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From idea to investment

From idea to investment 

One such showcase for the next great Canadian business ideas is Fundica’s Funding Roadshow, where start-ups can pitch their ideas to potential investors with the hopes of getting the financial backing they need. As Mike Lee, president and CEO of Fundica explains; investors are very selective and getting funding requires more than just bright ideas.

IT in Canada: Why is now the time for more Canadian start-ups to enter the market?
I think now is a great time because of the Internet. The Internet enables business to connect several different assets, sources of data, and information in many ways. It’s basically free for anyone to access now, so the barriers to entry are quite low as a result. In the past it was difficult to gain access to these elements, but the Internet has now simplified this access and made it very straightforward.

ITIC: What do potential investors look for in a good start-up business?
It often depends on the type on investor we’re looking at. Equity investors, such as angel investors or venture capitalists often look for the same kinds of things. The first thing they (examine) is the actual solution being provided is innovative or different, and whether or not it addresses a certain paying point.

Once that is determined, the second thing is the size of the market. The investors want to know how big the space is, and how many people will be affected by this paying point. This is closely related to the first element.

The third thing is the people behind the business. Are these the right people for the job, and do they have the experience, track record and skills to execute on this (idea)?

The fourth this is how well the pitch was made. How good are they at explaining, how much confidence do they have to sell (the product) not just to the investors, but to consumers, their team and virtually anyone else?

The last thing, which I think is sometimes overlooked, is determining if they actually want to work with these people. Do they like them, do they want to get into a long-term relationship with this company?

ITIC: Have programs like Dragons’ Den been effective in promoting Canadian start-ups and helping them get off the ground?
I think it’s a great show, and it’s very well done. What I see most on Dragons’ Den is that it provides inspirational and educational value for entrepreneurs, and you see what the investors are looking for. Unfortunately, one problem I see is that a lot of the companies that get invested in are often ones that are “made for TV,” such as consumer gadgets and things like that. This is not necessarily what you’re going to see in the real business world; at least in that proportion.

The second thing is that a lot of what you see on the show doesn’t necessarily turn into an investment afterwards. Sometimes, the Dragons don’t follow through with an investment because the due diligence process changes their minds. A high proportion of the businesses may seem like a big success on TV and through editing and the like, but when all is said and done, nothing actually happens.

ITIC: Why is experience such a crucial factor when approaching investors for funding?
Investors want to see that people can execute. Having a good idea, good connections and other nice things is good, but execution is the most important (element). Execution makes things happen, and having someone with experience and a track record will most likely be able to do it again, as opposed to someone who has not.

ITIC: What is the biggest issue affecting Canadian start-ups today?
The biggest issue for Canadian start-ups is converting good ideas into a viable business. There are a lot of people who have many great ideas, but they don’t figure out how to (profit) from those ideas, or they’re not sure how to build a good model for generating profit.

The best way to get over that is through education, mentorship and having other entrepreneurs around who can equip them with as much assistance as possible for their journey.

ITIC: Funding Roadshow data shows that Canadian start-ups often needed improvement with their presentation and teamwork. How can these issues be resolved?
When the Funding Roadshow went across the country last year, those two areas were found to be the weakest. The presentation itself is something that can be fixed through training, practice, mentorship and working with other entrepreneurs.

To help with that, we’re introducing the Road Check to this year’s Funding Roadshow. It will take place a week or two before the actual event, and it’s an opportunity for the entrepreneurs to improve their pitches before they attend the Funding Roadshow.

In terms of getting better teams together, that’s a more difficult area. There are different ways for entrepreneurs to meet, and in general, it’s a bit like The Dating Game. It’s a tough game to get right because you’re not looking for a lot of partners to start a business. You’re just looking for a few, but you want the best ones, and in most cases, you want them to be (varied) with their skill background and experience.

I think that having events like the Funding Roadshow, networking events or (establishing) connections online through LinkedIn will hopefully provide entrepreneurs with better team formation opportunities in the start-up world.

ITIC: What does the future hold for Canadian start-ups?
Here in Canada, various sources are coming together to help entrepreneurs, such as government organizations. I think there is a fair amount of funding out there, and at the Funding Roadshow, there is more funding than we expected to come together. In fact, one in three of the companies that are selected to pitch have received funding.

I think the future looks healthy for start-ups, and there is a good bedrock in place to help the Canadian business ecosystem. More and more funding is coming in, and the angel (investor) groups are growing across the country. Studies have shown that the number of start-ups entering the economy is huge, and that has helped to create more new jobs.

The way the world has been shaping will see more entrepreneurs and start-ups entering the market, and because of the Internet, you don’t need massive companies to provide assistance, as was the case many years ago. A lot of work can be done by simply having a computer, as there are now far fewer barriers to entry as a result.

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