Attracting Capital to Your Business
By Ben McDade
In October, the First Angel Network (FAN), New Brunswick Innovation Foundation (NBIF) and Enterprise Saint John co-hosted the seminar “Attracting Capital to Your Business”. Twenty entrepreneurs were in attendance at the Delta Saint John, as panelists educated attendees throughout the course of the day. The purpose of the event was to introduce the types and sources of capital available in Atlantic Canada. Guests were also informed on: the criteria investors look for in investment opportunities, qualities of skilled investors, how to structure a business for investment, due diligence preparation and characteristics of a successful investment pitch.
After a light breakfast, attendees were seated to allow the panellists to make their introductions and begin the presentation. The morning panelists included Jeff Harriman from the New Brunswick Securities Commission, Ross Finlay of FAN, Nicole LeBlanc of NBIF, and Gary Smith, a local entrepreneur from Saint John.
As attendees took their seats, they were greeted with several words of wisdom. “Entrepreneurs must seek the correct sources of capital suited to their stage of development”, spoke Ross Finlay, and in addition, “It is imperative to cater your pitch to the correct investment audience.” This foresight can save entrepreneurs months of effort in narrowing down the appropriate sources of funding. Each investor may have unique investment criteria and it is often only the entrepreneurs who have done their research that are rewarded with funding. To further stress this point, Ross and Nicole elaborated on the differences in investment criteria, investment amounts, and stages of investment between FAN and NBIF. All panelists agreed how difficult it is for entrepreneurial firms to receive investment as Nicole LeBlanc mentioned that only 1/10 companies who approach NBIF will receive investment. Sources of capital from pre-seed to mezzanine financing were also discussed.
Once the entrepreneurs were acquainted with various capital sources for their financing needs they were briefed on the qualities of a successful pitch. The purpose of the pitch is to secure a follow-up meeting with the investor in hopes of initiating a long term partnership. Ross Finlay informed the audience that, “To establish a meeting you must first win the investors’ immediate interest.” Ross introduced attendees to the term “twitch”, a word referring to a twelve-second-pitch. Within these 12 seconds, the entrepreneur must effectively communicate their company’s unique selling point to the prospective investor. The key is to sell what your product really does; for example “McDonald’s doesn’t sell hamburgers; they sell a fast food experience for kids.” Often the pitch is the first interaction between the entrepreneur and the investor. Panelists considered this interaction to be the first date of an investment marriage; as investors will work with the entrepreneurs through to exit.
One of the most important messages of the day was that a healthy relationship between your entrepreneurial team and investors is vital to the success of your company. Nicole of NBIF insists that she meets with members from each of her portfolio companies at least once a month to sustain healthy relations. Building a company from inception through to exit is a team effort and if you don’t get along with your team, your company will likely suffer.
Following lunch and a brief networking session, attendees were greeted by two new panelists to discuss their respective experience, this time from the founder’s perspective. Brent MacDonald, Co-founder and CEO at Xiplinx, and Trish Kiley of Advanced Publishing Ltd, discussed their successes and pitfalls in entrepreneurship. These panelists advised young firms to be modest in their projections as overestimating expenses and underestimating revenues will often appeal to investors as a more realistic portrayal of events. Being modest and coachable are two characteristics that investors often seek in a prospective management team, as it is the team’s skill, character, and network that leads the business to a positive exit.
When looking for funding, all panelists agreed that an exit route must be well thought out before seeking investment. It was noted that with a thorough exit plan in place, the best time to sell your business is often when the entrepreneurial team has proven their concept and earned revenue. Ross brought to everyone’s attention that companies often acquire other firms for four main reasons: proprietary technology, cash-flow, brand, and people.
The seminar concluded with an overview of important investment documents. The details and implications of the term sheet, subscription agreement, and offering memorandum were presented to the attending entrepreneurs. This seminar was a success as it provided a rare platform for entrepreneurs to inquire into the minds of investors, and for investors to be exposed to an array of business owners, one of which may become their next investment. As always, “You bet on the jockey, not the horse.”