http://venturehype.com/a-business-chef-specialized-in-startup-cuisine/
Earlier this year, a startup incubator based in the second-smallest province in Canada was shortlisted as one of the two finalists for NBIA’s (National Business Incubation Association) international award, which honors the world’s best incubation methods that help startups launch, commercialize innovations and everything in between.
Get this — NBIA has 1,900 members in over 60 countries. To be recognized by the association as one of the crème de la crème in the incubation industry is no small feat. CABI (Canadian Association of Business Incubation) has also selected this incubator as the association’s 2009 Business Incubator of Year Award winner in our favorite category — Technology.
InNOVAcorp – it might be based in a small province called Nova Scotia but the effects it has on startups are anything but small. Put another way — InNOVAcorp is a business chef specialized in startup cuisine. It adds flavors to startups and helps them achieve mouth-watering growth. Their secret recipe includes 50 pounds of rock-solid incubation infrastructure, 9 full cups of serious mentoring, and 7 gallons of appetizing cash. Yum!
As with any first-rated chefs, InNOVAcorp only selects great ingredients. Venture Hype got in touch with President and CEO Dan MacDonald (aka “Big Mac”) to find out what kind of startups they’re hungry for.
VH: You were the vice president of global marketing for Nokia prior to joining InNOVAcorp. How did you get involved with the incubator?
DM: The division of Nokia I belonged to was establishing its new world headquarters. Rather than moving my family from Silicon Valley, California to New York, I decided to return to Eastern Canada. I continued my role at Nokia out of Halifax during a transition period, and was recruited to the role at InNOVAcorp in May 2005. My experience in business-building, mergers and acquisitions, and global go-to-market strategies has come in handy for my current role.
VH: Given your previous position with Nokia, do you favor mobile startups?
DM: After 6 years of being dipped in “mobility” at Nokia, I’m definitely on the lookout for mobile startups, but I’m also very sober about the complexity of the market, especially in North America.
VH: What are the key elements that make a mobile startup successful?
DM: 2009 is a much better environment for mobile startups due to the momentum of the iPhone, BlackBerry, 3G networks, etc. That being said, the mobile startups that attract our attention are those that have more than a cool mobile game, widget, or ad-based business model. They have a compelling B2C and/or B2B offering that can be monetized and is scalable to millions of users.
VH: What other market segments excite you and what advice would you give to those who wish to invest in these segments?DM: The market segments, and more specifically the opportunities, that excite us are those that are:
highly scalable led by a competent person
sold through a simple sales cycle
armed with an unfair competitive advantage
targeted at a large, high-growth marketplace
able to deliver a rapid (3 to 6 months) return on investment
VH: You recently participated on Globe and Mail’s business incubator expert panel and provided advice to an entrepreneur who was facing go-to-market struggles. What are the common go-to-market struggles startups encounter that investors should be aware of?
DM: In my opinion, the go-to-market strategy and execution is what it’s all about. Thousands of compelling technologies, products, and services have failed to capture the market due to go-to-market misfires.
Investors must challenge the startup to share how they’ve validated their market assumptions, not by purchasing reports or research but by speaking directly to target customers and calibrating their approach through interacting with the target market.
Startups need highly relevant go-to-market expertise just as much as, if not more than, they need technical expertise. Many fail to understand this.
VH: Finally, what are the pros and cons of investing in knowledge-based startups in Nova Scotia?
DM: Unlike those in many other innovative places, startups in Nova Scotia benefit from their geographical closeness and familiarity to the large US and European markets.
In addition, they have -
access to world class expertise and highly-skilled personnel from our 11 universities and associated research institutions
the “grit and toughness” required to build a startup company
access to supportive organizations like InNOVAcorp, the First Angel Network, and NRC IRAP
Like other underserved private capital areas, knowledge-based startups in Nova Scotia can fall into the undercapitalized category.
Just For Fun
VH: McDonald’s or Burger King?
DM: McDonald’s of course. Although, if I had a dollar for every time someone asked me if I was called Big Mac or related to Ronald McDonald, I’d be a very rich man
(VH: Can we grill you?)
* Interviews are edited for clarity and readability
Join Venture Hype tomorrow as MacDonald acquaints us with InNOVAcorp’s established business model and where you’d learn about forming and running a successful incubation program.Link:
Profile of InNOVAcorp’s Big Mac
If you’re an active angel investor who frequently brings more than just money to the table, founding a business incubator to add more structure in mentoring and growing startup ventures could be your thing.
