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What Startups Need to Know about SAFEs

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What Startups Need to Know about SAFEs

This is a guest blog by MT>Ventures.

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.

Startups, here’s how you can prepare to combat an economic downturn

A blueprint to super-proof your startup and protect against economic instability.

With record-high inflation, wars overseas and rising interest rates, experts are telling Canadians to brace for an economic downturn and warning signs are starting to trickle to the startup and innovation economy, which can affect in a multitude of ways.

Over the last year, Canada’s tech ecosystem showed explosive growth – in fact – a recent BDC VC report showed that Canada had a record year for venture capital, breaking records by almost every metric.

While some in the startup ecosystem are sounding their warning bells, like Silicon Valley-based Y-Combinator, the industry is still positioned to continue its growth. Is it always going to be clear sailing? No. But what we’re seeing is not a halt to our momentum but rather a course correction.

It’s second nature for startups to pivot and change their mindsets to focus on the opportunities at hand. Just look at Uber, Pinterest and Whatsapp, all household names that came out of the 2008-2009 recession!

We’re here to make sure that founders stay resilient, agile and are prepared to bear the punches that may come their way.

iPad screen with stock market metrics - Economic downturn blog

So what can you do to start planning ahead and super-proof your business? We’re glad you asked.

1. Leverage liquidity.

Finding the right liquidity balance for your business can not only help you gain insight into if you have enough cash to pay off your short-term liabilities. but also allows you to set yourself up for strategic growth. Having enough cash on hand is important to meet financial obligations, but holding onto too much cash might leave important investment and growth opportunities on the table. Finding the right balance will ensure long-term stability and provides a good first impression when looking to secure a loan or other funding.

2. Budgeting, budgeting, budgeting.

This goes without saying, but take a moment to sit down and understand exactly where your money is going and where your main sources of revenue are coming from. Getting a thorough understanding of finances will help make tough decisions – if need be – quickly and effectively.

3. Lock in longer commitments.

Focusing on closing longer commitments such as subscriptions or multi-year agreements with customer, partnerships and client can ensure financial security in uncertain circumstances. Recession or not, this is a great tip for any startup that is looking to extend its runway and demonstrate loyalty to customers and partners.

4. Cut costs.

It’s only natural to turn to cost-cutting measures but it’s important to remember one thing – cutting costs does not mean you need to let go of talent. Cutting costs means reevaluating your spending to axe unnecessary costs. Create plans for different levels of financial scarcity to work for different scenarios the ecosystem throws at you.

5. Back-up business plans are your best bet.

This is similar to the last point, but apply it to your entire business plan. Your best bet in preparing for the unknown is to create multiple overarching plans that fit a range of realistic possibilities. These plans should include securing funding as planned, securing a smaller amount and not being able to secure funding at all. Look at other forms of funding as alternatives, whether it be grants, crowdfunding, bank loans or support from family and friends.

Workers having a meeting - Economic downturn blog

Want to learn more about how you can solidify your contingency plans? Apply to a DMZ program here.

DMZ founders have recovered over $1 million in tax savings through think.SRED

think.SRED, a DMZ partner and Professional-in-Residence, has helped founders recover more than $1 million in tax savings through the SR&ED program 


Earlier this year, our Professional-in-Residence (PIR) partner,
think.SRED hit an incredible milestone in their work with DMZ founders. Since the inception of the DMZ’s PiR program in early 2020, think.SRED has helped recover more than $1 million for DMZ founders in tax savings for founders through submissions to the SR&ED program!

think.SRED's logo
think.SRED is dedicated to supporting startups along their journey to understand the process, application, and receipt of their maximum eligible Scientific Research & Experimental Development (SR&ED) credits. The company has confidently directed hundreds of Canadian technology companies while submitting more than $200 million in applications to the SR&ED Incentive Program.

In think.SRED’s experience, founders they’ve worked with have been previously told by other SR&ED advisors that they were too early-stage to apply for rebates, or that the work they were doing was ineligible.

Oftentimes, it’s not the case at all. think.SRED is in fact a company made up of passionate founders. The founders came together and found common ground in the general belief that there was a far better way for advisors in this space to approach their work and clients. 

And they were right – the applications that think.SRED has helped DMZ founders with have had a 100% success rate in securing tax credits for founders!

a group of DMZ startup founders celebrate a big win by hitting a gong

What are SR&ED credits?

