There are a number of good reasons why a startup should consider venture capital (VC) support. Here are five:aleksandr-mansurov-ru/Getty Images/iStockphoto
There are a number of good reasons why a startup should consider venture capital (VC) support.
1. Guidance and support: This is frequently cited as a major selling point by entrepreneurs. VC investors understand the sectors they invest in intimately – they are experienced in the field and know where things are headed. For instance, a VC that specializes in technology will meet frequently with senior executives at blue chip technology companies in Canada and Silicon Valley, and have insight into research and development and strategic road maps that can help steer the product/service toward something the established category leader would highly value. VCs also have people on their teams that have built similar companies in the past. In short, they have the experience, know-how and incentive to help grow your business.
2. Connections bring options: Having a good idea is one thing, but knowing where to take it can be challenging. Venture capitalists who operate in one sector have economies of scale, develop many contacts and can connect firms across their portfolios. They can open doors, create synergies across companies and provide entrepreneurs with access to top talent. Options are empowering and the connections can create a snowball effect that can facilitate rapid growth.
3. Patient money: Sometimes it's not about being first to market, it's about getting your product or service right or even waiting for the right timing. Public money isn't patient and neither is bootstrapped money when rent is due. Venture capital investment, on the other hand, is frequently referred to as patient money. Strong VCs understand that, unlike the residential real estate industry where the prevailing strategy is 'rip'em and flip'em,' startups need time to grow. Milestones are set and a business plan is often built five-plus years out. This gives the entrepreneur time to expand at a reasonable pace, without the pressures for instance of answering to analysts on Bay Street as is the case after an IPO.
4. Supporting your own business is stressful and time consuming: Finding your next dollar can be extremely stressful, time-consuming and distracting. It takes a certain temperament to handle the stress of it all while keeping an eye on the business. Having VC support allows entrepreneurs to focus more on growing the business, while lessening exposure to personal financial risk.
5. Better performance: All of these arguments lead to one important reality that most entrepreneurs care the most about: performance. The facts speak for themselves. Venture-backed companies significantly outperform non VC-backed companies. According to a 2013 venture capital report released by the CVCA and BDC, over a five-year period, VC backed companies have almost two and a half times higher sales growth, almost 50 per cent greater employee growth, invest over three times more in R&D and have 15 per cent higher survival rates after five years.
Performance metrics are one thing, but consider the number of VC-backed success stories in Canada like OpenText, Shopify, Acquinox Pharmaceuticals, and Lumenpulse to name just a few. There are of course plenty of examples south of the border as well, including household names like Microsoft, Google, YouTube and Intel.
While your startup may or may not achieve these vaunted levels, with the guidance, support, connections and sheer level of funding available, it is very likely that acquiring VC investment at some point in your trajectory will improve your business' chances.
Mike Woollatt is the CEO of the Canadian Venture Capital & Private Equity Association
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