The impact of COVID-19 is particularly strong on start-ups in need of short-term financing and venture capitalists, whose contribution is essential to support the growth of these companies and who must make investment decisions in a context of widespread uncertainty. Like others, we have noticed the slowdown in investment activity and that many start-ups are now finding it difficult to close rounds of financing or even get time or attention from potential investors. In this context of uncertainty, we advise entrepreneurs who anticipate the need to soon close a round of financing to consider the following items: Current investors First and foremost, it is vital to consider the rights of your business’s current investors, contained in corporate documents and agreements between the investors and the corporation, as they could impact your round of financing’s feasibility. For example, if a valuation was obtained a few months ago and it is presently impossible to find a new investor to offer to purchase the corporation’s shares at an equal or higher valuation, the consequences of proceeding “down round” will have to be considered. In some circumstances, the success of a new round of financing may even depend entirely on existing investors’ support and consent. It is also possible that, under certain conditions, existing investors may be willing to take a share of the risk faced by the corporation by participating in a new round of financing, thus eliminating the need of seeking funding from new investors. Lastly, especially if one of the current investors is a venture capital fund or an active investor, it is likely that the corporation has agreed to specific milestones with that investor that could add to the difficulty of operating the business during a pandemic (for example, aggressive sales or production growth targets). But it is possible that your investor will be understanding and accept to review these milestones and associated timelines, which could lead to a positive impact on the corporation’s burn rate and give it more leeway to weather the crisis. In all cases, we recommend transparency between the corporation and its investors, adopting a “partnership approach” and, above all, not to try to hide the corporation’s situation in its communications with its investors. Potential investors If there is no other option than seeking funding from new financial partners, it will be crucial to know the current situation of any targeted potential investor. As the current pandemic situation affects everyone, understanding the constraints faced by a potential investor is key in order to optimize the search for financing and the pitch process. For example, if the potential investor has a specific investment thesis or policy, the investor may be even more thesis-driven and show less flexibility than before. Conversely, the investment thesis may be undergoing a re-evaluation. In addition, many potential investors will be impacted by the type of clients they serve. For example, a fund manager whose clients are government institutions may still have as much capital to deploy in the current context as before Covid-19, unlike a fund manager whose clients are high-net-worth individuals who face uncertainty and liquidity problems themselves and put pressure on the fund manager to take a more conservative stance. So, more than ever, you need to target your approach and make sure your potential investor is available to enter into a transaction in the near future. Assistance programs The various levels of government and some Crown corporations have released several assistance programs. In the context of a funding round, Export Development Canada (“EDC”) and the Business Development Bank of Canada (“BDC”) both announced co-investment assistance programs to provide access to additional financing for start-ups that already have a certain level of support from private investors. These programs are a good opportunity for entrepreneurs who need to complete or initiate a round of financing, who are not eligible for certain other government assistance programs, and who are not generating enough cashflow to finance their activities through credit facilities on conditions that are viable for their business. The program announced by EDC proposes a co-investment by EDC of an amount equivalent to that considered in an eligible round of financing, up to a maximum of $5,000,000. As for the program announced by the BDC, the BDC Capital Bridge Financing Program also provides assistance in the form of co-investment in an amount equivalent to the amount the company receives from qualified investors: BDC will offer financing as convertible notes whose default terms include a 20% discount rate on the price per share of the next round of financing and a term of three years. BDC may, however, decide to deviate from these terms and invest under the same conditions as the investors leading the round of financing. The company receiving the investment must be Canadian and have raised $500,000 in external capital in the past. It must also have a proven business model and an existing customer base prior to the impact of COVID-19. The business must have been “specifically impacted by COVID-19.” Unlike some other government assistance programs, this one does not have a fixed scale relative to this criterion. Businesses can demonstrate how the current situation affects them through qualitative and quantitative indicators (e.g. disruptions in their supply or distribution chains, difficulties in getting paid). The important