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In December, the Canadian Government announced big changes to its widely used SR&ED program, which helps small- and medium-sized businesses by providing tax credits for scientific research and experimental development.

In an effort to make this support more generous, the government is proposing to invest $1.9 billion over the next six years and make significant reforms. Most significantly, private companies would be able to claim the 35 percent tax credit rate on $4.5 million of expenditure, rather than $3 million. Public corporations would also have their eligibility extended to claim the 35 percent credit on $4.5 million of qualifying SR&ED expenditures.

The goal of these changes, the government says, is to encourage Canadian businesses to invest in innovation and drive new economic growth. It also probably helps that it’s an election year.

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Two major Vancouver companies shuttered over the holiday period.

Long-standing game studio Hothead Games has closed its doors, with president and CEO Ian Wilkinson writing on LinkedIn that the company "had a good run" but has now filed for bankruptcy. It's unclear how many people the studio employed at the time of its closure, though its LinkedIn page suggests it had a headcount of 51-200 employees. Hothead Games has been running for 18 years, and its most recent titles include free-to-play mobile games Big Win Football 2024 and Box Office Tycoon.

Next, Bench Accounting announced its sudden closure on December 27. The company, which described itself as “North America’s largest bookkeeping service for small businesses”, said its platform would no longer be accessible, putting hundreds of staff members out of work. Bench had previously stated it had more than 600 employees and had received investor funding of USD $113 million. California-based HR tech company Employer.com has stated it will acquire Bench, and that it has been “working with Bench customers behind the scenes to ensure a seamless transition.”

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How could Bench Accounting shut down abruptly with no warning? Sheel Mohnot, general partner at Better Tomorrow Ventures, speculates it could have been because of debt covenants on venture debt.

While he points out that he had “no inside knowledge,” he highlights Bench’s $60 million Series C — which Pitchbook suggests was made up of $37 million in equity and $23 million in debt. As further evidence, he cites that Bench lists Silicon Valley Bank as an investor on its website, suggesting the company likely took venture debt.

“Venture debt is most often used alongside an equity round,” he writes. “On paper, it seems counterintuitive for the lender — you get the risk of an early-stage company with capped upside of debt. Lenders get interest payments, warrants, and equity kickers, and only back companies where they're confident VCs will continue supporting them. Most importantly, they protect themselves with debt covenants […] Breach these covenants, and the lender can demand immediate full repayment, freeze bank accounts, and seize collateral — effectively forcing an instant shutdown.”

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