A FOCUS ON SMALL BUSINESS
Special four- page section
It would stand to reason that an innovative company would seek to fund its operations in an innovative fashion.
That’s exactly what the founders of Calgary’s FREDsense Technologies did to raise the money needed to advance their water pollutant-detecting bacterial technology.
The truth is the group of current and former University of Calgary students that started the company had no intention of becoming business owners when they first thought of the idea.
“In 2011, the idea of starting a business had not crossed our minds at all,” said David Lloyd, the company’s director. “We were just excited about the possibility of working in synthetic biology with an interdisciplinary team to develop technology that could effect change in our world.”
When their technology won best entrepreneurial project at a competition at the Massachusetts Institute of Technology, they realized they had more than just a good idea. It could potentially be a viable business. Since then, FREDsense has been bootstrapping, raising money as it drives to finance the commercialization of its technology.
“We’ve really followed a weird path in that regard,” Lloyd said.
Unlike many other small business startups, FREDsense didn’t seek a small business loan from a financial institution. Instead, the team entered the technology in numerous competitions across North America and won eight of them, raising $ 75,000.
While its story is a little unconventional, FREDsense’s need for initial funding to get off the ground is a universal challenge for many small businesses, said Brian Hierath, regional manager of business banking at Servus Credit Union in Calgary.
“Many seeking less than $ 250,000 in funding will seek funding through their financial institution using a federal government program,” he said.
Called the Small Business Loan Program, it provides an extra layer of assurance to lenders that a portion of the loan is backed by the federal government.
“It’s got a strong track record of working extremely well for both borrowers and lenders because, to my knowledge, the default rate is relatively low,” he said.
The program’s success is the result of the hard work of both small business owners and the business advisers who approve the bank loan, working with entrepreneurs to ensure the business is on track to profitability. And a business plan is almost always a mandatory requirement.
“Without one your adviser can’t provide quality feedback and understand how to assist in structuring the financing,” Hierath said.
Often just having a plan on paper is not sufficient. Entrepreneurs need a good plan, but that doesn’t mean it has to be incredibly detailed, involving pages upon pages of information. It’s the quality of the content, rather than the quantity.
“That’s why I think it’s really important to get your plan vetted by people who have already run successful small businesses,” said Mariska Loeppky, director of tax and estate planning for Investors Group in Winnipeg. Financing from a bank or credit union is just one of many options for funding, she said.
“There are multiple ways of accessing money, such as seeking money from friends and family, or taking on partners like venture capitalists or angel investors.”
Each avenue has its advantages and pitfalls, and often the seemingly easiest source of cash might not turn out to be the best way to finance a business in the long run, said Loeppky.
“For this reason, it’s often best to start small in your home where you may be able to self- fund the operations to see if it’s going to be profitable before taking on the additional risk of financing from outside sources.”
The folks at FredSense pursued many avenues to grow their business. Besides using award money, the company also took advantage of grants like those offered through the federal government’s Industrial Research Assistance Program. The team even used ATB Financial’s crowdfunding platform, Alberta Boostr, raising $ 15,000 to finish production on their prototype.
“We really leveraged our own dollars using a lot of different ways to access additional capital,” Lloyd said. “It’s absolutely amazing how far you can make your dollar go with all the great funding opportunities out there if you are willing look for them.”
There are multiple ways of accessing money, such as seeking money from friends and family, or taking on partners like venture capitalists or angel investors.