Growth Times

Karen Mazurkewich, Financial Post, in an interesting article on Monday entitled “The new uber-angels” comparing the VC-fund approaches of Ontario and Quebec, declares on the Ontario Venture Capital Fund that “What Ontario didn’t — or couldn’t — predict was the lack of potential co-investors for these funds.”

Karen, I would invite you and Ontario’s decision-makers to step up your due diligence and review Growth Times’s August 4th, 2009 blog post entitled “Who Will Match Ontario’s $250M Emerging Technologies Matching Fund?”……………..

Really, was it that hard to anticipate? Ontario could have predicted this, but there were political and financial forces at play and incompetence at the top. Let me guess that the persons in charge will actually get rewarded with more assignments and rewards for their mistakes, while the rest of us in the private sector get to work harder to actually make innovation happen.

[Addition to the post following subsequent inputs I received: the setup of the Ontario Venture Capital Fund remains such that Business Angels can barely play. The restrictions pretty much rule it out ($1MM min investment, full net worth disclosure, etc.). They should reduce the barriers for Angels to participate, given they are one of the few true sources of capital these days.]

As a rule, I am starting to realize that the public institutions in this province, and that includes a lot of the nonprofit hubs, are not quite designed to really encourage innovation. Except in rare cases, they are designed to grab taxpayer’s money and redistribute it to their supporters based on loyalty, not performance.

One thing Ontario and Canada really needs to get urgently, is that smart regulation has much more leverage than direct intervention. If Ontario really wants investments, it should work to repel section 116 to get American capital flowing here.

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• Provinces’ approaches to VC funds differ (financialpost.com)
• OVCF Sends Out the Love to ILR (ricksegal.typepad.com)
• Who Will Match Ontario’s $250M Emerging Technologies Matching Fund? (torevenue.com)

Canadian entrepreneurs, Fund Due diligence, Financial Post, Financial Services, innovation, Investment, Karen Mazurkewich, Ontario, venture capital

A great post 3 days ago by ReadWriteWeb COO Bernard Lunn on 10 Things to Be Clear About Before You Start a Company. I had the chance to meet Bernard last month at the Web 3.0 conference when we had dinner with a group of Web 3.0 business pioneers (including Alex Iskold of AdaptiveBlue and Andraz Tori of Zemanta). Bernard is one of those unassuming types with a bottomless wealth of knowledge activated on demand. You know, that type of folks everyone likes to have a conversation with, with a good glass of wine to complete the picture.

One of the many ideas that intrigued me in his post is that of checking whether you’re made to grow a lifestyle business, or to pursue a growth company. The reason it caught my attention is that lately I met a lot of tech entrepreneurs who started a business, acquired a few clients and grew revenues, and at that point started to play with the idea that they may need to raise money — and yet are far from clear on what changes this pathway will require from them and their business.

A number of those entrepreneurs, after putting everyone in marching order towards an external investment, end up not taking the plunge. While there are side benefits to preparing for an investment, the collateral damages of not taking it in the end outweigh those benefits. When the founder(s) (and their board when there is one) haven’t done their own groundwork beforehand, and aren’t ready to make the investment leap (of faith, in many cases) after pursuing it and even securing offers, it destroys value, hope and useful resources that could have been better deployed elsewhere. In fact it often ends up destroying the company itself.

That’s not to say a company founder shouldn’t be cautious about protecting her/his interest and that of the company from predators. It is critical to secure the best valuation by putting the company’s operations in order, finding the most attractive angle to document the story for the investor’s pitch, and adopting a systematic approach to raising investment that puts investors in competition with one another and keeps them on their toes. Without it, it’s normal to expect the company’s founder to hesitate.

But often, “doubts” about the potential investors and term sheets hide the darker truth that the founder sees all this as “letting the baby go” (which is often not the reality) and is not ready for it. It becomes an excuse for humming along thinking the sun will keep shining on the business and it “will continue to grow organically if we keep doing things right”. If this is true then don’t seek outside investment in the first place. Market validation has more cachet than any investor’s endorsement.

I wrote above that a founder rarely “has to” let the baby go. Any investor will tell you they’d rather keep the original founder at the helm if that founder shows the right level of flexibility and adaptivity to grow with the company. The trick is to start thinking in terms of “influence” not “control”. The main reason a founder is asked to let the baby go by external investors is that the founder stands in the way of growth by focusing too much on control, and not enough on influence.

There is a huge difference between getting a company to a few customers and taking it over what I’d call the “Growth Company Landmark”: the inflexion point at which most of what the CEO needs to do is managing other people and external investors, as opposed to securing new clients and running R&D. That point differs by type of business but, for many I came across, it was between $1M and $2M in revenue. At that stage, it is obvious to everyone that a huge transformation needs to take place and that the founding CEO needs to adapt, or curb the company’s growth.

Four evenings ago, I met a 52-year-old entrepreneur. As we kept chatting on the parking lot, he confided almost with tears in his eyes that he had once lost a fantastic outside investment opportunity, and regretted not to have been more aggressive in seeking growth and the corresponding financial resources. Now, by his one admission, he couldn’t get any of his three companies above the $2M mark. Such a waste of potential. Entrepreneurs, please, know what you want before you go for it.

Scale Bernard Lunn, business angel, growth company, innovation entrepreneurship, Investment, Outside invesment, ReadWriteWeb, tech ventures, venture capital, venture consulting, Zemanta