Why? According to National Business Incubation Association (NBIA), incubators might reduce the risk of small business failures, which means you’d have a better chance getting your investment back and then some, not to mention the psychological reward of giving back to the community and seeing your portfolio companies succeed.
Historically, NBIA member incubators have reported that 87 percent of all firms that have graduated from their incubators are still in business. In the general population, 66 percent of new firms survive at least two years, and 44 percent survive at least four years. It is important to note that these figures are not directly comparable, due to differences in survey methodology, time frame and other factors. However, looking at them side by side does strongly suggest that business incubation reduces the risk of small business failure and offers a valuable comparison.
In A Business Chef Specialized in Startup Cuisine, we briefly introduced InNOVAcorp, a business incubator whose incubation model has been recognized by NBIA as one of the crème de la crème in the incubation industry. We also asked President and CEO Dan MacDonald (aka “Big Mac”) to tell us more about the type of startups that would make them drool. In part 2, Big Mac gives us a quick overview of InNOVAcorp’s industry-recognized business model as a start for you to understand how a successful incubation program is run and determine whether starting one is right for you.
VH: What advice would you give to those who wish to start and run a successful incubation program to stimulate innovation and entrepreneurial spirits?
DM: I’d suggest they look into the expertise offered by the National Business Incubation Association (NBIA) and the Canadian Association of Business Incubation (CABI). These organizations have pulled together best practices from over 1,800 organizations around the world. Also take a look at InNOVAcorp’s model and approach at www.innovacorp.ca.
VH: InNOVAcorp’s High Performance Incubation (HPi) business model is recognized internationally as a best practice technology commercialization approach. What makes InNOVAcorp stand out from other incubation programs in terms of helping startups commercialize their technologies?
DM: InNOVAcorp has been recognized internationally by the NBIA, which has 1,900 members from over 60 countries. In May 2009, InNOVAcorp was recognized as one of the two best incubation business models in the world.
What makes InNOVAcorp unique is our combination of traditional incubation infrastructure, an international network of business mentors, and especially, the manager of an early seed and venture capital fund.
Our approach to attracting deal flow and our credibility in the business community helps make our model highly effective.
Dan MacDonald ("Big Mac") of InNOVAcorp
VH: Regarding deal flow, what can you tell us about the recent I-3 Technology Startup Competition?
DM: For InNOVAcorp to identify the “next great opportunity,” like most VCs, we need to review a relatively large number of opportunities. We have several approaches to maximizing the quantity and quality of our opportunity pipeline, including the I-3 Technology Startup Competition.
I-3 Technology Startup Competition has a proven track record in identifying high-potential opportunities and helping the business community to understand ways to support startup companies.
Through this competition, more than C$700,000 worth of seed investment and business building services, e.g. legal, accounting, marketing, and printing, will be awarded to 10 startup companies.
The competition took place in 5 geographical zones across the province. The award package for zone winners includes seed capital and in-kind contributions for the development of startup ventures:
Each 1st-place zone winner will receive a C$100,000 award package
Each 2nd-place zone winner will receive a C$40,000 award package
One provincial winner will be selected from the 5 zone winners and awarded a C$100,000 seed investment from InNOVAcorp’s HPi Microfund
VH: What kind of deals does InNOVAcorp prefer? Why?
DM: InNOVAcorp prefers syndicated deals. While we may not be the largest investor measured in monetary amount, we’re able to bring our expertise to coordinate the round.
The structured approach is directly related to the:
risk profile
syndicate at the table
context of the specific deal
realistic potential and timing of upside
VH: How much does InNOVAcorp typically invest in a startup?
DM: InNOVAcorp invests between C$50,000 and C$250,000 of pre-seed capital through its HPi Microfund, and invests between C$250,000 and C$3,000,000 of seed and venture capital through its Nova Scotia First Fund.
* Interviews are edited for clarity and readability.
Link:
Saturday, October 17, 2009
Sunday, October 11, 2009
Nova Scotia Steps Up
October 8, 2009, Halifax, Nova Scotia
InNOVAcorp’s I-3 Technology Start-Up Competition Attracts 133 Submissions
Today, Nova Scotians proved there is no shortage of innovation happening right here, as InNOVAcorp received 133 submissions to its I-3 Technology Start-Up Competition.