The Scientific Research & Experimental Development credit program is a federal and provincial tax incentive program that uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada by refunding a substantial portion of development costs. 

The SR&ED Program provides more than $3 billion in tax incentives and cash refunds to over 20,000 claimants annually, making it the single largest federal program that supports business R&D in Canada. The program is administered by the Canada Revenue Agency (CRA).

These tax incentives come in three forms: an income tax deduction, an investment tax credit (ITC), and, in certain circumstances, a refund.

Why you should consider applying for SR&ED credits

With the help of the government backing your innovation, you can get your startup off the ground, finance future projects, and strengthen your competitive advantage. 

Even if your tech startup fails, it is still worth claiming SR&ED credits because you are given the chance to test your ideas in a way that may not otherwise have been possible from a lack of capital. 

By considering research and innovation projects, you can commercialize your tech internationally and create a competitive proposition value. 

think.SRED makes the process easy for you

“think.SRED was an awesome team to work with. They helped us overcome multiple obstacles to complete our first-ever SR&ED return,” says Tyler Bryden, Co-Founder of Speak AI (DMZ alum). “They made it easy, and actually even enjoyable. We are very appreciative of their support and can’t wait to work with them again!”

think.SRED offers the companies they work with a full end-to-end solution: they educate to ensure your team understands the complicated process in simple terms to ensure the process gets easier each year. 

two startup founders meeting and looking at one laptop
They advise on the small details that will make a difference in the SR&ED process. think.SRED knows what CRA is looking for and how to ensure program compliance is achieved through hands-on support. As a founder, when you get selected to have your application reviewed, think.SRED is also by your side through the reviewal meetings with the CRA.

think.SRED’s team comprises experienced software professionals, legal experts,  accountants and scientists who offer advisory services in these areas.

“While we may first appear to be a group of friendly consultants that founders come to know and trust, we have a lot more in common with founders than they originally think,” explains John-Paul (JP) Belanger, President of think.SRED. “Like every DMZ founder who once had an idea that they felt was meaningful enough to not only pursue but go all-in on, the founders at think.SRED have that exact same experience.”

That’s why the think.SRED team’s relationships with early-stage founders mean that much more – they’ve truly been in your shoes and share the same passion to do something great for the world.

Who is eligible for the program?

Any company legally operating in Canada is entitled to receive the benefits of this incentive program. 

Companies with CCPC status (Canadian Controlled Private Corporation) and are considered a small business for tax purposes are also entitled to the highest possible benefit the program offers. 

A common misconception is that SR&ED credits are only accessible for large companies. In reality, the credits are available for companies of any size, as well as solopreneurs or sole proprietorships. This allows startups from any stage of their lifecycle, from pre-revenue to commercialization, to tap into this resource.

It doesn’t matter how you’re generating revenue either. If your company is pulling money from investors or customers, it does not affect the success of your claim. Instead, SR&ED is tied to the expenses – as long as you’re spending, you can claim.

You can view more information about the program’s eligibility here.

startup founder taking notes

When should I claim my credits? 

Companies must file their SR&ED report with their corporate tax return forms. This means SR&ED reports are due no later than 12 months after your fiscal year-end, or 18 months after the end of the tax year that you incurred your R&D expenditures. 

think.SRED is available to DMZ companies to help jump-start this process. 

“We are very proud to share our results helping DMZ founders, not only because we know that our unique approach contributed to this level of success, but because of how much we admire the founders within the DMZ that have chosen to trust us with this essential part of their business journey,” explains JP.

JP promises that think.SRED does far more than “SR&ED advisory”, but that every founder they work with receives unrivalled customer service, comprehensive expertise, and real-world software development experience.

“We’re thrilled to have the opportunity to continually support the DMZ and the amazing up-and-coming startups that we’ve come to know.  If you think your company might benefit from an SR&ED submission, or you just need a bit more information, be sure to reach out to think.SRED,” adds JP.

If you are a founder interested in learning more about SR&ED credits, check out think.SRED or our programs to learn how you can access PiR services through the DMZ. 

 

 

The Finalists Are In! Student entrepreneurs will shoot their shot to win grants up to $15K!

