Waterloo, Ontario-based social messaging application Kik has become one of three Canadian companies to be valued at $1 billion or more. This valuation comes after the company received an investment of $50 million (USD) from Chinese internet giant Tencent. With over 240 million registered users around the world, Kik has gained a great following and by doing so, have immersed themselves in steep competition which is heavily dominated by Asian tech companies.
China’s WeChat has evolved more than most and remains one of Kik’s primary competitiors. In addition to its social messaging service, WeChat users have the ability to browse e-commerce stores, pay bills, order food, and read the news. Kik founder, Ted Livingston, has set his company’s sights on becoming the “WeChat of the West”, signifying another Canadian tech startup could be the next international sensation.
The Difficulty in Valuating Mobile Tech Companies
Providing an accurate valuation for social mobile technologies, such as Kik, can be quite difficult. Much of the company’s value is provided from “the network effect” where service is offered to encourage user registration. Once users have signed up for the site, they provide value to other members by creating and nurturing online connections. Brands and large companies may provide an increased amount of revenue to the site once the user base grows larger. Facebook is a prime example of the network effect and leverages much of their value from approximately 1.49 billion monthly users.
Even Worth $1 Billion, Kik Remains Unprofitable
Like many other technology startups, Kik has relied on corporate and venture capital support to mature. Their latest $50 million investment will enable the business to implement new features and plan for future competition with established social technologies. However even with this investment support, the billion-dollar company remains unprofitable. The company lacks a stable revenue stream and cannot begin asking their client base (primarily North American teens aged 13-24) to pay for the service on a monthly or annual basis. Kik’s future success is contingent on finding reliable revenue and begin investing in the company with more than corporate and venture capital.
Tech Startups have Difficulty Obtaining Canadian Government Funding
Startups in any industry will face difficulty supporting the early-stage development of their business through Canadian government funding programs. Most Canadian government grants and loans require businesses to be incorporated for at least two years before submitting funding applications. This eligibility requirement reduces the risk that government funding agencies are exposed to and maintains a funding pool for established businesses who need capital to grow and increase profitability.
Canadian Government Funding and Resources for Tech Startups
Not all government funding is restricted to incorporated companies however. Several organizations assist the Canadian government to distribute funds for tech startups, including:
Community Futures Development Corporations (CFDCs)
CFDCs are non-profit organizations who offer a variety of programs and services to support economic development and small business growth throughout Canada. There are currently 269 CFDCs across the country which provide:
- Strategic planning and socio-economic development within communities;
- Business planning and information services; and
- Access to capital for SMEs and social enterprises.
The Northumberland CFDC is a great example of how tech startups can benefit by working closely with these organizations. FedDev Ontario recently announced a $1.1 million expansion to the CFDC pilot program which supports tech startups in the region. To date 22 startups have received funding and the expansion funding aims to support another 25 businesses.
Regional Innovation Centres (RICs): Business Incubators
Regional Innovation Centres (RIC) and business incubators assist startups and small businesses to develop and commercialize innovative products and services. Many of these centres provide resources and mentorship opportunities for entrepreneurs who are currently building their business, ensuring that their business plan revolves around innovative practices. Get started and find the right centre to begin accelerating your startup today. RICs and business incubators are located across Ontario, including Innovation Factory which operates in Hamilton. Other RICs such as the Accelerator Centre in Waterloo, launch their own business support programs. The Accelerator Centre recently launched their Accelerator Centre JumpStart Program to help mentor startups and provide them with mentorship.
More Resources for Innovative Startups
Entrepreneurs who are developing their startup will not typically qualify for small business grants. Until they have been incorporated for two years or more, most government business grants are unattainable and entrepreneurs should be focused on using the resources provided above.
However, entrepreneurs who wish to take advantage of government funding in the future should consider preparing themselves now. Preparing your business for government funding will ensure that you can leverage the most amount of capital once qualified for the programs. To make sure your business is aligned for funding success, download our free Funding Checklist.