Angel Investors
Incubators and Accelerators. Do They Work?
Over half of all startups are dead in the water within 2 to 5 years. This certainly may help explain the exponentially popular appeal of business incubators and accelerators, which promise to boost the chances of individual startups to raise capital, get to a positive revenue stream and provide community benefits like higher regional employment.
There were about 12 incubators in 1980 and today they number in the thousands in the USA alone. Some of the most famous ones are Y Combinator or TechStars. Even governments are getting into the act: the Obama administration in White House has launched Startup America to facilitate public and private partners investing in American entrepreneurs.
In different ways, incubators and accelerators aim to leverage high-quality mentorship and access to funders to produce dramatically different results; but do these methods actually work? Read more
How to Tap the Investor for Capital, Advice and More
Even entrepreneurs who know how to raise capital may still not be taking full advantage of the relationships they’ve built with investors. Particularly with angel investors and venture capitalists, there’s an expectation, if not an obligation, to make use of their expert advice to help drive your business to success. Your backers may have crucial expertise as valuable as the financial investment they make in your enterprise.
Types of Angel Investor Expertise
Here are some examples:
Mentoring
Entrepreneurs or CEOs can gain much by asking experienced investors to act as mentors. They can provide great insights into finance, among other things. In early-stage companies, some lead investors or VC firms might provide the assistance of entrepreneur-in-residence, an experienced person who acts as a mentor.
Hiring
As we briefly mentioned above, experienced investors have wide-ranging industry contacts and are better than any executive search agency, not to mention much faster. You can be fairly confident that they can help you with hiring for almost all senior positions, either in engineering or management.
Strategic Alliances
Experienced investors can offer great ideas with regard to forging strategic alliances in the market and also provide you access to the right people in case you do not have your own network of contacts. They can help in providing sales leads, too.
Suitors
You can be assured that experienced investors have considered potential acquisition, or merger, partners before you have. Chances are they even have analyzed the prospective companies for the “best fit” with your company’s offerings. You should seek their assistance in forming a liquidity event strategy as this, in many cases, has been how your investors have made their money. They will also be interested in supporting you as they are interested in getting their money out one day when the time is ripe.
Entrepreneurs have to be on the lookout for a range of accelerators for their business, not just capital although raising capital is critical. Mentors, strategic alliances and other opportunities can come up at any stage and should be leveraged. Make sure you’ve got a strategy in place to take advantage of them.
How To Create Serial Entrepreneurs in Canada
Do Canadian entrepreneurs need to up their game? That’s the conclusion from a recent Vancouver Sun article that caught my attention, though I disagree with the premise; it’s more accurate to say that we still need to work on building a business environment that helps entrepreneurs thrive.
Here’s an excerpt:
“Then it becomes interesting. I’m a big supporter of the Vancouver tech community and I feel like we have a really good base here. But in the end, the only thing we can do to accelerate the development is attracting better entrepreneurs and more entrepreneurs to Vancouver. The more talented entrepreneurs we can get into town, the better.” Senia Rapisarda shares that sentiment.
The vice -president for strategic initiatives and investments at Business Development Bank of Canada, Rapisarda said that while Canadians have the technology and skill to compete in the high-tech market they are “a bit behind” when it comes to fostering development of what she described as “serial entrepreneurs.”
“Doing something, being successful and coming back for more, or doing something, failing, and coming back for more. We don’t have a lot of those, and we need them.”
I don’t think the problem is a lack of entrepreneurial spirit in Canada or even parts of the USA outside of traditional business hubs. If somebody tries to make it as an entrepreneur, fails and keeps failing, they still have to put food on the table. No one wants to keep banging their heads against the wall, so would-be entrepreneurs go back to working for others. The main stumbling block to creating serial entrepreneurs is how to provide an environment that supports entrepreneurship.
How to Develop an Entrepreneur-Friendly Business Environment
How do we develop an environment that creates more entrepreneurs and give these aspiring entrepreneurs (and serial entrepreneurs) an edge? Here are a few ideas:
- Get people thinking about entrepreneurship earlier. Think back to high school or your childhood and when someone asked you what you were going to be when you grew up. How many of us listed a type of job rather than “starting a business”?
- Educate entrepreneurs about the resources that are available, such as government grants like SRED that help companies get the most out of limited budgets. All entrepreneurs understand the concept of bootstrapping, but not all understand that they can apply for funding even before they are ready to raise capital.
- Promote mentoring. The knowledge and wisdom of a board of advisors can be as critical to success as the raising of capital. There are some avenues for startups to take advantage of these knowledge resources through organizations like New Ventures BC, but these opportunities have plenty of room for expansion.
- Fail Fast; but fail cheaply. Entrepreneurs need to know the benefits of doing market research and how it can avoid costly mistakes. Make this business analysis tool set a fundamental part of any new and existing enterprise to minimize risks and increase value propositions. We know entrepreneurs rarely consider it an important element of business success. Companies should be encouraged by funders and advisers to do market assessments, market validations, new product development research, customer segmentation and other research activities to make better decisions.
What else can we do to provide a more supportive environment for entrepreneurs? Leave a comment
Venture Financing Terms You Need To Know
Investment lexicon for entrepreneurs, angel investors and venture capitalists
What’s “burn rate”? What’s the difference between a “venture capitalist” and a “vulture capitalist”? What do “ROI” and “NDA” stand for? The arcane lexicon of venture financing can leave some entrepreneurs scratching their heads – which is not a great thing to be doing in front of a roomful of potential investors.
Entrepreneurs are usually experts in their field. Plenty of CEOs of technology firms started out as programmers or engineers. Successful chain restaurant CEOs started out as chefs in their family’s kitchen. They know their business well – but they often don’t have the formal training in investment terminology.
Let’s go over a few of the common terms:
- Burn rate. The amount of money the company consistently spends each month on salaries, rent, general expenditures and administration.
- Hockey Stick Forecast. A five-year forecast with year-over-year revenue growth. In chart form, it looks like a hockey stick.
- Valuation. The monetary value placed on a company and agreed to between the investor and entrepreneur. It forms the basis of the investment.
- NDA (Non-Disclosure Agreement). A legal document to protect the company’s confidential information.
Listen to how venture capitalists and CEOs use this kind of language themselves in a discussion about How Venture Capital Works
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