If 2018 is any indicator, there’s plenty of venture capital cash on the sidelines waiting for the right investment opportunity to come along. According to the Canadian Venture Capital and Private Equity Association, hundreds of deals were completed in 2018, with total venture capital investment of $3.7 billion. In Q4 alone, $1.3 billion was invested in more than 165 deals. Fifteen megadeals ($50 million+) accounted for a 30% share of total dollar investment while the average deal size was $6.1 million.
Such figures will likely attract the current generation of startups, many of which are seeking capital to get to the next level of growth. Mark Attanasio of Hillcrest Merchant Partners, a Toronto-based merchant bank focused on early stage and mid-market growth companies, says he appreciates the startup culture and mindset, and particularly likes their enthusiasm. “Maintaining that enthusiasm may be one of their biggest challenges as they strive for a successful launch and navigating the capital raising part of building their business,” Mark Attanasio said in a recent interview.
Startup operators must understand that starting a business is fundamentally risky. If you have managed to save enough money to start the company yourself, that’s the ideal way to begin. By investing your own money, you will not only protect yourself from outside influence, but you will not be in debt to anyone else, should the business fails.
Other early stage investment sources include credit cards and bank loans, although both have obvious drawbacks, i.e. they have to be paid back, often more quickly than preferred. You can also “borrow” from your RRSP or 401k plan, though you’ll face a hefty tax bill, and potentially lose some of your retirement nest egg if you never pay it back.
The next opportunity would be to approach an angel investor: a private investor with a high level of income, investing their own funds in the development of the company in exchange for a share in it.
That’s where investors like Mark Attanasio come in. But before a startup considers approaching these investors, a number of things must be in place. For instance, investors want to see data that shows there’s a market for the startup’s product or service, how it is different from the competition, and that the startup isn’t just a one-person show: a solid management team should already be in place.
Whatever type of financing a startup chooses, they should be sure to have a return on investment plan. After all, when it comes to your investors, they will clearly want a return on their investment at some point down the road. A startup’s venture capital partner should be chosen after a careful selection process. It’s not going to be easy, but a startup with a solid financing plan in place is already on the road to success.