Finances are no longer keeping students from turning their entrepreneurial dreams into a reality. The DMZ’s Student Grant Program provides the funding, network and tailored skill coaching needed to become industry-leading innovators and change-agents.

Our selected finalists (listed below) have a cutting edge solution to some of the world’s biggest problems and are hard at work to take their business plans and pitches to the next level. They will present their ideas to a panel of judges who will determine who walks away with the cash!

Want to support these student entrepreneurs while they take the big stage?
RSVP here.

When?

  • Thursday March 12th, 7:00PM 

Where?

  • DMZ Sandbox @ Ryerson’s Student Learning Centre (SLC), 341 Yonge Street, 3rd floor. 

Why?

  • Discover 2020’s biggest startup and tech trends.
  • Build connections with DMZ’s thriving community of world-leading entrepreneurs, business leaders, tech experts and startup founders. 
  • Show support for the finalist!

Stage One: Eligible Finalists for $5,000 Student Grant.

  1. CompTech: Redefining compression therapy through our new compression tech that greatly increases the patient’s quality of life.
  2. Myotics: Merging prosthetics with computer vision and Artificial Intelligence to bring forth adaptable and intuitive control to forearm amputees and consequently overcome the financial limitations with modern advanced prostheses.
  3. SANA: We leverage existing mobile technology to connect extremely rural regions to medical personnel.
  4. Sensofine: Glucose monitoring packages, including patches and the app: An innovative non-invasive real-time solution for you to become the master of your blood sugar level.
  5. SmartEyes: A mobile application that combines object detection and audio cues to aid the blind.
  6. Takionics: Helping restaurants reduce food waste and operational costs by forecasting the amount of menu item sales.

Stage Two: Eligible Finalists for $10,000 Grant.

  1. May Contain: Connects people with food allergies to allergy-friendly restaurants, locally and abroad.
  2. Quad Clover: Performance monitoring leg wear that eliminates injuries arising from imbalanced physical movements or bad tendencies and, post-injury, guides and validates a successful recovery all through a real-time feedback warning system.
  3. Scuto: A growth and management platform for photographers. We also provide unique search tools for clients to find the perfect photographer for their wedding.
  4. Teem: One-stop shop SaaS platform for teamwork, where you can find your teammates, collaborate and review each other’s performance.

Stage Three: Eible Finalists for $15,000 Grant.

  1. Pre-Incubators for Change: Removing all barriers to fitness programming and industry education for youth.
  2. Ftr.: Industry leading recording artists, music producers, and mixing/mastering engineers available for hire at the click of a button. Collaborate effectively with ft
  3. Vimto: We provide education and automation of sales development to help SMEs scale internationally.

RSVP for the Sandbox Student Grant pitch night! 

Learn more about The DMZ’s Student Grant Program here.

We hope to see you there!

DMZ Raise Roundup

$4.6 billion. That’s how much Canadian tech companies raised in VC funding in 2018. A record for our country’s thriving sector.

With 2019 well underway, we are already seeing a trail of impressive raises. This week, DMZ startups got a boost with a number of rounds. Here’s the latest on who raised how much, and from whom.

Roofr lands a $4 million seed round

After completing the Y Combinator program, Roofr, a new type of roofing service that uses aerial imagery to provide customers with a free roofing estimate online, announced it raised $4 million led by CrossLink Capital and a line of angel investors.

Currently serving the Bay Area, the entire state of Florida and the province of Ontario, the company plans to use the funding to expand its reach to new marketplaces and has its eyes on the state of Texas. The company will also be growing its engineering, sales and marketing teams.

Photo: Kevin Redman (CTO, Roofr) & Richard Nelson (CEO, Roofr)

NXM raises $7.7 million

NXM Labs Inc., an autonomous security and data integrity company, announced the close of its $CAD7.5 million pre-series A funding led by Cedarpoint investments Inc.

With the IoT industry on track to be one of the fastest moving technology sectors in history, this financing comes at the perfect time. The company will commercialize their award-winning NXM SecureSuite software platform that enables connected devices and systems to manage their own security in order to continue to ward off hackers.

EnergyX raises for further expansion in the U.S.

EnergyX Solutions, an online energy auditing platform, has raised $500,000 from MaRS Investment Accelerator Fund following a $1.3 million raise in August 2018.