“We exceeded the number of submissions received in the 2007-2008 I-3 competition,” said Dan MacDonald, president and CEO of InNOVAcorp. “Based on the inquiries and the general buzz leading up to the deadline, we are very much looking forward to the next step in the process.”
A six-person judging panel in each zone will include representatives with relevant private-sector start-up business expertise. The judges will evaluate each entry based on the quality and significance of the business idea, the addressable market and strategy, the strength of the management team, and financial viability. The judges will deliberate and select a shortlist of five submissions from each zone to move forward to round two. The shortlist will be announced on the evening of October 22. Shortlisted businesses will have until November 19 to submit a full business plan.
InNOVAcorp helps early stage Nova Scotia companies commercialize technologies and succeed
in the global marketplace. InNOVAcorp's High Performance Incubation (HPi) business model is recognized internationally as a "best practice" technology commercialization approach. It incorporates incubation infrastructure, business mentoring, and seed and venture capital investment. InNOVAcorp engages high-potential, early stage companies to provide hands-on business guidance, customized to address specific business challenges. InNOVAcorp focuses on companies with innovative proprietary technology and/or service offerings.
For more information, please visit the InNOVAcorp website at www.innovacorp.ca.
InNOVAcorp’s I-3 Technology Start-Up Competition Attracts 133 Submissions
Today, Nova Scotians proved there is no shortage of innovation happening right here, as InNOVAcorp received 133 submissions to its I-3 Technology Start-Up Competition.
“We exceeded the number of submissions received in the 2007-2008 I-3 competition,” said Dan MacDonald, president and CEO of InNOVAcorp. “Based on the inquiries and the general buzz leading up to the deadline, we are very much looking forward to the next step in the process.”
A six-person judging panel in each zone will include representatives with relevant private-sector start-up business expertise. The judges will evaluate each entry based on the quality and significance of the business idea, the addressable market and strategy, the strength of the management team, and financial viability. The judges will deliberate and select a shortlist of five submissions from each zone to move forward to round two. The shortlist will be announced on the evening of October 22. Shortlisted businesses will have until November 19 to submit a full business plan.
InNOVAcorp helps early stage Nova Scotia companies commercialize technologies and succeed
in the global marketplace. InNOVAcorp's High Performance Incubation (HPi) business model is recognized internationally as a "best practice" technology commercialization approach. It incorporates incubation infrastructure, business mentoring, and seed and venture capital investment. InNOVAcorp engages high-potential, early stage companies to provide hands-on business guidance, customized to address specific business challenges. InNOVAcorp focuses on companies with innovative proprietary technology and/or service offerings.
For more information, please visit the InNOVAcorp website at www.innovacorp.ca.
Saturday, October 3, 2009
Talking About Growth
Dan MacDonald RT @innovacorp RT @GlobeSmallBiz Tech entrepreneur @danmacdonald100 on how to assess your company's performance
http://www.theglobeandmail.com/report-on-business/your-business/grow/expanding-the-business/how-to-give-your-company-a-checkup/article1305284/
http://www.theglobeandmail.com/report-on-business/your-business/grow/expanding-the-business/how-to-give-your-company-a-checkup/article1305284/
Thursday, July 9, 2009
Underestimating the time, cost and complexity of replacing a gold standard
Article by:
AUGUSTA DWYER
Special to The Globe and Mail Last updated on Tuesday, Jul. 07, 2009 11:12AM EDT
The problem Dentist's business stalls as he competes with bigger firms and struggles to gain acceptance from dental community
The plan Warm up to dental stakeholders, improve Internet presence, restructure the company and approach investment bankers
The payoff A better go-to-market strategy and heightened customer awareness
When Norman Kwan invented a new type of dental implant in 1993, he was convinced it would revolutionize a costly, two-step procedure and generate a successful business.
The dentist from St. Catharines, Ont., set up Biomedical Implant Technology Inc. and gained approval for his device from Health Canada in 1996 and from the United States Food and Drug Administration a year later.
Yet success has proven elusive. Dr. Kwan has invested $5-million of his own money in BIT Inc. but treats only 200 to 250 patients a year. Schools of dentistry and the dental community at large have yet to embrace his implant, called BioHex. The Royal College of Dental Surgeons of Ontario, for instance, frowns on practitioners making and selling their own products. Where Dr. Kwan sees a faster, cheaper alternative, the RCDSO sees a conflict of interest.
