Silicon Valley North #52                                       March, 2003


The Way I See It… by Michael C. Volker


Is access to capital the real problem that tech companies face?


The inability to secure investment capital is often cited by technology entrepreneurs and CEOS as one of the principal barriers to the growth of their company.


A recent B.C. Technology Industries Association survey on accessing equity capital found that lack of investor interest was the biggest hurdle regardless of the investor category - be it family/friends, angels, venture capitalists or underwriters.


To address this problem, I often hear suggestions that more tax incentives are needed to encourage individual investors and that there needs to more competition among VCs. To achieve this, incentives such as tax credits or flow-through write-offs are cited as ways to achieve the former and enhancing labour-sponsored funds are mentioned as a means to accomplish the latter.


A few years ago, there appeared to be more capital available to companies. All categories of investors were flush with huge capital gains and this easy money allowed them to take more risk. As we’ve seen, though, many of these investments have failed.


Hence, even if the supply of capital or the propensity to take risk could be increased, it doesn’t necessarily follow that more capital alone will produce more winning companies.


The survey also found that, as companies move from earlier stage to later stage financings, the ease of securing investment capital decreased dramatically. For example, the family and friends group were the easiest investors to sway while VCs and underwriters were the most difficult to convince.


This might explain why companies often fizzle out a few years after they get started.  Investors, such as VCs, who come in at the later stages of corporate development are far more risk-averse than friends or angels. VCs invest other people’s money and must think of all the reasons why a given business won’t succeed whereas individual investors generally think of the reasons why a business will succeed.


Saying that that there’s not enough capital available or that we can’t get financed is really a euphemism for “we’re a marginal company and no one believes in us enough to support us.”


Many companies are “life-style” companies that get started because of a need for independence or perhaps because of an opportunistic entrepreneurial moment.  VCs simply aren’t interested in such companies.


Not many entrepreneurs can genuinely articulate a vision that’s based on greatness and formulate, let alone execute, a plan to achieve it. The true entrepreneurs – those that create businesses that dominate their markets – know how to do this.


They start with the people. Companies are, after all, just groups of people. It’s getting the “right” people that makes all the difference. This is when the capital question often surfaces: “How can I get great people without adequate funding?” While that may be partially true when acquiring specific operating skills, the people I’m referring aren’t the operators. They are the coaches, mentors, advisors and directors that commit - note the word “commit” - the guidance, support and stewardship that in turn, gives the company credibility and hence, ultimately makes it a bankable proposition.


So, how does one find and attract these people? Finding them is easy. Attracting them to your deal is the tough part. The hard reality is that they’ll be attracted to you if they believe that you have the potential to achieve greatness. If they’re not attracted, who is to blame?


The way I see it, complaining about the lack of capital or lack of investor interest is a misdiagnosis of the real problem: a failure by the company to adequately address its own shortcomings.  Before going around with hands stretched out for cash, it might make more sense to reach out and engage some high-level support. After all, it’s not about the money!


Michael Volker is a high technology entrepreneur and director of Simon Fraser University’s Industry Liaison Office. He oversees Vancouver’s Angel Technology Network and is Chair of the BC Advanced Systems Institute and past-Chair of the Vancouver Enterprise Forum. He may be reached at