To help get better from the current economic crisis, Canada must develop the next generation of world-leading technology corporations.
The The enterprise capital (VC) industry is looking for more government support, including direct financing, for technology corporations at an early stage of development. Unfortunately, the potential increase in financing won’t help the overwhelming majority of entrepreneurs.
This is because most entrepreneurs do not understand easy methods to structure their corporations to draw VC funding. This is partly on account of a lack of respect for investor needs and a related poor understanding of corporate governance issues.
VC frustration
Venture capitalists are specialized intermediaries who raise money from institutions to take a position in technology-oriented corporations. VCs are getting frustrated when entrepreneurs do not take the time needed to learn and implement effective management practices before founding a startup.
They complain that entrepreneurs often expect them to spend many hours learning about their business before making an investment, although the entrepreneurs have neglected to take the time to learn about investors’ needs. Investors in corporations at an early stage of development are lively and wish to be closely involved in making key decisions.
VCs and other startup investors screen lots of of potential firms a yr to make several investments. Early stage investors will spend on average under five minutes reviewing the entrepreneur’s presentation and will use this time to see if there are any critical flaws in the startup’s plans.
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As a part of a specialized program at Haskayne School of Business at the University of Calgarywe have noticed that when investors discover a potentially interesting opportunity, the entrepreneur can be asked to supply two sets of detailed corporate information: a list of all shareholders and key management documents.
If entrepreneurs have been too generous or too stingy with stock splits, it should reduce their ability to build a strong leadership team, reflect poorly on the entrepreneur’s skills, and function a serious red flag to investors.
Complex management challenges
Most entrepreneurs don’t appreciate that challenges related to startup management are in many ways more complex than those of an established corporation. For example, the sort of securities used to lift financing and the arrangements negotiated between entrepreneurs and investors will be quite complex.
This implies that specialized management mechanisms are needed that will be implemented at a relatively low price in the first years of a startup’s existence. Once a corporation grows at a certain point, any management deficiencies could also be unattainable to correct or may require too much time and money, deterring potential investors.
An investor’s time is precious and it is higher spent helping the startup grow slightly than helping the entrepreneur fix past mistakes. In summary, the failure to draw investors and build a strong management team was considered a failure the second and third most typical causes of startup failure — and together they supply greater value than the first reason: lack of market demand for the startup’s product or service.
Information is available to assist entrepreneurs learn easy methods to work with investors. Canadian sources include National Angel Capital Organization (NACO) and Canadian Venture Capital Association (CVCA).
Unfortunately, nevertheless, much of the information about managing most of these sites is highly technical, and understanding which management practices are sound requires experience. We encourage entrepreneurs to look for experienced practitioners who will help them make this decision.
Because it is such a specialized field, the variety of such specialists is limited. Even seasoned lawyers and executives who have spent their careers at large, publicly traded firms can have difficulty solving the management problems that startups face.
Solving the management gap
Drawing on academic research and insights from leading management practitioners, Haskayne School researchers developed and delivered these solutions Canada’s first management course designed specifically to fulfill the needs of early-stage startups This yr.
Six months after completing the program, several entrepreneurs discussed how they successfully restructured their stake to make their corporation more attractive for investment, while others indicated that they were in a position to attract significant capital after the course.
(John McArthur/Unsplash)
One executive participant indicated that as an angel investor and mentor, he was in a position to provide the startup with precious guidance, which increased the confidence of the startup CEO and his advisory board in the fundraising efforts.
Entrepreneurs provided with counseling at critical stages of the development of their corporation have a much greater likelihood of success. Developing sound management practices will increase an entrepreneur’s ability to draw this support.
Good business requires good management, and startups require a special sort of management to grow and prosper. Ensuring the effective management of Canadian technology startups must be a part of any solution to speed up the growth of those corporations.