Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.
Alkarim Devani's mission, at first, sounds contradictory: keep Calgary growing while curbing its expanding footprint.
After all, as the Alberta energy hub has boomed, so, too, has housing development in its far-flung neighbourhoods. But for seven years, Mr. Devani has made it his business to build new homes in the inner city instead. His company, Beyond Homes, takes on sprawl by designing and building 10 to 15 modern, environmentally friendly houses each year on infill lots near the city's core, in neighbourhoods such as Altadore, Brittania and Killarney.
It's both a conscious circumvention of suburban development and a strategic entry into an underserviced market.
"We're really challenging the marketplace right now with what we're putting out there," Mr. Devani says on a sunny spring day in his boutique office on 54th Avenue SW. "Young people looking to start families, especially who live in the core right now, still want to experience that feeling of being tied to the city."
The company is drawing praise. In March, it took home the Calgary region Canadian Home Builder Association's award for best duplex.
Mr. Devani earned his real-estate licence before he even started his marketing degree at the University of Calgary more than a decade ago. During his undergrad, he worked as a real estate agent; when he finished the degree, he helped his brother Afshin run his firm Devani Homes. In 2008, he branched off to start Beyond Homes.
"I saw what my brother was doing out in the suburbs," Mr. Devani says, "and came into the inner city and saw what the potential was."
Beyond Homes focuses on custom builds that sell for $650,000 to $3-million and follow Built Green Canada protocols for sustainable construction. Majida Devani, Mr. Devani's wife, is the head architect and comes up with the exterior concepts and designs.
To make its homes more affordable, the eight-person company has been building duplexes on former single-home lots, and is considering quadplexes to accommodate even more buyers.
Mr. Devani is ready to build more than just a dozen homes a year. But he needs additional financial capacity to pull it off. Land prices are rising, too.
He is worried that his passion-driven business might scare off investors looking for easy returns. Instead, he's hoping to find backers who believe in his concept and vision.
"There's an opportunity here where you can simultaneously blend a profitable business and a very driven business with a really set mandate," he says.
But he won't give up his business model. "I'd rather fail a thousand times chasing my dream than do something I didn't enjoy."
THE CHALLENGE: How can a young, passion-driven company persuade investors to loosen their purse strings?
THE EXPERTS WEIGH IN
Mr. Devani is fortunate to have developed a business opportunity that he's passionate about, that has an attractive value proposition for buyers and the municipal community and – given his recent award – that he excels at. That's a powerful combination for success, and these positive aspects of Beyond Homes will gain the attention of the type of investor he's looking for.
However, potential investors are also going to be interested in the financial return. There are other socially responsible investment possibilities for them to consider, and Mr. Devani needs to make the case that Beyond Homes stands out among them.
Mr. Devani will need to provide evidence of his financial track record. Many businesses have operational inefficiencies in their early days, and showing that design and construction costs have gone down with successive projects will tell investors that Beyond Homes knows how to find efficiencies.
He also needs to show what he expects revenues and costs to be during the investment time horizon. Important here is evidence of demand for his houses; for example, a waiting list is a strong signal that people want what you're selling.
Mr. Devani should look for investors who have experience with real estate – in particular, people who have already invested in green real estate projects – because they will be more comfortable with the uncertainties of the industry. He might find a better match in this specialized area if he looks south of the border, given the larger investment market in the United States.
Finally, Mr. Devani needs to be sure that the search for investors doesn't distract him from managing his company. Finding investors can be a long and all-consuming process, and it is not unusual for businesses to suffer while their owners are engaged in it.
Sam Sivarajan, head of investments, Manulife Private Wealth, Toronto
Raising money for a growing enterprise is always a challenge, particularly a business that is not driven purely by the bottom line. Mr. Devani has a solid track record with his seven-plus years at Beyond Homes. But to take it to the next level, he will need to convince outside investors that passion and profit do mix.
There are many ways to raise capital, but ultimately Mr. Devani's challenge is to balance the needs of his investors with the growth demands of his business. "Passion capital" is where he might want to start – money from investors who are first and foremost attracted to Mr. Devani's vision and concept.
Equity crowdfunding is a relatively new avenue to access passion capital. New players such as Kickstarter, Indiegogo and SeedUps Canada are aiming to connect early-stage companies with potential individual investors who buy into the vision – exactly what Mr. Devani is seeking to do. The provincial securities regulators are looking at finalizing the rules governing equity crowdfunding, but currently there are a number of ways this approach could meet Mr. Devani's challenge.
Randy Yatscoff, executive vice-president of business development at small business incubator TEC Edmonton
What's his valuation? If you're going to put $100,000 or $200,000 in, how much of the company are you going to get? Second, what's the exit strategy? Three years, five years? People want to know. I see too many good deals go sideways with too high a valuation and not a well-thought-out exit strategy. What's the use of proceeds? Is he just going to buy lots? You have to be clear on how you will use your funds. Have a short, concise presentation and a term sheet to sell the value proposition to investors.
Pitch to a group. He has to find the right investors who will let him continue with his dream. Find the right ones – some will want to take over the company. And how many does he want? Does he want to nickel and dime himself to death with 200, or have a few large investors? That is a really important aspect. There are a number of angel groups in Calgary – there's Alberta Deal Generator run out of Innovate Calgary, and there's VA Angels. If he does not have that network, go in through these groups.
This does not appear to me to be a venture capital play – they like to see tenfold return on investment in a short period of time. With a proven track record – good use of proceeds, good pitch, good valution – its probably fundable.
THREE THINGS THE COMPANY COULD DO NOW
Mr. Devani may find interested investors in the United States, where he'd find more dollars to go around.
Try out equity crowdfunding
There's no harm in seeing who might be interested in buying a stake at SeedUps.ca.
Look for angels
Connect with one of the angel investor groups in Calgary.
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Interviews have been edited and condensed.