As a founder, navigating the complexities of funding is crucial as you build your business. There are many types of funding available to fuel your startup, including:
- Accelerators & Incubators: Programs that provide funding, mentorship, and resources to early-stage startups in exchange for equity or program fees.
- Angel Investors: High-net-worth individuals who provide capital in exchange for equity, often offering mentorship as well.
- Bootstrapping: This is becoming a more and more popular path to sustainability. This involves using personal savings or revenue from the business to fund growth without external investment.
- Corporate Investors: Large companies that invest in startups that align with their strategic interests.
- Crowdfunding: Raising small amounts of money from a large number of people, typically via online platforms.
- Family & Friends: Raising capital from personal connections who are willing to invest in your startup.
- Government Programs & Economic Development Loans: Financial support from government initiatives aimed at fostering business growth and innovation.
- Grants & Competitions: These are non-dilutive funding provided by governments or organizations to support startups and innovation. Check out the Top 100 Competitions guide.
- Initial Coin Offerings (ICOs): A blockchain-based fundraising method where startups issue digital tokens in exchange for capital.
- Venture Capital: Investment firms that provide funding to startups with high growth potential in exchange for equity.
- Venture Debt (Bank Loans, Credit Lines): Loans and lines of credit offered by banks or alternative lenders to finance business operations.
While the best funding type depends on your company’s stage, exploring non-dilutive funding options is particularly valuable because it allows you to retain equity. One such program is the Scientific Research and Experimental Development (SR&ED) Program for Canadian businesses.
What is SR&ED?
SR&ED is a government-backed tax incentive program designed to reimburse development costs for innovative technology. This financial support enables Canadian businesses to conduct research and development (R&D) activities without giving up equity or ownership. To qualify, companies must demonstrate that they are developing an innovative technology and must properly document:
- The scientific or technological uncertainties they attempted to overcome—challenges that standard practices could not resolve.
- The work conducted to overcome these uncertainties, through a systematic process of investigation, testing or iteration.
- The results achieved and the eligible costs incurred.
Recent Updates to SR&ED
The Government of Canada has recently updated the SR&ED program, and Boast has compiled a comprehensive overview of its impact on innovators. According to the Boast guide, key reforms include boosting innovation capital by implementing higher thresholds and restoring capital expenditures, which result in increased funding for R&D projects. They also support growing companies by increasing capital limits, allowing mid-sized tech firms to scale without quickly outgrowing eligibility.
Additionally, they empower Canadian public companies by enabling publicly traded Canadian firms to claim SR&ED credits, ensuring they remain competitive globally while staying headquartered in Canada. Lastly, these reforms drive long-term growth by aligning with the government’s broader goal of enhancing productivity and innovation to bridge the R&D investment gap between Canada and other nations.
Expert & Founder Insights on SR&ED
If your company is considering R&D or product development, Carlos Coelho from Boast recommends:
“Review your SR&ED claim strategy to take full advantage of the new thresholds. Double-check your capital expenditures, as they may now be eligible for SR&ED claims. If you are a Canadian public company or a growing tech firm, reassess your eligibility. SR&ED is an entitlement, so don’t leave money on the table!”
Cory Friedman, CEO of Kompas, emphasizes the importance of documentation for applying to SR&ED.
“The documentation of your development is more about the journey than the destination—recording failures that led to a successful outcome demonstrates a true challenge and technical uncertainty.”
Key Documentation Best Practices
Documentation is the key when it comes to funding. Consider the following best practices as Friedman elaborates:
- Maintain a continuous documentation process throughout development.
- Avoid waiting until project completion to start SR&ED documentation.
- Engage an SR&ED consultant as early as possible
- Canadian salaries qualify for higher recovery percentages than Canadian contractors.
- Foreign labor is not eligible for SR&ED claims.
- Proper bookkeeping ensures accurate claim calculations and speeds up refunds.
- Essential documentation includes:
- Time sheets, logs, or call transcripts
- Code base snapshots showing evolution over time
- Scope definitions and ticket tracking records
When & How to Apply for SR&ED
Navigating SR&ED can be complex so it’s best to work with a consultant as early as possible. Additionally here are some pointers to consider:
- The SR&ED application is submitted alongside your corporate tax return.
- The filing deadline is six months after your fiscal year-end.
- Form T661 must be completed with the tax return (Quebec businesses must also submit the equivalent Quebec form).
- Once approved, you can continue claiming eligible expenses for up to three years before needing to submit a new innovation claim.
- Multiple claims can be filed simultaneously for different innovations.
By leveraging SR&ED, Canadian businesses can maximize their funding opportunities while continuing to innovate and grow. Proper documentation and strategic planning will ensure a smoother claims process and a higher likelihood of receiving financial support. For additional support check out the resources on Boast.
