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Beyond Venture Capital: Five Strategies to Grow a Tech Startup

So you have a brilliant idea. You spotted an opportunity and solved a critical challenge for industry. With your application or device in their toolkit, your customers will save time and money, improve their services, and maybe even make the world a better place. Now you want to develop your prototype into a working product and bring it to market. All you need is a little venture capital, right? Not quite.

Attracting venture capital is more challenging than many realize. The pressure to show revenue as soon as possible can be intense, says Joe Martini, director of Zone Startups Calgary, a business accelerator program focused on the Industrial Internet and the energy sector. Venture capital firms are reticent to invest in any company that isn’t already successful.

“Most of the VCs will not invest in startup companies,” Martini says. “The simple reality is that venture capital in western Canada for startups is nonexistent.”

Martini says that venture capitalists normally want to see $1 million to $2 million in recurring annual cash flow before they’ll consider getting on board. “Their risk tolerance doesn’t allow them to go in any earlier.”

So that leaves a serious gap between creating a working product and getting the major funding you need to go to scale. Here are five ways that startups can seek to cross that gulf.

1. Fund it yourself. You may say, “Well, if I could do that, don’t you think I would?” Not necessarily. The idea is to demonstrate commitment by putting as much of your own resources — both money and “sweat equity” — into your company as you possibly can. “That will attract the ‘friends, family and fools’ investors,” Martini says. If you believe in your product enough to invest your time and money into it, others will too.

2. Seek grants. This strategy supplements the self-funding approach: the money you’ve raised on your own can be leveraged by applying for matching grants. “There’s a whole ecosystem of grant funding, both federal and provincial,” Martini says. Many regions have grant programs targeted specifically at innovation and R&D. (Canadians go here.)

3. Find an angel. An angel investor is a wealthy individual or group that will give your startup financial backing, usually in exchange for ownership equity in your company. If your startup is in western Canada and your product is related to the energy or real estate sectors, this may be a good funding option. “Western Canadian angel investors understand those industries — there’s a lot of expertise in them,” Martini says.

4. Get on the portfolio of a family office. Family offices are organizations that manage the wealth of one or more families. This may be a strong solution if you can find one that is seeking to diversify. “They are always looking at ways to add value and optimize cash flow,” Martini says.

5. Accelerate. Get ready to move quickly if you go this route. “A business accelerator’s goal is to move companies quickly toward commercialization so they are qualified in the eyes of the VCs,” Martini explains. “We help them navigate and remove the friction from startup to commercialization.” Working with an organization like Zone Startups Calgary, you have six months to succeed fast, pivot fast, or fail fast, he adds. In a business-to-business context, where the potential customers are major industrial companies, the accelerator’s role is to facilitate these relationships.

Zone Startups Calgary is based in GE’s Customer Innovation Centre. There, smart software and hardware startups can start developing those collaborative practices on a large scale. Brilliant ideas don’t succeed on their own. It takes strong partnerships and shared insights for startups to match their innovative solutions with the customers who need them most.