In the traditional implant procedure, a screw is planted into the bone where the old tooth used to be. It is left to heal, then reopened surgically to attach the new tooth. The cost: up to $6,000 per tooth. In Dr. Kwan's procedure, a combined tooth-and-screw is implanted into the bone. It can be done in a single operation and costs about half as much.
"Everybody in the world is using the two-piece approach, in which the weak link is the connection between the implant and the post that's supporting the tooth," he says.
A reliance on entrenched methods means universities are not interested in his technology and won't include it in their curricula, he says. He has tried sending product brochures to other dentists, but so far only a handful regularly refer patients to him. He maintains two websites with similar information, one for patients and one for dentists.
Finding investment capital has also been a struggle. "I'm in a very narrow market that most people would not understand except dentists," Dr. Kwan says. "There is no revenue from investors unless you are with a university or supported by a big company."
Nonetheless, he is convinced that opportunity abounds. As companies cut employee benefits, many people are looking for cheaper alternatives. And the dental prosthetics business is highly lucrative.
Dr. Kwan's goal is to expand BIT Inc. so that he can devote himself full time to the company and relieve the pressure on him from the RCDSO.
***
What the experts say
The BioHex story is a common one, says Dan MacDonald, chief executive officer of Halifax-based InNOVAcorp, which helps small companies commercialize their technology. There is "compelling technology, little investor interest, modest market acceptance, founder facing a go-forward dilemma," he says.
The problem "is most often related to the entrepreneur grossly underestimating the time, cost and multi-stakeholder complexity of replacing a long-entrenched 'gold standard,' " he adds.
He suggests that Dr. Kwan try a new strategy in which he engages key stakeholders - dental-innovation thought leaders, industry media and market analysts, insurers, employers and dental product suppliers, among others.
Mr. MacDonald advises hiring a respected independent medical-device marketing consultant to help refine BIT Inc.'s go-to-market strategy. Without identifying the product or company, the consultant should sound out a representative group of stakeholders in one influential market.
Restructuring the company is a good idea, too, Mr. MacDonald says. Staying on as founder and chief scientific officer, Dr. Kwan should make way for a CEO with a proven track record in bringing similar products to market. What's more, some of those top stakeholders, who have looked at and like the product, could be asked to join the company's board of directors.
The company should also obtain "medical-device-savvy investment banking advice" and garner new investors, Mr. MacDonald says. An investment banking representative should contact potential investors and test interest. Listening and learning from these interactions will help identify the company's strengths and weaknesses, as well as opportunities and threats.
And with each step, he advises that Dr. Kwan stop and assess how things are going. Has there been a material increase or decrease in the probability of the company's success in the eyes of advisers and investors? Or does it make more sense to prepare the BioHex intellectual property for sale or license to a larger global partner?
AUGUSTA DWYER
Special to The Globe and Mail Last updated on Tuesday, Jul. 07, 2009 11:12AM EDT
The problem Dentist's business stalls as he competes with bigger firms and struggles to gain acceptance from dental community
The plan Warm up to dental stakeholders, improve Internet presence, restructure the company and approach investment bankers
The payoff A better go-to-market strategy and heightened customer awareness
When Norman Kwan invented a new type of dental implant in 1993, he was convinced it would revolutionize a costly, two-step procedure and generate a successful business.
The dentist from St. Catharines, Ont., set up Biomedical Implant Technology Inc. and gained approval for his device from Health Canada in 1996 and from the United States Food and Drug Administration a year later.
Yet success has proven elusive. Dr. Kwan has invested $5-million of his own money in BIT Inc. but treats only 200 to 250 patients a year. Schools of dentistry and the dental community at large have yet to embrace his implant, called BioHex. The Royal College of Dental Surgeons of Ontario, for instance, frowns on practitioners making and selling their own products. Where Dr. Kwan sees a faster, cheaper alternative, the RCDSO sees a conflict of interest.
In the traditional implant procedure, a screw is planted into the bone where the old tooth used to be. It is left to heal, then reopened surgically to attach the new tooth. The cost: up to $6,000 per tooth. In Dr. Kwan's procedure, a combined tooth-and-screw is implanted into the bone. It can be done in a single operation and costs about half as much.
