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

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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.

2022 federal budget digest

How the 2022 federal budget will impact the startup and innovation economy.


Last week, the federal government unveiled their long-awaited budget for 2022, which outlines a number of commitments for the Canadian tech and innovation economy.

The first budget since the Liberal’s re-election last fall, the 2022 budget focuses on growing the Canadian economy while aiming to make everyday life more affordable. Working to reduce its projected deficit, a majority of the government’s new commitments are program-focused, rather than large cash injections. 

We thought we would help out our community by breaking down the budget to highlight what should be on your radar, and how it will impact the startup and innovation economy.

The full federal budget can be found here.

AN OVERVIEW: BIG TICKET COMMITMENTS

  • Canadian Innovation and Investment Agency: $1 billion over five years towards the creation of a new agency designed to invest in innovation, research, and development. 
  • Canada Growth Fund: A $15 billion growth fund to encourage private sector investment to meet net-zero climate goals and strengthen supply chains.
  • Intellectual property: $96.6 million over five years to build a world-class intellectual property regime, by building on previous investments.
  • Scientific Research and Experimental Development (SR&ED): A review of SR&ED to eliminate paperwork needed for the program for startups. 
  • Accelerator to increase housing supply: Accelerator fund to encourage municipal governments to zone for more housing over the next five years. 
  • Dental-care and pharmacare: Plans to cover the cost of dental care for lower income Canadians and plans to create a national pharmacare program. 

INNOVATION INVESTMENTS

A new Canada Growth Fund to encourage private sector investment to meet net-zero climate goals and strengthen supply chains.

  • $15 billion in public capital over five years designed to incentivize private-sector investment in emissions reduction, economic diversification and supply-chain projects. The new program will  run at arm’s length from the government. It will make investments in businesses in firms for equity stakes, loan them money or issue financing guarantees. 

A new Canadian Innovation and Investment Agency to invest in innovation, research, and development.

  • The new agency, modelled after programs in Finland and Israel, will operate independently and will be funded with $1-billion in new spending over five years. Moreover, the government will consult further with Canadian and global experts in finalizing the design and mandate of the new agency. Furthers details will be announced in the 2022 fall economic and fiscal update.

INTELLECTUAL PROPERTY

The government has committed more investment into Canada’s national IP initiatives, including:  

  • A new national lab-to-market platform to help graduate students and researchers take their work to market;
  • Investment for the CanExport program to help Canadian businesses secure their intellectual property in foreign markets;
  • A new survey to assess the government’s previous investments in science and research, and how knowledge created at post-secondary institutions generates commercial outcomes;
  • Expanding ExploreIP, Canada’s intellectual property marketplace, so that more public sector intellectual property is put to use helping Canadian businesses; and,
  • Expanding the Intellectual Property Legal Clinics Program, which will make it easier to access basic intellectual property services.

SR&ED REVIEW FOR STARTUPS

A review of the scientific research and experimental development (SR&ED) tax incentive, assessing whether it’s effective in encouraging R&D that benefits Canada will be done. Additionally, the government is considering instituting a patent-box regime to ensure ideas generated domestically turn into IP that stays here.

  • Startups have long complained about the amount of paperwork involved with accessing SR&ED, and the assessment could translate to startups receiving higher payouts from SR&ED, or at least less paperwork to complete. 

SUPERCLUSTERS REBRAND

The federal government is extending Canada’s Superclusters and is rebranding it to be called Canada’s Global Innovation Clusters. The budget proposes an additional $750 million into the program over six years. 

  • The Superclusters was originally created to focus on projects leveraging plant proteins, advanced manufacturing, AI and oceans. With the rebrand, the government hopes to see the Global Innovation Clusters play a role in greater projects, such as climate change.

TAX RATE EXTENSIONS FOR SMALL BUSINESSES

Taxable capital for small businesses is increasing from $15 million to $50 million. 

  • Currently, the government taxes small businesses at a reduced rate of 9% on the first $500,000 of taxable income. However, small businesses lose the reduced rate once they hit $15 million. The new budget plans to increase the taxable income limit to $50 million. 

SUPPORT FOR SMALL BUSINESSES IN HEALTH TECH 

$30 million was committed to expand the CAN Health Network, which is a national partnership comprised of leading Canadian health organizations that work to introduce new solutions into the health care system. 

  • The government hopes to expand the program nationally to Quebec, the territories, and Indigenous communities.
Are you a founder trying to navigate the startup ecosystem? Learn more about programming the DMZ offers here.