PARTEQ Innovations adds bridge loans to suite of commercialization services

PARTEQ Innovations, the not-for-profit tech transfer arm of Queen's Univ, is launching a new service to assist its spinoff companies in managing fluctuations in cash flow. PARTEQ Treasury Services will provide short-term bridge loans to firms that require cash and agree to use their scientific research & experimental development (SR&ED) tax credits to secure the advances. The service is the first of its kind in Canada and is possible due to PARTEQ's structure and arm's-length relationship from its host institution.

"We've actually done it before by using our cash and securing it against a company's SR&EDs to get through a cash crunch," says PARTEQ president and CEO John Molloy. "Now the bank has been brought in and we can get an attractive rate. SR&ED is something we consider very secure ... It could be any early-stage high-tech company in need of better cash flow or cash management, as well as a bridge to other financing."

The vast majority of university spinoffs begin as Canadian controlled private corporations (CCPCs) which earn 35% refundable investment tax credits for the first $2 million in qualified R&D expenditures. The process of receiving refunds from the Canada Revenue Agency can take months, however, and often firms find themselves without the necessary cash flow to sustain and/or grow the business. Most banks will not loan money against SR&ED tax credits and those that do demand an interest rate higher than the rate that PARTEQ is able to negotiate.

The Treasury Service is currently being offered to spinoffs from PARTEQ and Queen's Univ but may be made available to other firms. Molloy says he isn't particular which companies may want to use the service, as long as they're high-tech firms with SR&ED tax credits.

"This isn't rocket science. It's just a service that we can offer. There's very little risk to PARTEQ. The only risk would be if we don't properly assess a company's SR&ED claims and they get knocked down."

PARTEQ has helped launch nearly 40 companies since its inception in 1987. Just this week, Performance Plants secured the largest venture capital investment in an ag-biotech firm in Canadian history (see story above). And earlier this year, PARTEQ spinoff Cita Neuropharmaceuticals Inc, Mississauga, was sold to UK-based biotech firm, Vernalis plc, for US $65 million.

Later this year, PARTEQ plans to increase its staff from 14 to 20, all of whom will be focused on commercialization. Longer-term plans include an expanded investment pool of $20-30 million that will be used to leverage other funds.

"We're thinking seriously about it but we're growing over the next year to we have to be careful," says Molloy.

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