"Everybody in the world is using the two-piece approach, in which the weak link is the connection between the implant and the post that's supporting the tooth," he says.
A reliance on entrenched methods means universities are not interested in his technology and won't include it in their curricula, he says. He has tried sending product brochures to other dentists, but so far only a handful regularly refer patients to him. He maintains two websites with similar information, one for patients and one for dentists.
Finding investment capital has also been a struggle. "I'm in a very narrow market that most people would not understand except dentists," Dr. Kwan says. "There is no revenue from investors unless you are with a university or supported by a big company."
Nonetheless, he is convinced that opportunity abounds. As companies cut employee benefits, many people are looking for cheaper alternatives. And the dental prosthetics business is highly lucrative.
Dr. Kwan's goal is to expand BIT Inc. so that he can devote himself full time to the company and relieve the pressure on him from the RCDSO.
***
What the experts say
The BioHex story is a common one, says Dan MacDonald, chief executive officer of Halifax-based InNOVAcorp, which helps small companies commercialize their technology. There is "compelling technology, little investor interest, modest market acceptance, founder facing a go-forward dilemma," he says.
The problem "is most often related to the entrepreneur grossly underestimating the time, cost and multi-stakeholder complexity of replacing a long-entrenched 'gold standard,' " he adds.
He suggests that Dr. Kwan try a new strategy in which he engages key stakeholders - dental-innovation thought leaders, industry media and market analysts, insurers, employers and dental product suppliers, among others.
Mr. MacDonald advises hiring a respected independent medical-device marketing consultant to help refine BIT Inc.'s go-to-market strategy. Without identifying the product or company, the consultant should sound out a representative group of stakeholders in one influential market.
Restructuring the company is a good idea, too, Mr. MacDonald says. Staying on as founder and chief scientific officer, Dr. Kwan should make way for a CEO with a proven track record in bringing similar products to market. What's more, some of those top stakeholders, who have looked at and like the product, could be asked to join the company's board of directors.
The company should also obtain "medical-device-savvy investment banking advice" and garner new investors, Mr. MacDonald says. An investment banking representative should contact potential investors and test interest. Listening and learning from these interactions will help identify the company's strengths and weaknesses, as well as opportunities and threats.
And with each step, he advises that Dr. Kwan stop and assess how things are going. Has there been a material increase or decrease in the probability of the company's success in the eyes of advisers and investors? Or does it make more sense to prepare the BioHex intellectual property for sale or license to a larger global partner?
Sunday, May 10, 2009
Mother's Day
What can you say about the role of a mother that would even come close to recognizing the scope and scale of being a mother?
A few thoughts on the topic on this Mother’s day.
Mother’s were 24 X 7 X 365, before we even knew what those numbers meant.
To say that Mother’s make sacrifices to care for their children is the understatement of all time.
Could anyone know you better than your mom ?
This time of year there are always calculations on how much a mom would make in salary if they were to be paid a fair wage. The numbers always seem low and do not do justice to the priceless efforts of moms.
While there has been “progress” in the area of sharing family and household responsibilities between mom and dad, we have a long way to go.
As we raise our sons and daughters, the examples we set as parents will help move the “progress” faster and further.
I am so fortunate to be married to a beautiful and wonderful mom.
To Mothers everywhere, Happy Mother’s Day !
A few thoughts on the topic on this Mother’s day.
Mother’s were 24 X 7 X 365, before we even knew what those numbers meant.
To say that Mother’s make sacrifices to care for their children is the understatement of all time.
Could anyone know you better than your mom ?
This time of year there are always calculations on how much a mom would make in salary if they were to be paid a fair wage. The numbers always seem low and do not do justice to the priceless efforts of moms.
While there has been “progress” in the area of sharing family and household responsibilities between mom and dad, we have a long way to go.
As we raise our sons and daughters, the examples we set as parents will help move the “progress” faster and further.
I am so fortunate to be married to a beautiful and wonderful mom.
To Mothers everywhere, Happy Mother’s Day !
