Invest in a business
You are an entrepreneur with big ideas about your business, but you need capital. While working to raise funding, always pay attention to the investor’s perspective. Ask yourself: “will investors look at your company as a vehicle to make their targeted return on investment (ROI)?
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Here are some important factors to consider. Investors need to believe there is a high probability that further funding will be at a higher price per share than what they initially paid, and that the current valuation is realistic. This is significant so as to increase the chances of a higher multiple (return multiplier) being later made on their initial investment. Finally, investors want to be sure that the exit possibilities or liquidity event is plausible and sensible, should the company be successful in executing its plans. This is when they will get their money back out of the investment in your company.
How to Show ROI to Investors for Your Company
Pay special attention to these key drivers of ROI:
- large promising market opportunity (e.g., scalable business in a market over a billion dollars)
- capable and experienced management team (e.g., domain expertise and experience)
- a differentiated product offering (e.g., IP) and
- risk mitigation plans (e.g., market validation) in creating value
A recent New Ventures BC seminar focused on getting funding also had some excellent advice for entrepreneurs getting their feet wet in the fundraising process. Some highlights from this live-blogged presentation of Tanner Philp of Lions Capital on how to approach financing:
For the people who have a sales and marketing background, it is the same kind of blocking and tackling process for getting investors. You need to have a strategy for funding your company and for what objective you are funding.
A lot of entrepreneurs don’t think about the financing strategy when they’re just starting out, but it needs to be considered before a launch.
How long does the process take? That depends on your strategy:
You should be raising funds towards a series of milestones. The more you achieve those milestones, the easier it will be to raise further funding and take it to the next level.
People chronically underestimate the time it takes to raise the capital. In the case of a high net worth friend, you may be able to close a deal over the first bottle of wine — but in most cases, it is far more challenging. Often, starting out you can be looking at four to nine months… and closer to nine than four.
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
What is venture capital, exactly? How was Christopher Columbus’ discovery of the New World like a spectacularly successful business startup? And how can your company combine Strategy, Structure, Substance and Sizzle to persuade investors to fund your company to achieve success? Lyn Blanchard of Your Capital Edge answers these questions and more in a friendly chat with a business colleague.
Listen to this conversation about how to raise capital for your business from investors
Your Capital Edge is the successful entrepreneur’s secret toolkit that helps you raise capital, create investor presentations, formulate an HR plan, secure financing, locate Angel Investors, make accurate cash-flow projections and more.
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