and give feedback. Of course, there were kinks, but Softdrive always keeps improving. We’ve rolled out Softdrive to two architects, and now we’ve begun rolling it out to other companies in our portfolio. They love it.


Leonard, what are the benefits of working so closely with a customer? 


Our relationship has evolved to where The Plus Group directly influences and advises our roadmap. Michael is easy to chat with and the nicest individual, but he’s pretty no-bulls**t. Having a CTO as a resource that we can tap into who’s also your customer is awesome. It’s the best of both worlds. It’s very much a partnership.


Michael, how does working with tech startups drive innovation in your organization?


The Plus Group is one of the big three in architecture for residential design. We’re a forward-thinking company constantly pushing the boundaries of where we can take technology. When the COVID-19 pandemic hit, we transitioned everyone to virtual seamlessly within 12 hours. You should always try new things and position yourself to take on anything.

We had a problem with an architect who couldn’t open a large file. With Softdrive, we took the load time from 12 minutes to just 30 seconds. He told me it saved him time from working on the weekend. The savings are significant.

Being able to log in anywhere, do anything, and pick up right where you left off without having a physical computer is the future.

“At the beginning of your entrepreneurial journey,
your customers are everything.”
– Leonard Ivey, Co-Founder, Softdrive

Leonard, how do you grow and foster your customer relationships? 


At the beginning of your entrepreneurial journey, your customers are everything. You have to learn from them and treat them as if they are royalty. Some things may give you pause and think, is this better for the organization, or is this just a customized feature that will only help them?

Besides that brief pause, you must listen and work with your customers. Otherwise, your organization will end up like any other enterprise product. 

Try to touch base with your customers frequently without annoying them. Have as many open channels of communication as possible — phone, text or slack channels — and always be sure to get back to them immediately. They are the lifeblood of your organization, treat them as such and give them the best possible experience.

Softdrive is a cloud pc software redefining the personal computer. They leverage the power of cloud computing and fast internet speed to stream a computer to any device. Check it out >

The Plus Group combines digital marketing with architectural design and real estate software to revolutionize the real estate industry. Learn more > 


Looking to access customers, capital and community? Discover how the DMZ can help you to uncover your golden ticket to business success.

DMZ’s Year in review: Coffee, capital and community

After an eventful 2022, the DMZ is taking a step back to appreciate all we’ve accomplished this year alongside our community and supporters — from onboarding startups to launching new programming and international expansion.

Scroll and reminisce with us!
Note: These are stats as of November 1, 2022.

Our coffee machine is one of the most popular amenities at the DMZ! It’s clearly a community favourite, with an estimated 10,438 coffees made in 2022.

Up, up, up, and away — startup fundraising numbers surged to a whopping $258,672,261 this year!


That’s right — six DMZ companies were acquired in 2022 (Sensibill, Gridcure, GrowthGenuis, InkBox, Fortuna, OnCall), and three acquisitions were made by DMZ companies: Singlekey acquired Naborly, Manzil acquired Muslim Will, and Daylight Automation (formerly known as FormHero) acquired Proof Data Technology.

Start spreading the news! In October 2022, The DMZ re-opened in New York City — a tech ecosystem valued at $147 billion — to continue empowering the next generation of global startups.

Let’s network! In 2022, the DMZ brought together over 1500 attendees in 40+ events in the tech ecosystem.

Our community had a ton of media traction over the past year. The DMZ had 2.39K+ features in the media, and our DMZ startups had an enormous media presence with 36k+ highlights.

Startups come and go at the DMZ, but they always leave an imprint in our community. This year, 357 startups graduated from DMZ programs, including Startup Certified (38 students), Basecamp (22 companies), NEP (27 companies), Launchpad (86 students), Incubator (8 companies), AMEX Blueprint (100 companies), Pre-Incubator (45 companies) and BIP Connections (31 companies).

The DMZ stays busy! This year, we ran programming for multiple existing programs: BIP Social Impact Stream fuelled by Unilever Canada, Black Innovation Connections with Dream Legacy Foundation, Launchpad for Entrepreneurs powered by Desjardins and AMEX Blueprint powered by the DMZ.

In addition, we housed the launch of the Newcomer Entrepreneurship Program (NEP) — a virtual ideation program sponsored by the Future Skills Centre and media sponsored by Canadian Business that helps Canadian newcomers develop startup fundamentals. We also partnered with Toronto-based venture capital firm GroundBreak Ventures to launch our PropTech stream as part of our incubator program to help high-potential PropTech startups transform the real estate landscape.

There’s a reason we’re known as a world-leading tech incubator. This year we received over 812 global applications. We’ve still got it.

What a year! Want to take part in 2023’s stats? Discover the DMZ and our programming here. Don’t forget to sign up for our newsletter to get the latest tech news, updates, and special offers.

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