Today's Capital Markets for Tech
May 5, 2015The 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.
Posted by Warren Bergen. Posted In : Business