Federal Government Announces Additional Pandemic Funding for Start-Ups, Small Businesses

On April 17, 2020, the federal government of Canada announced that it would be providing C$250M to the Industrial Research Assistance Program (“IRAP”), a fund that helps small and medium-sized businesses bring products to market. The announcement of the additional IRAP funding is part of C$1.2B in new support offered to entrepreneurs in response to the COVID-19 crisis.

In March, days before the government began recommending that Canadians stay at home, the Canadian Venture Capital & Private Equity Association announced that 2019 was the best year for technology investment since 2000. However, as the COVID-19 pandemic has progressed and the federal government has taken steps to protect and stimulate the economy, many early-stage companies have found that they are ineligible for programs such as the Canada Emergency Wage Subsidy (“CEWS”), which requires businesses to demonstrate a 30 percent decrease in monthly revenue from earlier in 2020 or the previous year. The Globe and Mail pointed out that the CEWS requirements effectively disqualified fast-growing start-ups: if a company had doubled sales year-over-year, a 50 percent decline due to the COVID-19 crisis would put the company at par with the preceding year and render it ineligible for the CEWS, even though it had experienced a significant contraction in current revenue.

Additionally, companies with venture funding may have payroll expenses that exceed the C$1.5M limit to take advantage of the Canada Emergency Business Account loan forgiveness program, and may also be ineligible for the C$65B Business Credit Availability Program. While such companies may be able to take advantage of the BDC Capital Bridge Financing Program, the gaps across the other governmental programs nonetheless left some early-stage companies without aid, and forced some early-stage companies and entrepreneurs to consider cutting staff and withholding payments to suppliers.

To fill these gaps, the federal government allocated an additional C$250M to IRAP, which is run by the National Research Council of Canada. IRAP’s annual budget is usually C$310M, which is distributed to various small businesses to help those firms bring new products to market. The additional funding is open both to companies currently being funded by IRAP and to new applicants. Details concerning how the funding will be allocated to small and medium-sized businesses are still to be finalized, but the government indicated that money would flow to companies in a matter of weeks.

In an interview, Innovation Minister Navdeep Bains stated “Today’s announcement reflects the fact that we know we need to do more to support start-ups”. The news was met with approval from entrepreneurship lobbying groups, as Ben Bergen, the executive director of the Council of Canadian Innovators, said “Today’s announcement shows the government has listened to our calls to increase funding to existing innovation programs so that our technology entrepreneurs can stay afloat”.

Author: Duncan Lurie