Want to create the next WhatsApp, Instagram or Facebook?
Want to create the next WhatsApp, Instagram or Facebook? Maybe you have slightly more realistic ambitions and just want to gather enough money to get your mobile or web app prototype off the ground.
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Want to create the next WhatsApp, Instagram or Facebook? Maybe you have slightly more realistic ambitions and just want to gather enough money to get your mobile or web app prototype off the ground.
Where do you go if you don’t happen to be independently wealthy? Here are some first steps and startup financing fundamentals.
Bootstrapping
This approach of using your own resources to sustain growth means you don’t have to give up equity in your company and can continue to own 100% of its shares.
Sounds good in theory, but expecting bootstrapping to carry you to your final destination may be wishful thinking.
A lot of optimistic tech entrepreneurs don’t know this term was derived from the 19th-century saying “to pull oneself up by one’s bootstraps,” which referred to an impossible task.
Yes, some businesses are profitable from Day 1 with high margins and can sustain their own growth, but that’s the rare exception. Most tech ventures take some serious cash to hit the big leagues.
Nkosi Khumalo, president of North Vancouver-based KSM Technologies and an experienced local entrepreneur and investor, noted, “I see so many bootstrapped ventures get 90% or 95% of the way there before collapsing to nothing. You want to leverage other people’s money to grow your venture, not rely on just your own resources.”
Debt financing
Getting a loan for your tech idea can be difficult in the early stages when you have no tangible assets that can be used as collateral. You may still be able to get a relatively small loan based on your own creditworthiness but in most cases you will have to secure it personally with something tangible.
Futurpreneur Canada, formerly the Canadian Youth Business Foundation, has some great loan and mentorship programs for entrepreneurs between the ages of 18 and 39 with a solid business plan (www.futurpreneur.ca).
Another helpful resource for getting prepared to ask for a business loan is Vancity’s Getting Inside a Lender’s Head four-part video series for entrepreneurs. Vancity also has some great programs for social enterprises and micro-ventures.
Equity financing
People throw around the phrase “I’m looking for VC funding” as if they’re going to go to the corner store to buy a jug of milk.
In reality, it’s only a fit for an extremely small percentage of tech ventures. Venture capital firms normally invest only once you already have a proven product that just needs more resources to scale.
A much better and more realistic source of funding for most early-stage tech ventures is angel investors.
Angels are high-net-worth individuals, many of whom have been entrepreneurs themselves and who can write cheques in the $10,000-to-$250,000 range and who sometimes invest in small groups.
Tech funding tips
1. Forecast how much money you will need and think about what you will use it for. Have a clear idea of your business model and then build a financial forecast from that. A good place to start is the Business Model Canvas (www.businessmodelgeneration.com) and BDC’s business plan template.
2. Make sure you have “skin in the game.” You have to invest a substantial amount of your own resources in your venture before you can expect anyone else to.
3. Start with a crowdfunding campaign with a site like Indiegogo (www.indiegogo.com) orKickstarter (www.kickstarter.com). Be prepared to get the word out and attract the first third of your funding from your existing network before you will get strangers jumping on board.
4. Next, you can turn to friends and family. Make sure these early love-money investors know what they’re getting into, and you’d better be prepared to do your best to deliver.
5. If you decide to go with debt financing, an effective way to go is with a service such asPartners for Growth (www.partnersforgrowth.ca), which will spend time with you getting your financial plan in order and will pitch to multiple lenders on your behalf.
6. If you want to attract some angle investors but don’t know where to find them, a great place to connect is the BC Angel Forum (www.angelforum.org). It looks for pre-screened ventures seeking equity financing of between $100,000 and $1 million.
Harvard Business School professors William Sahlman and Howard Stevenson defined entrepreneurship as “the relentless pursuit of opportunity without regard to resources currently controlled.” Don’t let the limited financial resources you have now stop you from being the next tech star. •
Written by Dr. Ivan Surjanovic and Cyri Jones,
adapted from BizTech101 column in Business in Vancouver
Photo by Mango Matter on Unsplash