Following the surprise suspension of a Québec investment-matching program, a Montréal-based sustainable packaging startup says it could fold within the next few months if it can’t secure new funding.
Mishel Wong, the founder and CEO of Bopaq, a cleantech startup that provides reusable food container solutions, said that her company’s ongoing fundraising efforts fell apart after Impulsion PME (IPME) was quietly put on pause by Investissement Québec (IQ) and the Ministry of Economy, Innovation and Energy (MEIE).
Bopaq is not the only Québec startup feeling the sting. After IPME was quietly suspended on Nov. 12, some startups looking to raise pre-seed and seed rounds alongside the program were left in the lurch. The sudden loss of de-risking and syndication opportunities seems to have spooked early-stage investors, as multiple founders told BetaKit that the program’s suspension directly impacted their fundraising.
“I thought my company was dead. I thought my 10 years of work was completely done.”
Julien Michalk
UFrost
“We have all the interest there, but they’re all looking for ways to de-risk the investment, and the program with IQ was one of those things that would have helped de-risk it,” Wong told BetaKit.
Multiple founders and those who support them told BetaKit that IPME was widely lauded as an opportunity to de-risk investment for early-stage companies.
“For many VCs, their commitment hinged on IPME’s involvement as a safety net, turning tentative interest into firm commitments and bridging critical funding gaps,” said Phil Rivard, an investor and founder coach at consultancy RVRD + CO.
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The loss of IPME comes near the end of a tough fundraising year for Québec startups, with seed funding last quarter dropping by a third year-over-year. IPME joins five other IQ-delivered programs put on hold in 2024, according to IQ, including bursary programs for small businesses and life sciences companies.
In a joint statement to BetaKit, the ministry and IQ said that the programs were put on temporary hold to ensure the availability of funds to fulfill existing commitments, and in some cases, due to a large number of applications. Applications submitted before Nov. 12 will still be processed, but the government bodies provided no update on when the program will return.
Rivard said that the program’s sudden suspension indicates a “broader fragility” in Québec’s ecosystem, pointing to recent studies that show a decline in entrepreneurship rates in Canada. In 2023, a BDC report found there were 100,000 fewer entrepreneurs in Canada than in 2000, despite the population growing by 10 million.
A “de-risking” option
IPME helped early-stage companies with high growth potential access seed-stage capital by matching investments. Launched in 2021 under former Minister Pierre Fitzgibbon, the program was given an additional $120 million from the province in 2023 as part of the ministry’s five-year innovation strategy.
The money awarded through IPME, which can take the form of convertible loans or equity, is entirely from the MEIE, a government spokesperson said. IQ administers the program and processes applications but does not invest any of its own capital.
IPME applications require a confirmed lead investor and a reference to endorse the file, according to people BetaKit spoke to familiar with the process.
Though Bopaq had yet to apply for the program, Wong said her company had been in talks with IQ’s advisory team and had an application ready to go as soon as it secured the rest of its financing round. Impulsion PME is typically the last step of a funding round, and Wong noted Bopaq had a good chance to secure funding because it had a good relationship with a referring entity.
Vicky Boudreau, founder and CEO of Heylist, recently went through the program, which helped close out her company’s first $1.6-million funding round. Boudreau told BetaKit that the IPME program was “challenging in a good way” because it forced her to develop sharper business and growth plans.
Boudreau said that when she was fundraising, IPME was mentioned by investors and advisors as an “amazing opportunity” to match the first $750,000 of a financing round.
Missed the window
According to Julien Michalk, CEO and co-founder of Montréal-based UFrost, government programs such as Impulsion PME are “mandatory for” Québec companies due to the low level of capital in the ecosystem. He said this is even more apparent when it comes to hardware companies.
UFrost manufactures an industrial-level “freezing microwave,” a flash-freezing appliance that maintains freshness for thawed food. According to Michalk, the company is already generating revenue and has 35 clients nationwide, but he hopes a round of funding will allow UFrost to find mass appeal as a consumer product.
Michalk started the process of raising a pre-seed round in May, including communication with IQ representatives about an IPME application. On Nov. 14, IQ cancelled a morning meeting with Michalk and his investor, letting them know that the program was temporarily suspended and they could no longer apply. The meeting was originally booked by IQ on Nov. 12, the same day it quietly shuttered the program.
The CEO followed up with the IQ representative, asking why their application could not be considered despite having spent weeks discussing their file with IQ, but told BetaKit he received no response.
Michalk went back to his prospective pre-seed investors with the news, who were waiting for the confirmation that UFrost would be funded through IPME. He told BetaKit that all of them “choked” and withdrew, saying they were no longer comfortable investing.
“For many VCs, their commitment hinged on IPME’s involvement as a safety net.”
Phil Rivard
RVRD + CO
One prospective UFrost investor BetaKit speaking to under condition of anonymity acknowledged that while it wasn’t the only factor, the IPME news “killed the momentum” of the fundraising.
“I thought my company was dead,” Michalk said in an interview with BetaKit. “I thought my 10 years of work was completely done.”
The CEO said that although his company has managed to get its funding plans back on track, IQ should have provided a heads-up to give companies on the brink of applying a chance.
RELATED: Québec VC funding continues downward spiral in Q3 2024, but shows early-stage promise
“The issue here isn’t just the suspension itself but how it was handled,” Phil Rivard of RVRD + CO told BetaKit. “Clear communication could have mitigated the systemic shock and ensured more stability for our ecosystem.” In a statement to BetaKit, IQ said it is in constant communication with “concerned actors” and encouraged startups that did not apply before the program paused to review other available pre-seed and seed funding sources.
IQ did not respond to questions sent by BetaKit regarding the status of UFrost’s application.
Uncertain future
Wong is struggling to envision Bopaq’s future as the holiday season approaches and face time with investors becomes more difficult to schedule.
“I didn’t know that stress could feel so physical,” she said.
Bopaq and UFrost’s predicaments reflect a broader trend among Québec tech: low levels of capital circulating at the pre-seed and seed stages and an overreliance on public funds—just like those that flowed from IPME.
In Bopaq’s case, the reusable container startup was counting on a program it saw as one of the few viable funding options. Before IPME shuttered, Bopaq was navigating a roadmap to profitability alongside debt commitments: though the company’s revenue has doubled year-over-year, it has laid off three-quarters of its staff. The presence of IPME was never meant as a saving grace for startups falling on hard times, but its loss is one more hardship in an ecosystem with little appetite for risk.
With no word on when IPME is slated to reopen, Bopaq has secured $75,000 in SAFEs to bridge operations through the new year. Wong said that her company is ready to explore all options, including a merger or an acquisition, to continue its mission.
Feature image courtesy Bopaq.
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