Stories of the Sleepless

The early stage capital markets are in constant motion. Low oil prices have shuttered the investing wallets of many Alberta business owners as they deal with the negative market impacts assaulting their businesses. Sometimes that’s actually true and other times it’s a very convenient excuse to decline a deal. The latter half of 2014 and the start of 2015 has tested the resolve of many entrepreneurs as they attempt to capitalize their businesses. Alberta still sees many tech startups get their “friends and family” rounds done but face a much cooler reception when venturing outside the circle of personal relationships for capital.  As it always happens, a tighter market requires a much better prepared entrepreneur and this in the end is actually good for us all. Too many deals get done in loose markets. Unprepared entrepreneurs get funded when there’s lots of cash sloshing around and the poor resulting investment returns damage the credibility of investing in this sector. In tighter markets such as this, we are seeing investors become more careful with their capital and demand that entrepreneurs are more careful as well. Investors are taking either i)a more hands-on approach, or ii) instead opt for deeper pre-investment due diligence and more thorough post-investment reporting in lieu. Deals might be harder to complete but the best prepared are still getting it done. Some of the entrepreneurs are becoming much better at assessing necessary capital allotments to complete stage funding. Some entrepreneurs raise $500k and see how far it’ll take them. Investors willing to take that approach are usually disappointed later and fewer of these now exist. Other entrepreneurs have done their homework and have “what-if” analyzed their forward-looking cash flow statements and generated expectations on the back of thoughtful and often tested assumptions. Those entrepreneurs are very clear about the utilization of every dollar and how it will provide the fuel to the next stage whether that next stage is market proof, growth or scale. They will make it to the next plateau or they won’t but everybody is on the same page going in. If they do make it, those investors will usually be there again at the next stage regardless of the price of oil.