Already working with companies like Enbridge, Gas Distribution and CLEAResult, the Toronto-based startup is putting their money towards further expansion in the U.S. where there is a larger market to tap into.

Photo: EnergyX Team @ the DMZ

Why your startup needs an accountant

It’s easy to understand why early-stage entrepreneurs might see hiring an accountant as unnecessary. Tight profit margins, little-to-no investment and a small working staff mean even the tiniest expense can make or break a company. However, an accountant’s job is about more than just filing taxes and crunching numbers.

A dedicated accountant is like a year-round business partner. It’s a lifeline for entrepreneurs during the bad times and reassuring one during the good ones. Considering almost half of all new businesses fail in their first year, bringing on experienced financial assistance is less of a luxury and more of a necessity.

Avoid scam artists. Pick a professional

 
David Silber, a Senior Tax Manager at Crowe Soberman, has spent the last seven years working with investors, startups and small businesses across Canada. He’s seen how easy it can be for entrepreneurs to mismanage their company into trouble and out of a money.  

“Entrepreneurs are very good at looking at the big picture,” Silber explains. “However, they can lose sight of the fact that there are some financial reporting and obligations that go along with running a business that they can’t afford to ignore.”

Canadians convicted of tax evasion face five years in jail and a 200% fine on owed taxes

Mac Killoran, a partner at Fruitman Kates LLP, agrees. Startups tend to ignore how crucial professional planning is and don’t always understand why it sets them up for success down the road, he says. “I would say entrepreneurs for the most part try to reduce upfront costs and not pay professionals. When they do it on their own, it often results in penalties and larger headaches resolving the issues with CRA.”

Find resources you can afford

 
In a perfect world, every entrepreneur should have enough money set aside to pay a professional bookkeeper. But, since reality rarely works out as planned, a smart backup plan is to consider online accounting tools, like QuickBooks.

This helps businesses stay on top of their financial responsibilities in the interim, so they don’t rely on faulty memory or overworked staff.

If you can’t afford an accountant, online software will help you track expenses and payroll

 

It’s also important to separate personal and business expenses from the very beginning when starting a business. Founders that commingle the two can end up costing themselves money or garnering unwanted attention from the Canada Revenue Agency.

“If you can borrow money from your corporation, even unintentionally, there’s a rule in place that if that debt isn’t repaid within one year the money is added to your income and gets taxed the following year,” he explains. “Just don’t do it.”

Paying yourself a salary

 
Whether or not you should draw a salary during your startup’s early years is a question
that has plagued even the most frugal founders. Should company leaders pay themselves a salary when bootstrapping or focus on reinvesting that money? The answer, like everything in business, is complicated.

According to the experts, it all depends on a company’s future goals and cash flow. For Silber, he suggests entrepreneurs first recognize what their priorities are and then decide whether drawing a salary hurts or helps in the long run. A good compensation plan may be to pay a mix of salary and dividends.

Not taking a salary while bootstrapping your company isn’t always the smartest thing to do

Startups that pay into a dividend benefit in two ways. First: They lower their tax bracket so they pay less tax at the end of the year. Second: Later, when their business is doing well they’re not bumped up to a higher tax range. “What I do is tell entrepreneurs to pay a dividend of $30,000 or $40,000 for their salary, which results in less tax,” explains Killoran.

The future is up to you

 
The world of business is tough.

The hard truth is that every year hundreds of startups across the country shut down and
close up shop. It makes sense for entrepreneurs to use every tool they have at their disposal to tilt the odds in their favour. It might just be that an accountant’s experience and money knowhow may be the one factor that helps
their company thrive and survive in today’s cut-throat economy.

Looking to boost your money knowledge? Check out our previous post about the best money podcasts to listen to online.

The top 4 money podcasts every startup should listen to

Cash. Dough. Moolah. Money.

No matter what you call it, everyone wants it or is desperately trying to find a way to hold on to it. For entrepreneurs, a hefty serving of money can be the thin line that separates success from abject failure. Unfortunately getting (and staying) rich isn’t so easy and something people have been desperately trying to figure out for years.

Here’s a list of the best business podcasts that focus on money. They cover everything from money management to investor relations and the ins and outs of proper budgeting, so entrepreneurs can keep their company financially healthy.

