Having attended Speaker Series, a seminar event for interactive dialogue on technology commercialization and business incubation, it came as no surprise that one of the top challenges faced by tech entrepreneurs is raising money. Touché, money makes the world go round, well not literally, but for an entrepreneur it sure aids in the development of their innovation and business. So what is it about the fundraising process that can be so debilitating? What’s next after raising friends and family funding? When is the right time to consider angel capital? Is there investment in Alberta tech companies or is it all invested in oil and gas? What do entrepreneurs need to know about attracting investment?
I sat down with one of Alberta’s well known angel investors, Henry Kutarna, Executive Director of Alberta Deal Generator (ADG), to share his thoughts about some of the common mistakes entrepreneurs make when looking for capital and to provide a few pointers for those walking the fundraising path. Henry has an extensive background in investment and has supported numerous startups with successfully attracting investment through the delivery of mentorship programs such as the CEO Roundtable and the Alberta Deal Generator Bootcamp.
Q: Over your career I am confident that you have often heard that funding is one of the greatest challenges an entrepreneur faces in developing a successful tech company. What is it about fundraising that is so debilitating? Is it a lack of available funds?
A: I cannot tell you how many times I have been told, ‘there’s no money, no one is investing in tech, if it’s not oil and gas, it’s not investable,’ and ‘there are no investors here.’ Malarkey! There is plenty of money here in Alberta and plenty of investors willing to invest in tech.
The key is finding a balance between entrepreneur and investor. It isn’t about throwing money into a startup and instantly it becomes successful. It is about having an innovation that addresses a real problem, about having a logical business plan and having the savvy to talk the language of the investor. I call it, having the “risk conversation” and it is where and when the deals are or are not made.
Fundraising is debilitating when the entrepreneur and the investor do not communicate. Entrepreneurs need to speak the language of risk when engaging investors – to anticipate the investors concerns of risk and to provide answers for those risks. As a friend of mine says, ‘It boils down to hearts, minds and wallets.’
Q: Risk conversation? Hearts, minds and wallets?
A: Yes. It is the winning combination. The entrepreneur must have an appealing technology/product that solves a direct market, industry or social need – appealing to the heart of the investor.
Following that, the entrepreneur must have a logical business plan/path. This is critical, as it appeals to the mind of the investor since it minimizes the perceived risk to invest in your company. The business plan outlines the company’s milestone objectives, a marketing plan, competitive analysis and more. A great reference tool for entrepreneurs is the 12 Key Questions. We use this tool in our ADG pitch coaching sessions and Innovator’s Toolkit program for companies to use as a pitch/business plan template. If you can answer these questions, then you are ready to pitch for capital.
Lastly, it goes without saying, win the hearts and the minds of the investor and soon will follow the money.
Q: Speaking about being ready to pitch for capital, when is the right time to raise angel capital?
A: Good question. Often startups look for angel capital too early expending energy and time all to be told by the investor, ‘wait, not quite yet.’ Once a few milestones are achieved then you should consider raising angel capital. For example, establish an advisory Board, have the competitive analysis completed. Do your homework, what kinds of deals are getting financed in your area? Have the 12 key questions prepared. Establish your network – mentors, experts, and individuals from within the tech community – for example, a great community network that has recently started is the New Tech Meetup. Once these are done, then you are ready to pitch to angels investors.
Q: I have a loaded question to ask. What is the perfect pitch?
A: That is a loaded question. The perfect pitch is one that un-checks the risk boxes in the mind of the investor, and can be delivered in ten minutes. It is important to note that the goal of the pitch is not to immediately land the money – that rarely happens. It is to land the next meeting, to have the investor or investing group interested in learning more about your company.
The pitch is paramount and raising money is a process, not a lottery. So is developing your pitch. It is a process, and organizations like Innovate Calgary, can support this process through its Entrepreneur Development and ADG programs.
Q: Thank you Henry. One final question, if there was one piece of advice you would give to an entrepreneur, what would it be?
A: Think ahead and apply yourself. Thinking ahead means look forward, if you are currently working on raising friends and family funds then you should be ‘chatting’ with an angel investor or at least creating your network. Once you have engaged the angels, then you should start working on venture capital.
I recommend dedicating ½ day/week to focusing on fundraising. 90% of entrepreneurs get trapped in the “peak and valley effect” only focusing on fundraising efforts as a result of immediate need. Becoming too involved with firefighting the daily issues and not cultivating a support network may pose a challenge when engaging the investment community in the future.
Henry Kutarna is the Executive Director for Alberta Deal Generator. He is an Executive-in-Residence at the Banff Centre for Leadership. In addition to his responsibilities as Executive Director, Henry is Chairman of a private family investment fund and also operates The Executive Advisor, a consultant group that works with corporations and not-for-profit organizations in executive coaching, advisory services, board governance, deal making and other business development.
Find more information on Alberta Deal Generator here.
Connect with Henry Kutarna, Executive Director, Alberta Deal Generator on LinkedIn