Securing Investment: How to Counter Common Startup Mistakes
As an investor in several Canadian startups, the key to securing financing is about putting the puzzle pieces together for the investment partner.
It’s true that Canadian investors are generally more conservative than technology investment firms in Silicon Valley or New York, and that early stage financing may seem limited in relation to our stateside counterparts, but that doesn’t mean Canadian investors don’t exist.
Funds and incubators have been springing up everywhere in Canada—Golden Ventures, Mantella Venture Partners, Xtreme Startups, and FounderFuel, to name a few. The BDC is also a great alternative for start-up financing worth exploring.
So why isn’t your start-up getting the financing you need? In my experience and in speaking with fellow investor colleagues, it’s as much about availability of capital as it is about the quality of the deal. Investors are selective, so here are five tips to counter common mistakes we’ve seen with entrepreneurs who pitch Bnotions’ fund.
ADVISORS
An advisory board is essential for creating sizzle around a proposal. A good advisory board isn’t necessarily composed of entrepreneurs or senior executives. They include people who have a complimentary skill to contribute to your business and have had successes in similar industries. Too often we find start-ups adding an advisory slide in their presentation deck with faces of local sweetheart entrepreneurs for the sake of having them but stumble when prompted to provide rationale behind the decision to add them to the team.
REVENUE PROJECTIONS
Today’s idea is not tomorrow’s. If you assume the business model you have today is the ultimate business model you will be operating 10 years from now – you are dead wrong. When proposing monetization strategies we like to see brainstorming around how the business evolves and the effect on revenue. As a conservative Canadian investor we want to know there is room for growth and versatility in case the out of the gate plan doesn’t work.
THE TEAM
It’s becoming cliché but nonetheless true: the investment isn’t in the product, it’s in the team. A common story we hear when meeting a start-up team is that they were a bunch of friends who had an idea. We need to pry out of them the value each person brings to the table. Communicating the skills, roles and responsibilities of each team member indicates to investors that the core business operations are being looked after by specific individuals.
VALUATION
TechCrunch has made start-ups believe they can go out and raise at a multi-million dollar valuation with just an idea on a napkin or deck. We see an increasing number of first time entrepreneurs walk into our funds demanding financing at valuations that are not well supported and not aligned with the efforts contributed thus far. Ideas are a dime a dozen and talent can be staffed. As long as you’re looking for financing in this country your valuations must be a fair representation of what you’re worth (imagine your typical salary if you got a job) and what you’ve produced (IP, patents, sales channels, etc).
EXPENSE MODELS
One of the last questions we have for any start-up is “where are you going to spend the money you raise?” I am surprised how often there is vague rationale and no immediate financial model available for review. Raising money is difficult – agreed. Spending money is equally as difficult – how is every dollar going to return value and help grow the business? More thought here will help investors feel confident that the money won’t be wasted and growth will be a predictable outcome.
Ultimately, if you are having difficulties raising in this country you may need a better idea, better team, and better plan or might be better off raising the abundance of risk capital found in the Valley.