Mostly Money With Preet Banerjee

 
The title says it all. This podcast will teach you everything you need to know about basic financial literacy. Whether it’s the best ways to organize expenses or budget for day-to-day finances, this program has it all.

If the name Banerjee seems familiar to you it’s because you’ve probably seen his name in print before. The TEDx speaker is a financial columnist for the Globe and Mail, money expert for the W Network and best-selling author behind a series of self-help books. If you’re interested in a money podcast that covers a wide range of issues then this show is for you. Head over here for the all the latest episodes.

Being Boss

 
Being Boss is a podcast designed with women entrepreneurs in mind. The show looks at ways entrepreneurs not only how to create great products, but continue “making bank” while doing it. The brainchildren behind this show — Emily Thompson and Kathleen Shannon — cover a wide range of topics like personal finance and money management. Although, not everything is strictly money-related. The duo cover other related topics, like the best strategies entrepreneurs can employ for finding new hires.

Bonus: These bosses put an emphasis on interviewing female innovators, so you’re sure to hear from some of the best women in the industry. Grab a coffee and listen to every episode on iTunes right now.

BusinessCast

 
Running a successful company is about more than just attracting the right investors. Robert Gold — a chartered accountant and host of BusinessCast — knows that better than most. Gold has spent 10 years interviewing some of Canada’s most innovative and successful entrepreneurs about their secrets for success. This program is more than just a look at run-of-the-mill finance problems. It also examines how companies should deal with the competition in a crowded tech market.

Engaging guests detail their struggles, journey to success and what it takes to maintain a competitive edge. With podcasts being on average only 15 minutes, it’s an easy, commitment-free way to learn something new while on the go. Check them out online here.

Entrepreneur on Fire

 
Entrepreneur on Fire is a must-listen for founders looking for fast and dirty tales about money pitfalls and successes. In every episode host John Lee Dumas features one new guest who details their money woes or wins and shares advice about what they’ve learned.

While sometimes their tips are a little too U.S.-focused there’s still great overall lessons to be learned. Listen to it here.

 

How Toronto startup Roofr is using tech to go global

Not too long ago GTA homeowners hoping to repair a faulty roof had very few options available to them. They could either scour online want ads to find contractors or reach out to one of the big pricey construction firms that dominate the industry.

A huge endeavour considering the Ontario roofing industry is projected to reach a whopping $800 million this year. Meanwhile a Mckinsey & Company report found the construction and home renovation industry is one of the few remaining industries lagging when it comes to adopting new technology.

In 2016 all that changed when cofounder Richard Nelson and his two partners, Kevin Redman and Zach Melo, created Roofr. The Toronto-based startup makes it easy for consumers to find local, vetted contractors in as little as 30 seconds.

Fixing the industry’s flaws

 
The startup’s satellite technology gets customers access to cost predictions that analyze everything from man hours needed to materials required on site. This also helps roofers provide the best quotes and takes all the guesswork out of costly renovations. Customers can use the site for free any time, while contractors pay Roofr a nominal fee after each job.

A roofer by trade since he was 12 years old, he saw first hand how the out-of-date the industry was costing consumers money.  

“The problem with the roofing industry… [is] that it was a complete disaster,” Nelson explains. “You have the large roofing companies charging an arm and leg, or companies that weren’t experienced providing inferior services for a lot of money. We get around that by connecting people to the best sellers at the most competitive price.”

Since launching, the team has managed to turn their cost-efficient-roofing startup into a thriving business. Recently it hit $200,000 in gross merchandising volume and now boasts a 50 per cent month over month growth rate.

First Canada, next the world

 
Right now the company’s services are open only to Ontario residents. However Nelson hopes to expand south of the border in the coming weeks. Once the team wraps up their residency at California-based accelerator Y Combinator they’ll drum up business for their American operations. “Within the next five years, we’ll be present in every city in North America. Our first market and primary focus [right now] is California.”

When asked about the company’s recent wins, Nelson is quick to praise the DMZ. The Toronto accelerator prepped the team ahead of their Y combinator interview and introduced them to investors that kept the business afloat in its early years.

“Laith [the DMZ’s investor liaison] introduced me to a bunch of investors and angels with office hours when we were in Toronto,” says Nelson. “They helped us practice leading up to our Y Combinator interview too. So we were really prepared and knew what to expect.”