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Attracting investors and turning them into partners

Steps in obtaining venture capital financing

Launching a business means investing your own seed money. While it will be enough at first, sooner or later you’ll need a boost from another source. That’s when you should start thinking about angel investors or venture capital firms. Make sure you’re prepared before approaching them!

Suppose you’ve put several thousand dollars into this venture so dear to your heart. Family members and friends have injected some “love money,” too. You’ve been able to get some loans and grants to help you get things off the ground.

And now you’re ready to expand.

Your business is generating revenue, but not enough to take it to the next level. You need a hand from another source.

This is where angel investors and venture capital firms come into the picture.

Angel investors

Angel investors are usually involved at the start-up stage. They may be individuals or groups, and can invest tens of thousands of dollars, sometimes even into six figures. In short, they often make smaller investments than venture capital firms, and in the form of shares or convertible debt.

They are often former entrepreneurs themselves, seeking growth opportunities for their assets by diversifying their investments into several promising businesses.

In exchange for the financial risk they are assuming, these investors will ask for a significant share of your firm, and will often ask for a seat on its board of directors. You’ll have to make concessions to attract investment. So you can expect to give up some control in exchange for their dollars, and to create a board of directors if you don’t have one already.

In addition to their investment, you’ll gain access to their business connections, while benefiting from their expertise and advice. They’ll work hard to make your business a success, since it’s their money at stake, too!

That’s why it’s important to carefully choose the investor who will shortly become a business partner. Aside from the money, you should be looking for the proper fit when it comes to personalities and skills.

Make sure that the investor’s vision matches yours, and that you’re ready to meet his or her demands, without complaining. You should also be looking for an investor who can inject additional expertise, in terms of technology or export experience, for instance.

Examples of angel investors:

  • The Anges Québec group
  • Independent investors who have made a fortune selling their own businesses (look for them through your network of accountants and lawyers, but also by visiting the carrefour-capital.com website)

Venture capital firms

Venture capital firms often become involved when a more substantial investment is required – normally a non-guaranteed investment in the form of shares.

When they inject capital into your business, it’s because they plan to exit eventually – within three to six years – and make a profit. They will definitely want to have a say in the company’s decisions, through their seats on the board of directors. You won’t be the only boss anymore – in fact you could even be removed from the board if the other members decide they don’t want you there.

In other words, just as with angel investors, it’s essential that you make the right choice when choosing such business partners. Working with a venture capital firm entails a relatively long-term commitment, and divorce is not really an option. So when drawing up your list of questions, think about more than money. What value added can the investor bring, in terms of knowledge, network and personality?

To be continued…

Examples of venture capital firms:

Specialized:

  • Information technology: iNovia, Georgian Partners, Celtic House; rho Canada; real ventures, Vanedge, McRock Capital
  • Life sciences: TVM Capital, CTI Life Sciences, Lumira
  • Green tech: Cycle Capital Management, Enertech Capital
  • Various technologies: Telesystem, Tandem

Diversified

  • Novacap
  • BDC, venture capital section
  • Desjardins
  • Fonds de solidarité FTQ
  • Investissement Québec

NB: You can find a more extensive list of specialized firms on the Teralys Capital site.

This article was written by Nagui Naoum, Chargé d’affaires and Management Consultant with PME MTL Centre-Ouest.

 

Source: https://pmemtl.com/en/blog/attracting-investors-and-turning-them-into-partners

 

 

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