The Canadian Venture Capital and Private Equity Association recently said that the amount of money raised in 2011 was the same as in 2010. That amount was about one half the amount raised in 2007 and includes an obvious lack of foreign investment into Canadian venture capital companies. In Saskatchewan, our natural resources continue to attract both foreign and domestic large scale investors, but how does a start-up get started?
All around us, investors are checking their risk tolerance, given that their portfolios of publicly traded companies are under siege from places like Greece, Iran and at times, the U.S.
Are investors looking for local companies to invest in, and if so, what do they want in return for their investment? Can a start-up in the ag- bioeconomy in Saskatchewan tap into a new group of investors?
Investors are looking for a couple of simple features to entice them to take the risk.
First, they need a great story; they want to understand how the company works, what it does, and why it is going to be successful. Companies need to spend time telling the story, and showing investors how they are going to make money. Investors need to know that the company is honest, sincere in its efforts, and is trying to build a really great business in the traditional sense. No financial engineering, no hocus-focus – just good solid growth of a business. These investors just want to know how things are going.
Second, they need a way to get their money out, and they need to know when they will be able to do that. This is an inherently difficult piece to manage for a start-up, but somehow, some way, they need to build this capability into their financing and growth plans. Many investors will never take the company up on their offer to buy back or redeem shares, they just need to know they can. Saskatchewan investors can be incredibly patient with small and medium size business – almost everyone has a personal experience with someone who owns their own business.
These are two very difficult demands to meet for a start-up company. Generally they are still working on a prototype, working on generating demand for their product, and maybe working on regulatory approvals. Who has time to market the company to investors? Start-ups are always cash starved, and thinking about ways to attract new capital, rather than thinking about ways to allow their investors to withdraw their investment.
For Saskatchewan investors, we are isolated from the economic downturn experienced in many other parts of Canada. We have grown our risk appetite and we have tasted success – and we like it!
Saskatchewan based companies that can tell a great story about their business and can find a way to let investors know there is a way out, will be able to successfully raise money in our province. Staying focused on building a business, growing a customer base, and becoming financially strong is all investors are asking for.