Toronto Entrepreneur

I’ve recently researched the rules and resources of looking for funding for a startup in Toronto and Canada. I haven’t yet raised any funding, but I thought I’d share my findings with you.

There are a few rules you should know about. There are always exceptions though. Raising capital is usually broken down to 4 different categories. 1) Raising from the 3 Fs; Friends, Family and Fools. 2) Raising from Angel investors. 3) Raising from Venture Capitals (VC). The 4th source is usually neglected most of the times; Government grants and loans.

If your startup can go without funding, then don’t spend time on it, because it can take a while. Also when you look for funding you should look for “smart money”. Smart money is when the investor not only brings their money, but they also bring 2 more things; their expertise and more importantly their connections.

Which of the above sources you go to, really depends at what stage of your startup you are at and sometimes on how much money you need. I’ll try to break each source down blow:

1. The 3 Fs: At the very early stages. This is also referred to as “love money”, which comes from people who know you and care about you and your success. You cannot really put a number on how much such people would invest but it could be anywhere from $500 - $15,000 or more if you’re from a wealthier family. Here’s a list of some private investors across Canada if you’re not surrounded by rich people
https://strategis.ic.gc.ca/app/scr/srcsFncng/instRgstrtn/Srch?lang=eng&stg=1&type=F&instTyp=P

2. Angel investors: These are generally wealthy individuals who most of the times acquired their wealth through their own startups. They are full-time investors, which means their job is to read business plans all day and decide whom they’d like to invest in. Angels usually come into play during or pre revenue generation. They usually come in when you have a product or you are very close to having one. You should approach angel investors if you’re looking for $100,000 - $500,000 of investment.

Angels are usually invested in 5-10 startups at a time. They don’t usually work alone and are part of an “Angel Group”, where maybe 30-50 angels work together. So if your startup’s application gets approved, you would have to give a 20-30 minute presentation to all those investors in one sitting. Let’s say out of 40 investors in one angel group, 5-10 of them are interested in your idea. Then you’ll get a second meeting which is about 3 hours long. You go through more details of your business with those interested investors and see if they’d like to take on your project. If everything goes well, then those investors will collectively invest in your startup. Each investor usually invests around $50,000 and expects a 10x return over 5-7 years. The most important thing to angels about your startup is your team. You need people who can cover many aspects of the business if not all.

3. VCs: From my research, you’d usually like to avoid them. They’re known to be very harsh. I’ve spoken to founders and some said “I’d rather work twice as hard, and not have a VC on my ass”. Others have said, when such and such guy (the VC) is not in the office, it means everything is good :). You usually go to VCs at a much later stage of your startup, where you’re looking for an investment of $1 million or more. If you raised fundings from angels, they usually help you find VCs and raise money from them.

4. The Government: From my research apparently many people underestimate this source (at least in Canada). I have some really interesting tips on how you should go about approaching these government departments that I can share with whomever is interested. I’m not putting them here because this post is already too long :). But here’s a great database of many government programs for startups: https://strategis.ic.gc.ca/app/scr/srcsFncng/instRgstrtn/Srch?lang=eng&stg=1&type=F&instTyp=G

Please make sure you do two things. If you have any other tips, leave them as comments and also if any of the above tips works for you, please let everyone know. Thanks.

Rokham Fard

Don’t get boggled down with the details, they consume your time and don’t give you anything in return. Once you find your idea, stop yourself from going into too many details. Don’t try to define every single feature that comes to your head. You know all those moments you say “wouldn’t it be cool if…..”, the answer is NO, it wouldn’t. The more features you try to include, the more you have to argue over these features with your partners.

Keep the idea simple, and try to sketch the MAIN pages on paper. Again don’t go into the details when you sketch. Don’t sketch every single page/tab/button or option. This helps you stay focused and keep your eye on the ball. The more detailed you get, the more problems you have to deal with.

Once the sketch is done, try to research the market. The sketch is supposed to remind you what your business is all about and to help you stay focused when you research the market. If your business idea has to do with assisting travelers and somewhere in between your research you find a very nice gallery on pictures from Italy, don’t start watching those pictures. That’s not research that’s what we call “going to the sand box” (a Persian expression for people who get sidetracked).

Good research prevents later surprises and gives you plenty of guidelines. Research has many advantages. It tells you about your competitors, it shows you some of the obstacles your business has to deal with later on. It shows you some solutions that your competition has chosen to overcome those obstacles and of course it gives you a great idea on the scope of your problem. Don’t underestimate the time research takes. It took us a good two months to get a descent idea about our market. Build tangible stuff.

If after your research, you know you still want to go on with your initial idea, then you need to get to work. You have spent a good 5-6 months by now and not only you’re not making any revenue, you don’t even have a product. So now you have to decide whether you need some angel investment down the road or not. You have to know if the 2, 3 or however many founders there are, are able to overcome all the obstacles the business foresees in the future or not. Does your business require sales people. Does it need more than just 2,3 developers to speed things up. Does your business depend on other businesses? If you don’t think you don’t REALLY need investment, then delve into building your product and your business model. If you only have a strong technical background, be ready to learn about marketing, sales, pricing, positioning, branding and all those fun sides of business. I mean it, they are really fun but you need to spend time on it to learn it. If you need angel investors, then you need a demo.

Demos are great, since they are visual. Your demo should only cover the core of your business, no bells and whistles whatsoever. Investors need to understand the core of your business and the more you add, the less they understand. You can put together either a flash demo or a plain html/css/javascript demo. Whichever you think is easier for you and more powerful to the investor. Don’t spend too much time on the details of the demo. It will consume your time without you noticing it. Design is a hell of a time consumer.

I will talk more about angel investors, the first version of your product, learning more about the business side of things and putting together a business plan later.

Yours truly,

Rokham Fard