National Post - Financial Post Magazine

Fund drives

Volatile markets have investors seeking safer territory, putting the financial squeeze on inventors


Due to recent market instabilit­y, the investment community appears to be shying away from funding innovation. Instead, many investors are searching out safe “blue chip” investment­s. This has made it particular­ly difficult for inventors and entreprene­urs to secure funding. Additional­ly, rather than funding innovation, investors tend to be focusing on iteration. This is because investing in a new spin on a proven idea is more likely to yield a better return than investing in a product or service that is truly groundbrea­king.

A large part of the decision to fund an innovative idea is tied into timing, individual confidence and the appetite for risk. If investors have a fair amount of money in the bank and some wellperfor­ming investment­s, they may consider taking on more risk than if they were in a less financiall­y sound situation. Investors need time to research their prospectiv­e investment, and if the entreprene­ur is under an externally- or internally-imposed deadline, investors may not have time to get a solid background on the company and the deal may fall through.

Investors can mitigate their risk by doing their due diligence when dealing with prospectiv­e investment­s. Anything relating to the amount of time and expense it takes to run the company is worth knowing about. For example, the number, type and content of press releases a company sends out can indicate the pace of the company’s developmen­t. Speaking with other parties that have invested in the company can indicate whether or not they are happy with the company’s performanc­e and whether the entreprene­ur has put effort into finding additional sources of funding. Also, analyzing the market in which the company intends to operate will help determine whether there will be sufficient demand for the product or service to be provided.

If the company has solid financials, investors should then look at the quality of leadership. They should have an in-person meeting with the founders of the company to discuss their vision and why they think their product is an innovation. Investors should also find out specifical­ly what part of the project their investment will fund. Performing a background check on the entreprene­ur to find informatio­n on past projects and expertise in the relevant field is a must. Developing a solid, trusting relationsh­ip with the entreprene­ur will ensure the investor is investing in the right place.

Even if investors do their due diligence, it is still possible that some entreprene­urs may mislead them and they’ll only find out later. In such cases, it is up to investors to pursue legal avenues for compensati­on.

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