I haven’t heard much on the topic from “the other side of the table," so thought I’d provide my perspective, having a Series A from investors on both sides of the border.
THE STATE OF VENTURE CAPITAL IN CANADA
There’s no question that raising money for your startup is more difficult in Canada than in Silicon Valley. The gap is most apparent at the early stage, where it’s almost impossible to get anyone to buy into your idea and take a bet on you without showing meaningful revenue traction in your business. The idea of “raising money with a PowerPoint deck” is almost laughable in Canada.
Here’s the reason why: until very recently, most of the early-stage money flowing into Canadian companies was not coming from entrepreneurs. It came from wealthy individuals who are more concerned with capital preservation than with building big companies.
This meant they didn’t take big risks on big ideas and when a company they did invest in had the potential to go big; they would instead push for an early exit. The entrepreneurs behind these companies didn’t get to experience true scale and massive success, and also didn’t make the kind of money on their exits which allowed them to aggressively angel invest in the next crop of startups.
That’s all changing. Accelerators like GrowLabs and Extreme Startups provide a proving ground for entrepreneurs and ideas. Proven entrepreneurs like Ryan Holmes and Dan Martell are supporting their local ecosystems with capital and mentorship. Silicon-Valley-style seed funds led by former entrepreneurs are starting to emerge, including Version One and Golden Ventures.
At the growth stage, Omers Ventures, iNovia Capital, and BDC are starting to make some big bets on IPO-potential companies, giving them the support and resources they need to get there. US firms are also starting to realize that the access to talent in Canada puts many Canadian companies at a competitive advantage for world domination and they’re starting to compete aggressively for the hottest deals. As they co-invest with our Canadian VCs, some of that “go big or go home” attitude will start to rub off. It will have to if the Canadian funds want to stay competitive in their home market.
Even though it may feel like Canadian companies are at a disadvantage to their US counterparts from a funding perspective, things are moving quickly in the right direction. There really has never been a better time to start a company in Canada.
FUNDRAISING TIPS FOR CANADIAN STARTUPS
I want to share some lessons we learned at Top Hat Monocle when raising our Series A, particularly for those of you who are looking to include a US investor in your round.
1. Build something awesome (that somebody wants).
This kind of goes without saying, but I’ll say it. The easiest way to get someone’s attention is with traction.
We had a relatively smooth time raising our Series A, mainly because our cofounders had built a product which kicked ass, then found a group of customers who wanted it really badly. From there, it was just about telling the right people about the company and offering them the chance to be part of it.
2. Do your research ahead of time.
I wish I had done more of this before we started. We took almost any meeting we could get and wound up meeting with almost 75 investors—around 50 of whom weren’t a good fit at the time. Get to know the stage, industry, portfolio and preferences of the VC partners before requesting an intro.
We spent a lot of time pitching ed-tech VCs when we should have been pitching SaaS investors. When we eventually started taking the right meetings, it was like we were speaking the same language for the first time and everything went smoothly.
3. Take something away from every meeting.
No matter how much research you do, you’ll always end up in a meeting where there isn’t a fit. Take this opportunity to learn, practice, try something new, or just have a free-flowing discussion.
Don’t force the pitch if it doesn’t make sense. One of my favorite meetings was with a well-known VC where within the first five minutes we both knew this round wouldn’t be a fit. Instead of forcing things, we just spent the rest of the meeting spitballing on how big Top Hat Monocle could really be, and how we could get there.
We came up with a lot of great ideas which made their way into our subsequent pitches, and into our overall strategy. We still have a great relationship with the investor and keep in touch on a regular basis.
4. Start building relationships early.
Well before you need to raise money, get to know as many entrepreneurs and investors in your space as you can. Figure out what they need and how you can help them.
Here’s a hint: entrepreneurs are always looking for great talent, investors are always looking for great deal-flow. Honestly, I remember everyone who has referred me a great hire, and I’ll do anything I can for them for the rest of my career. Local startup events and communities like the C100 are a great place to start building your network.
5. Use the distance as your ally.
Canadian entrepreneurs often complain that their relationships with investors aren’t as good because they’re so far away. Though it’s true that you’re less likely to meet Jeff Clavier or Ron Conway at a party in Canada, being a bit removed does give you an advantage—you can control the timing of your meetings.
One of the biggest challenges during the fundraising process is getting all of your prospective investors on the same timeline. When you’re from out of town, this is just built into your process (“I’m in town for 3 days taking partner meetings—are you guys still interested?”). This can be a powerful forcing function, creating scarcity and avoiding last-minute cancellations, which are a huge frustration for founders.
If an investor knows that missing a meeting means they might not see you for a month, or might have to fly to Winnipeg in February to meet, they’re going to do whatever they can to make it.
Originally published in February 2013.