Tech Com­pa­nies on the Rise

5 key strate­gies for rais­ing cap­i­tal

BC Business Magazine - - Gowling Wlg (Canada) Llp -

In­vestors have seen the value of tech com­pa­nies in­crease for years. Lo­cal high-profile ex­its, like Van­cou­ver's Re­con In­stru­ments (bought by In­tel for $180 mil­lion), make it eas­ier for other com­pa­nies to raise money. Gov­ern­ment pro­grams are also lead­ing the way: there is the Ven­ture Cap­i­tal Cat­a­lyst Ini­tia­tive in Bud­get 2017 from the fed­eral gov­ern­ment, var­i­ous re­search pro­grams and a B.C. Ven­ture Cap­i­tal El­i­gi­ble Busi­ness Cor­po­ra­tion ( EBC) Pro­gram that gives B.C. in­vestors a 30 per cent tax credit for el­i­gi­ble in­vest­ments.

Com­pa­nies like Fu­sion­pipe Soft­ware So­lu­tions Inc. have ben­e­fit­ted greatly from pro­grams like th­ese, rais­ing $5 mil­lion in eq­uity over the last few years, and $1.8 mil­lion in gov­ern­ment grants. How did they do it? They stuck to th­ese five key strate­gies for rais­ing cap­i­tal:

Choose your po­ten­tial in­vestor tar­get.

“Base this on mar­ket seg­ment, the so­lu­tion you're of­fer­ing (Saas, hard­ware, soft­ware, etc.) and the stage your com­pany is in,” rec­om­mends David Snell, CEO and chair­man of Fu­sion­pipe. “If you're not care­ful, you can waste a lot of time talk­ing to folks who aren't in­ter­ested but who are will­ing to lis­ten to your pitch,” for ex­am­ple, be­cause they're scout­ing in­for­ma­tion for a com­peti­tor in their port­fo­lio or just gain­ing tech trend ed­u­ca­tion for ed­u­ca­tion's sake.

De­cide how much cap­i­tal you need.

Think about the amount of money you ac­tu­ally need, the ve­hi­cle you're go­ing to use, your val­u­a­tion and the pric­ing. “Make sure you've pre­pared use of funds, you have some con­tin­gency dol­lars (there's al­ways sur­prises), con­cern your­self about di­lu­tion of cur­rent share­hold­ers and es­tab­lish a rea­son­able val­u­a­tion,” says Snell. “If you're over­priced or ask­ing too lit­tle, you're not go­ing to be suc­cess­ful.”

Make sure all your ducks are in a row.

Have a busi­ness plan, com­pet­i­tive re­views, pro forma state­ments, fi­nan­cials, cash flow state­ments, term sheets, agree­ments and a solid in­vest­ment busi­ness case. “Put to­gether a dig­i­tal due dili­gence binder so the in­vestor can look over ev­ery­thing,” says Snell. “Ap­proach it in a strate­gic fash­ion. Un­less you have all of th­ese things, you won't be suc­cess­ful. A smile isn't go­ing to win the day!”

Safe­guard­ing in­tel­lec­tual prop­erty (IP).

This is where the value of tech com­pa­nies lies and is how to cap­ture the in­tan­gi­bles, like how unique the tech­nol­ogy is, the num­ber of hours en­gi­neers have worked on a project, or a novel idea that turns into a soft­ware so­lu­tion peo­ple are go­ing to buy. “You need to en­sure you own all of the IP you cre­ate, like the copy­right in your code, and have proper li­censes for the IP you need but don't own,” says Roch Ri­p­ley, part­ner and co-leader of Van­cou­ver's Tech­nol­ogy In­dus­try Group at Gowl­ing WLG, an in­ter­na­tional law firm that works with tech com­pa­nies in B.C. “Par­tic­u­larly if you're a B2C busi­ness, you need to make sure your brand is prop­erly pro­tected with trade­marks. And for some busi­nesses, like Fu­sion­pipe, patents make a lot of sense and help val­u­a­tion and cred­i­bil­ity a lot.”

Don’t for­get about mar­ket­ing.

This is an im­por­tant and of­ten over­looked key to have in place from the be­gin­ning. “Your on­line pres­ence should make you look like you punch above your weight—awards mat­ter,” says Snell. This is how you show your pro­fes­sion­al­ism and cred­i­bil­ity, which are both essen­tial in se­cur­ing cap­i­tal. “Th­ese are the things that in­vestors look for when do their re­search. They won't talk to you un­less they see some­thing spe­cial up­front.”

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