thing will be to show that the lack of cashflow and the difficulty of concluding a round of financing are related to the impact of COVID-19 and not to a situation inherent to the company. The round of financing for which co-investment is being sought must have started after February 1, 2020. The round of financing must be for a minimum amount of $250,000 (prior to investment by BDC) and the overall round of financing must ensure 18 months of runway before additional funding is required by the company. For example, a business with a monthly operational burn rate of $30,000 and $300,000 in financing would meet this criterion since (1) the round, prior to BDC investment, is over $250,000, and (2) the overall round of financing, including co-investment by BDC, would be $600,000 and would ensure 20 months of runway, based on its current burn rate. There are no fixed criteria for determining who is an “eligible investor.” We understand, however, that the investor must be a private firm that has demonstrated its capacity as a lead investor for the funding round in question its ability to conduct the due diligence process. The investor does not have to be Canadian but must be sufficiently known and credible in Canada. We consider this convertible note financing offer to have three main advantages in the current environment: It increases the total “post-financing” value of the business in the form of additional cash, and the size of the funding round without increasing the principal investor’s risk, thus making the investment more attractive. It avoids immediate valuation issues for the company, allowing the lead investor to maintain control over the valuation process through the funding round. It is relatively simple, quick and inexpensive, and should not make the transaction process more complicated or burdensom for the lead investor. In short, these co-investment-based assistance programs are appealing as they can be presented to an investor by a company with financing needs whose planned or ongoing funding round is currently at a standstill due to the situation created by COVID-19. The programs may also be interesting elements to consider for an investor who wishes to have a co-investor or who would like the round of financing to reach a certain threshold to ensure that the company being invested in has sufficient runway after the investment, especially in the current context where it is difficult to predict subsequent rounds of financing. However, the parties wishing to benefit from such programs will have to ensure that their situation meets each program’s criteria and that they evaluate the financing terms offered as part of the assistance program in the context of the transaction. Conclusion Start-ups currently in need of financing should first discuss with their existing investors to try to find room for manoeuvre and assess the possibility of quickly obtaining financing, part of which could come from one of the assistance programs available. In all cases, it will be necessary to measure the impact that additional funding from new investors could have on the rights and obligations that exist between the corporation and its current investors and to ensure that it does not trigger any particular rights or recourse or create ambiguities, contradictions or even events of default. For more information in this regard or to find out about other measures that could help your business, do not hesitate to contact the Lavery team. Our team is following current developments related to COVID-19 very closely in order to best support our clients and business partners. We invite you to visit the web page that centralizes all of the tools and information produced by our professionals.
Jean-François Maurice Lawyer
- Québec, 2019
Jean-François Maurice is a member of the Business Law group. His practice focuses primarily on private equity and venture capital transactions, public and private financings, mergers and acquisitions and fund formation. He frequently acts and advises for start-up and growth companies, fund managers, public companies and state-owned enterprises on corporate and securities law matters.
He regularly acts for and advises institutional and private investors, investment fund managers and Crown corporations on the acquisition of equity interests, the creation of investment funds, business acquisitions and regulatory registration requirements and prospectus exemptions.
Jean-François also acts for software and technology companies in the negotiation and drafting of contracts, including licence, distribution and master service agreements.
Jean-Francois is known for his problem-solving mindset and his focus on value creation.
- Represented Investissement Québec in connection with a $30 million investment as part of Deep Sky’s Series A funding.
- Represented the Fonds de solidarité FTQ in its acquisition of a $68 million minority interest in the share capital of SMT Hautes Technologies Inc.
- Support to Investissement Québec in the following mandates:
- Financing of Letenda, a sustainable transport company
- Financing of Pharma in Silica, a biotechnology company aimed at improving the chemotherapy of solid tumors, particularly lung cancer;
- Financing of a technology company related to public transport
- Sale of Algolux to Torc Robotics
- Financing of Deep Sky, a company specialized in removing CO2 from the atmosphere
- Financing of Femtherapeutics, a company dedicated to women's health by manufacturing gynecological prostheses adapted to the specific needs of patients.
