Time finally caught up to the Canadian venture capital industry this week.
The latest figures showed investment in young companies between April and June plunged 45 per cent compared to the first quarter of 2002 — the kind of drop the U.S. has experienced for a year but which until now
had been avoided here.
With angel and venture capitalists hanging on to their money young entrepreneurs have to focus on growing their businesses with whatever resources they can get their hands on before looking to outsiders for cash.
Here are a few tips from the pros:
Think big. “”Canadians have great ideas but don’t know how to scale their businesses up to a $100 million organization,”” complains John Nemanic, an angel investor and chairman of Hostopia.com Inc. Investors will only put money into companies that have a huge market opportunity, he says, not something local.
Get a niche. “”Find an interesting market that looks like it’s growing so you’re not getting revenue and customers from an entrenched incumbent,”” says Robin Lewis, president of Vancouver-based Ventures West.
Get the right people. “”We did a survey of 316 venture capital companies worldwide, and the ranking showed that 60 per cent of the no-go decision was weighted on who’s running the company,”” says Sean Wise, managing director of Ernst and Young’s entrepreneurial business centre. “”That goes from the people’s traction, to their knowledge base, to their connections in the industry, to how easy the VC thought they’ d be to work with.””
Identify the pain. “”(It’s) one of the most ‘overlooking’ things I see on business plans,”” says Wise. “”People get so excited about their solution they forget what it’s doing. That is what is going to trigger the greed: how necessary the product is. If the solution is great but there’s no need for it, you’re not going to get too far.””
Get customers. “”There’s nothing wrong with growing a small company,”” says Wise, “”and you’ll need to do that to get VC funding. “”If you believe in it and grow it organically, you can show what you’d do if you had their money.””
Cold calls will only get you ice. Get a “”warm”” introduction from a VC’s current investees, says Wise. “”One of the greatest tricks of the trade is look into someone’s investment portfolio, find someone you have something in common with and then ask to speak to the CEO over lunch. Get an understanding of what their venture capitalist is like to work with — how they approached them, what they got out of it, who they like to work with at the fund. If you’re good at relationship-building, they’ll pick up the phone and call their VC.””
Cultivate the garden. “”Think of raising money like selling an expensive product,”” says Lewis. It takes time to get their confidence. Meet the prospective financier long before you make a formal pitch. Talk about what you want to do over the next six months. Then meet six months later and show you’ve met those targets.
Never say: “”We have no competition.””