My previous article on start-up funding sources covered the Maple Leaf Angels. For the next article in this series, I will cover the Investment Accelerator Fund (IAF).
What is the IAF?
The IAF is a fund that was established by the Ontario government Ministry of Research and Innovation and is managed by the Ontario Centers of Excellence. It was put in place to help early stage companies that may be too risky for traditional funding sources to get funding and allow them to make progress to the next level where they can tap into angel/VC funding sources. In addition to providing capital to investee companies, the IAF also helps companies via its extensive connections and networks to help companies in areas such as opening sales doors, developing alliances, finding management talent, and recruiting board members.
The fund was founded in 2007 and has done 20 deals since inception. The fund is on track to do an additional 9-10 deals this year. Some companies the fund has invested in include: Regen Energy, Echologics, Nulogy, Bering Media, and Skymeter
How does this fit into Ontario’s commercialization strategy?
The IAF is one of 3 programs the Ontario government has in place to support innovation and commercialization in Ontario. The first program is the business mentorship and entrepreneurship program (BMEP) led by MaRS. This helps companies get started and provides guidance for entrepreneurs to launch their companies through mentorship and access to market research. The IAF would be the second leg in helping provide funding for early stage companies. The third leg is the angel network program administered by the National Angel Capital Organization. This helps establish angel groups in Ontario that will fund early stage companies and provides a network for access to follow-on capital.
What companies are eligible and how much investment can a company get?
To be eligible for the IAF, companies must reside in Ontario. Investment can be up to $500k and is usually done in tranches.
What are the deal terms?
Investment is made via convertible debt with a nominal equity kicker. A board observer seat will be granted to the IAF as part of the deal. The IAF is open to syndicating a deal with other investors.
How should a company go about applying?
Initial contact should be made through Trish Barrow. Once the application is received Trish will have an initial conference call with the company to review the application.
What happens after an application is submitted?
The company executive summary is reviewed internally and/or externally to assess the opportunity. Companies then submit a full business plan which undergoes detailed due diligence into the market, market strategy, intellectual property, technology, and management. Based on this, a recommendation is made by the IAF management team on investment.
Companies must then do an investment pitch to the IAF investment committee. This committee is made up of IAF management, VCs, and angels. The committee guides the IAF management committee on the investment and any conditions for investment. This process also provides the investment committee with a window into quality deal flow for potentially follow-on funding.
How long does the process take?
The process takes between 3 to 6 months until the company receives a cheque. Timeframes will be dependent on what stage the company is at, if they have materials readily on hand required for the due diligence process, etc.
What criteria are used to select which companies receive investment?
As the IAF was established by the Ontario Ministry of Innovation, it is not purely ROI and profit driven like a VC fund would be. Companies successful in receiving funding typically:
- Have a viable addressable market of at least $20m that the company can add unique value
- Have strong, defensible intellectual property
- Are in a position where investment by IAF can be meaningful in terms of helping the company progress and get to a stage where they will be attractive to next round angel/VC funding
- Have high risk, disruptive technologies that will advance innovation in Ontario
- Will create jobs in Ontario
The focus of the fund is on innovation and commercialization so companies with potentially disruptive technology that have strong intellectual property are the best candidates. The fund is looking to help companies develop their technology to the next level (i.e. could be a beta product, could be a pilot project) so the technology is further proven and subsequent angel/VC investors can look to continue funding the company. In other words, the fund is looking to bridge the gap between early R&D and angel/VC fundable companies.
Although the fund is not purely ROI driven, just like any fund it as limited resources and the fund’s management needs to ensure the companies they invest in will be the ones that succeed and become successful companies. As such, companies must be able to show a clear plan of progression with concrete milestones as to the progress they will make after investment in advancing the company to the next stage.
craig at mapleleafangels.com