- Support to Plateforme Agora Inc. in acquiring assets of Le Panier Bleu and in a financing round by Investissement Québec, Desjardins, Lightspeed and the Fonds de solidarité des travailleurs du Québec.
- Support to the Fonds de solidarité FTQ, Fondaction and EDC for a $30 million investment in Nolk.
- Support to the Fonds de solidarité FTQ and Desjardins Capital for a $22.8 million investment in UgoWork.
- Support to BRIDGR Group in the completion of a $1.6 million seed round of financing.
- Confidential client names: Support to a portfolio manager and a family office in the financing of a data analytics technology company in the UK.
- Supported partners, including the Government of Canada, the Government of Quebec, Fonds de solidarité FTQ, Ivanhoé Cambridge, Fondation Lucie et André Chagnon, Fondaction, Fondation Mirella et Lino Saputo and Fondation J. Armand Bombardier in the establishment of a $151 million fund for the construction and renovation of affordable housing.
- Confidential client name: Support to a fund manager in the structuring and marketing of a real estate investment fund project.
- Confidential client names: Support to an institutional investor and an investment fund in the financing of an instrument and software manufacturing company in the biotech sector.
- Represented the ad hoc committee of first lien lenders to Cirque du Soleil in connection with the acquisition of Cirque du Soleil pursuant to a credit bid under the Companies’ Creditors Arrangement Act for $1.2 billion;
- Represented international investment fund managers in connection with the negotiation and closing of capital commitments from Quebec investors in excess of $425 millions;
- Represented Quebec-based investment fund managers in connection with fund formation and closing of capital commitments in excess of $320 millions;
- Represented investment funds in the closing and renewal of credit facilities of more than $150 million
- Represented public issuers in connection with private placements, with gross proceeds in excess of $85 millions;
- Represented Canadian investment banks acting as lead underwriters in public financings of Canadian mining issuers, with gross proceeds in excess of $56 millions;
- Represented ChronoMétriq Inc. in debt and equity financings of more than $25 million
- Representation of corporations in the SaaS and video game industries in strategic acquisitions, financing rounds and the negotiation and implementation of licence, distribution and master service agreements.
- André Vautour and Jean-François Maurice, “Entre flexibilité nécessaire et risque d’excès : le droit des sociétés par actions moderne et le rôle des actionnaires dans la gouvernance des sociétés fermées” dans Barreau du Québec, Service de la formation continue, Développements récents en droit des affaires (2022), vol 519, Montréal (QC), Éditions Yvon Blais, 2022, 111
- “Mes André VAUTOUR, France Camille DE MERS & Jean-François MAURICE, Gouvernance des sociétés d'État à vocation commerciale - Rôle et pouvoirs du conseil d'administration et de la direction des sociétés d'État, similitudes et différences avec les sociétés par actions de droit privé, Développements récents en droit des affaires, volume 460, june 1st, 2019.”
Professional and community activities
- ”Bénévole d’affaires”
- LL.M., Peking University, 2018– Business Law. Thesis subject: “Corporate governance strategies to improve the governance of state-owned corporations, using principles of economic analysis of law.”
