Business & Economic Development – Funding & Tax Credits

Manitoba Innovation Growth Side Car Fund


Frequently Asked Questions | Due Diligence Requirements

Purpose:

The Manitoba Innovation Growth Side Car Fund (Fund) is designed to provide equity financing between $400,000 and $1 million to eligible Manitoba businesses as both investors and companies have identified a funding gap exists in this range. By providing funding the Fund assists in the development of early stage equity investors and Manitoba businesses by allowing investors to increase their investment in individual companies and/or increase their number of investments. The companies benefit from the Fund’s presence as larger individual investments allow a company’s management team to focus on managing the business and not constantly raising funds and it increases the number of businesses receiving funding.

The Fund will co-invest between $200,000 and $500,000 dollars with one, or more, investors providing funding to an early-stage Manitoba venture. The Fund makes its investment under the same terms and conditions as the other investor(s) with two modifications. First, if entitled, the Fund will not accept a voting board seat for the venture. Two, the venture must remain in Manitoba while the Fund is an investor. If the venture wishes to leave Manitoba, the remaining investor(s) must purchase the Fund’s position under the valuation model included in the investment agreement. The investor(s) can be either individuals or corporations. Possible investments include everything from convertible notes to common shares. It is possible for a venture to receive traditional debt funding under this arrangement but unlikely as most financial institutions are unlikely to share the security. To access the Fund the investor(s) must be registered with the Manitoba Securities Commission or have signed the necessary waiver.

To shorten approval time for the Fund’s investment, it is recommended the investor(s) and management team approach the Department early in the fund raising process to ensure both parties understand the Fund. In particular, the investor(s) should be clear the deal will be shared with the Province and the management team should be aware it is an investment not a grant.

The Fund relies on the investor(s) to perform the necessary due diligence and valuation of the venture. All deals submitted are reviewed by the Fund’s Advisory Council (Council). The Council consists of five members with a minimum of five years of experience as either an investor or someone who has received outside investment in the business they founded or served in as a senior manager. Four Council members are from Manitoba while the fifth comes from outside the province and fills the additional role of providing a national perspective and angel/VC investor connections.  The Province and Council reviews the following information submitted by the investors:

  1. Terms sheet. This includes earlier versions of the document if this is a follow-on investment.
  2. Valuation methodology used. (If applicable)
  3. Complete copy of the due diligence materials used to reach the investment decision. 
  4. A copy of the proposed cap table.
To save time these materials will be uploaded to AngelList so the Advisory Council can review them as received.  The Council will review the submitted materials to ensure:
  1. A proper amount of due diligence was completed in terms of the market, competitive situation, venture’s stage of development, proposed fund usage, description of the business model and ability of the venture to provide a satisfactory exit for the investors.
  2. The valuation model and provisions contained in the terms sheet are fair to both the investor(s) and the venture.
  3. The amount invested is sufficient for the venture to obtain the stated goals.
  4. Determine a go-forward strategy for follow-on rounds of financing. This is where the experience and connections of the national representative come into play.
Upon reviewing the materials the Council will make one of the following recommendations to the Province.
  1. Proceed with the investment.
  2. The deal is investable but the following issues should be addressed and the deal amended before the Province makes its investment. This information will be provided to the investor(s) and the venture’s management team for action when they are informed of the Province’s decision.
  3. The deal is not investable in its current form but the venture would be better served by a grant provided through CSB Stream 2. The maximum amount of this grant is $250,000. The reasons for this recommendation will be provided to the investor(s) and the venture’s management team when they are informed of the Province’s decision.
  4. The Council recommends the Province not proceeding with the investment at this time and states their reason(s) for this recommendation. These will be provided to the investor(s) and the management team when they are informed of the Province’s decision.

The final decision on whether to invest in the company is made by the Province. The results of this determination will be provided to the investor(s) and the venture’s management team. The Fund provides “patient” money. It is anticipated a typical investment will last a minimum of five years but can extend to 15 or more years in the case of a life sciences company. Ventures receiving an investment under from the Fund are required to provide the following information on an annual basis until the Fund exits its position. The source for this information is found in brackets.

  1. Annual sales (Financial statements)
  2. Number of jobs (T4’s)
  3. Salaries paid (T4’s)
  4. Additional investment raised (Financial statements)
  5. Return (Exit)

Eligibility:

The Fund does not invest in the following areas:

  1. Basic agricultural
  2. Resource extraction industries
  3. Hotels, restaurants, bars, resorts and other tourism related industries

Investors do not have to be based in Manitoba to co-invest with the Fund.

Type of Assistance:

This program provides financial assistance to investors and early stage ventures in Manitoba.

Contact:

Financial Services
Manitoba Growth, Enterprise and Trade
1040 - 259 Portage Avenue
Winnipeg, MB R3B 3P4
Phone: 204-945-8468
Toll free: 1-800-282-8069
Fax: 204-945-1193
Email: Kristine.Seier@gov.mb.ca

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