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