- LL.B., Université de Montréal, 2013
Boards and Professional Affiliations
- Member of the Board of Directors of Institut Innovation Gatineau, March 2021 to September 2023
Following a qualification process, the Ministère des Transports et de la Mobilité durable du Québec (MTMD) issued a call for tenders in 2022 for the construction of the new Île-aux-Tourtes bridge pursuant to the project delivery method known as design-build-finance (DBF). Since this was a DBF, the financing of this project had to be included in the proposals made by the selected candidates. Lavery represented the successful consortium made up of Dragados Canada Inc., Roxboro Excavation Inc. and Construction Demathieu & Bard Inc. Our role required expertise in the following areas: (a) Governance and corporate law (b) Project financing (banking and securities) (c) Public procurement (d) Construction law (e) Commercial agreements (f) Taxation Lavery represented the consortium from the call for proposals to the financial close, including the drafting phase leading up to the awarding of the contract to the consortium. The financing was the most complex part of this transaction. Under the hybrid approach retained for that project, a major credit facility to be granted by a bank syndicate had to be set up, as well the private placement of two tranches of bonds. This involved adjusting the rights and obligations of creditors on both sides within a sophisticated intercreditor agreement. The financing also required parent company guarantees, including from French and Spanish corporations, which required us to find common ground to accommodate the typical requirements of a North American financing and the specific corporate and commercial features applicable in France and Spain. To meet this challenge, we put together a multidisciplinary team, divided up the work in accordance with our professionals’ diverse expertises, and dedicated a team member exclusively to interactions with the MTMD, its lawyers and the issuers of performance bonds typical for this kind of projects. Sound project management practices were essential to the success of this team effort. It is a privilege for Lavery to have participated in this essential project allowing the people of Quebec to obtain a new bridge linking the regions of Montérégie and Montréal. The Lavery team was led by Josianne Beaudry, Nicolas Gagnon, Édith Jacques, David Tournier and André Vautour, and included Véronik Bonneville-Pesant, Katerina Kostopoulos, Jean-François Maurice, Joseph Gualdieri, Siddhartha Borissov-Beausoleil, Alexandre Turcotte, Luc Pariseau, Charles Hugo Gagné, Mickaël Pageau, Jean-Vincent Prévost-Bérubé and Yohann Lévy.
On June 20, 2022, the Government of Québec and Plateforme Agora (now doing business as Le Panier Bleu) announced that Le Panier Bleu is transitioning to a private enterprise with the support of Quebec industry leaders. During the announcement, it was also confirmed that Le Panier Bleu will soon develop a transactional e-commerce platform making it possible to buy products from local merchants online. Lavery had the privilege of assisting Plateforme Agora in this round of financing and in Le Panier Bleu’s transition by providing advice on corporate financing, mergers and acquisitions, corporate law, intellectual property, commercial law in the field of technology and labour law. The Lavery team led by Étienne Brassard was composed of Jean-François Maurice, Isabelle Jomphe, Guillaume Laberge, Jessica Parent, Béatrice Bull, Isabelle Normand and Pamela Cifola.
On May 4, 2021, the Government of Canada, the Government of Québec, the Fonds de solidarité FTQ and Ivanhoé Cambridge announced the formation of a consortium of investors that will make $120 million available to co-ops, non-profit organizations (NPOs) and housing agencies for the construction or renovation of affordable housing. The Lucie and André Chagnon Foundation, Fondaction, the Mirella and Lino Saputo Foundation and the J. Armand Bombardier Foundation collectively added $31 million to the sum. The strategic partnership will be managed by the Association des groupes de ressources techniques du Québec (AGRTQ) starting in the fall of 2021. Lavery Lawyers advised and assisted the project partners with the drafting and implementation of the legal structure and documentation necessary to create and start up the consortium of investors. Lavery is pleased to have put its expertise and professional and financial resources to work for the project, and to thereby contribute to an initiative that benefits both families and the economic vitality of Quebec. The Lavery team, led by Brigitte Gauthier, was composed of Jean-Sébastien Desroches, Jean-François Maurice, François Renaud, Bernard Trang and André Vautour.
On October 30, 2020, 01 Studio Inc., an enterprising, indie gaming studio, confirmed the closing of a financing with Skymoons Technology Inc., the video game division of Chinese multimedia giant iQIYI, to accelerate its growth and the development of its flagship game, Citywars Savage. In addition to the financing, the parties have agreed on the distribution of Citywars Savage in China and neighboring countries. A Lavery team composed of Jean-François Maurice, Étienne Brassard, Sébastien Vézina, Éric Lavallée, Florence Fournier and Stéphanie Dubois played a significant role in representing the interests of 01 Studio Inc. throughout the transaction, from negotiating the term sheet to the closing the transaction.