How to raise funds for your business — advice from $35 million man

It seems the story that dominated finance over 2009 was the lack of opportunities for start-up companies. As the banking system reeled from the largest economic crisis since the Great Depression, venture capital dried up and banks put a stop on loans.

But Dan Shimmerman didn’t let that deter him.

The president of Varicent Software Inc. helped win $35 million in the third quarter. Among IT companies, that is second only to Facebook that brought in a jaw-dropping $100 million.

Headquartered in Toronto, Varicent offers sales performance management (SPM) products and services. The firm employs 130 people and plans to increase that number by 50 per cent over 2010. The firm stands a very good chance of accomplishing that given that the SPM market is projected to grow to more than $8 billion next year.

Related Story: How to convince investors to back your startup – expert tips

Shimmerman sat down to talk about raising venture capital in a tough economy with

How did you manage to raise that venture capital?

First off, we’re in a very strong market. By and far, the venture capital community looks for a growing market. We’re in the sales management space. We help companies better align their corporate objectives with their sales incentives plans, and over the past few years have had a lot of success in this.. We’ve had consistent results, and built a great team. We’ve also assembled a roster of Fortune 1000 customers. I think these are the fundamentals venture capitalists look for in a company. They want to make sure their investment is going into a growing market, with a strong team that has a proven product and a strong customer base..

This year, the economy has been in the dumps. Venture capital opportunities have been hard to come by and I wonder if that discouraged you at all?

No, it didn’t deter us. We knew we had a tough task ahead.We put together a comprehensive list VCs, not limiting ourselves just to Canada, but including top tier U.S. venture firms as well. We were pretty tenacious in designing a formal plan of attack and executing on that. We set up several meetings [with these VC firms] and were quite lucky, as a lot of them expressed interest. At the end of it all, we could choose the most suitable partner for what we wanted to do with our business.

Your company has employees in locations around the world. Does having employees in Canada and the U.S. help you win funding on both sides of the border?

Certainly it adds to the credibility of the company. Venture capitalists look at the capability of the management team, and the fact we’ve been successful doing business abroad talks to our capabilities to execute in different countries and cultures. But it wasn’t necessarily something that they required. In fact, we said we’re doing quite well overseas and we want to continue to invest in our overseas operations, which is one of the reasons we want to go out and raise capital. So we actually used that as one of the driving forces behind the risk.

I was looking at your main investors. They include RBC Venture Partners, FTV Capital, as well as Edgestone Capital Partners. I also saw those investors all have spots on your board. When you’re seeking funding, do you have to expect to share control of your business?

Absolutely. I think if anybody is going to write a cheques for $35 million, or for any amount really, they are going to want to have some control over the business direction and strategy. Quite frankly, we’re OK with that. We wouldn’t expect anything other than that. We feel pretty fortunate to have these smart guys who bring value to the table. We welcome their perspectives and we don’t get too fussed about their control.

Technically, the recession is over now with GDP growth being just above zero. But nobody is saying that the economy is booming by any means. Do you think it’s still hard to find venture capital opportunities?

Yeah, I agree with you. The recession is far from over. We certainly had to work exceedingly hard to deliver the results that we’ve been able to deliver. In terms of the VC market, I’d say it’s loosening up a bit. Here in Canada, it remains somewhat challenged. Although I’ve had a few meetings with my colleagues here in the venture community and they’re able to raise the money they need for their funds. We’re seeing a greater number of smaller funds pop up. Certainly, in the U.S. and abroad there’s lots of money available out there even in this economic climate.

So how can it be done?

Well, I may be stating the obvious here, but you have to build a great company. You have to surround yourself with a very good team. I’m very proud of what we’ve been able to do, I’m proud of our entire team. A lot of hard work, drive, and dedication have gone into the company and I think you need to have some consistency.

In terms of an approach to the venture firms, they want to see honesty, they want to see transparency, they don’t like when you overstate your results or overpromise. They want to see very frank, candid discussions about what you think you can do and how you’re going to do it. They also want to see an exciting market, exciting in the sense that it’s growing, it’s early stage, and it’s got lots of potential. If you can do all of those things and communicate that to a finance guy, you’ll be fine. Good deals always find good money and good money finds good deals.

You’ve attracted some funding from traditional sources such as banks and investment firms. Those can be pretty intimidating for smaller businesses to approach. Can you offer some advice on how to make it easier to do so?

I can, and the work “intimidating” is a good one. The first piece of advice I’d give is that you have to quickly overcome that intimidation factor. These are guys that want to park their money in good investments – that’s their job, they are looking for that. For a small business to have a confidence issue in approaching these companies and presenting their value proposition, it’s unfortunate really. The first piece of advice I’d give is that you have to feel passionate about what you’re doing and confident you can convey that passion to just about everyone.

We’ve sat in front of the top-tier investment firms in the world, really. It’s because we’re very proud of what we do and we’re excited by it. So that would be the first piece of advice I’d give, to overcome the intimidation factor. Next, I’d ask lots and lots of people. Put a list together and don’t be afraid to go out there and pound on doors and be tenacious about it. As I said, the job of these investors is to find good investments. If you’re out there asking, you’re going to find a match eventually.

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Brian Jackson
Brian Jackson
Editorial director of IT World Canada. Covering technology as it applies to business users. Multiple COPA award winner and now judge. Paddles a canoe as much as possible.

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