Saturday, March 28, 2009
Investors have more confidence in execs with business scars
Investors have more confidence in execs with business scars
Globe and Mail March 27, 2009
Every entrepreneurial story has a chapter on failure. As a venture capitalist, he says seeing business scars and knowing that the entrepreneur has learned from that experience gives him more confidence in investing in the business.
http://www.theglobeandmail.com/servlet/story/RTGAM.20090327.wsb-INCpodcast_DanMacDonald0327/BNStory/incubator/home
Globe and Mail March 27, 2009
Every entrepreneurial story has a chapter on failure. As a venture capitalist, he says seeing business scars and knowing that the entrepreneur has learned from that experience gives him more confidence in investing in the business.
http://www.theglobeandmail.com/servlet/story/RTGAM.20090327.wsb-INCpodcast_DanMacDonald0327/BNStory/incubator/home
Tuesday, March 24, 2009
InNOVAcorp Nominated for International Award
Innovacorp Nominated for International Award
Innovacorp has been named one of two finalists for the National Business Incubation Association's 2009 international award for work with start-up businesses.
The award recognizes the world's best methods to help new companies commercialize innovations and overcome hurdles. Previous winners have come from Silicon Valley, Paris and Taiwan.
The National Business Incubation Association is the world's leading organization for helping business start-ups and entrepreneurship. It is based in Ohio and represents more than 1,600 organizations in 40 countries.
Innovacorp for winning international recognition for their leadership in helping Nova Scotia's entrepreneurs turn great ideas into sustainable businesses."
Innovacorp is internationally recognized for its approach to helping early stage technology companies in Nova Scotia develop products and services for export. Its High Performance Incubation business model incorporates incubation infrastructure, business mentoring, and seed and venture capital investment to help entrepreneurs with business growth.
Innovacorp's key industries include information and communications technology, life sciences and clean technology. The organization is working hands-on with about 45 companies across the province, including CleanCount, Clinical Logistics, Coemergence, DementiaGuide, GOALLINE, ImmunoVaccine Technologies, Marcato Digital Solutions, Medusa Medical Technologies, MorSwift and ViaPeak.
Innovacorp is a finalist with the prestigious San Jose BioCenter in San Jose, Calif. The winner will be announced in April at the National Business Incubation Association's annual international conference in Kansas City, Miss.
Update:
Congratulations to the world-class San Jose BioCenter from San Jose, California, on winning the National Business Incubation Association's 2009 award for business incubation program of the year.
It was a great honour for the Innovacorp team to be one of two international finalists, especially up against the San Jose BioCenter.
Innovacorp has been named one of two finalists for the National Business Incubation Association's 2009 international award for work with start-up businesses.
The award recognizes the world's best methods to help new companies commercialize innovations and overcome hurdles. Previous winners have come from Silicon Valley, Paris and Taiwan.
The National Business Incubation Association is the world's leading organization for helping business start-ups and entrepreneurship. It is based in Ohio and represents more than 1,600 organizations in 40 countries.
Innovacorp for winning international recognition for their leadership in helping Nova Scotia's entrepreneurs turn great ideas into sustainable businesses."
Innovacorp is internationally recognized for its approach to helping early stage technology companies in Nova Scotia develop products and services for export. Its High Performance Incubation business model incorporates incubation infrastructure, business mentoring, and seed and venture capital investment to help entrepreneurs with business growth.
Innovacorp's key industries include information and communications technology, life sciences and clean technology. The organization is working hands-on with about 45 companies across the province, including CleanCount, Clinical Logistics, Coemergence, DementiaGuide, GOALLINE, ImmunoVaccine Technologies, Marcato Digital Solutions, Medusa Medical Technologies, MorSwift and ViaPeak.
Innovacorp is a finalist with the prestigious San Jose BioCenter in San Jose, Calif. The winner will be announced in April at the National Business Incubation Association's annual international conference in Kansas City, Miss.
Update:
Congratulations to the world-class San Jose BioCenter from San Jose, California, on winning the National Business Incubation Association's 2009 award for business incubation program of the year.
It was a great honour for the Innovacorp team to be one of two international finalists, especially up against the San Jose BioCenter.
Thursday, February 12, 2009
Dan MacDonald on how to approach investors
http://www.theglobeandmail.com/servlet/story/RTGAM.20090205.expertInsight0210/BNStory/specialSmallBusiness
Dan MacDonald is president and CEO of Halifax-based InNOVAcorp, which operates as a venture capitalist through management of the Nova Scotia First Fund. Its seed and early stage investments target emerging technology companies that have high growth potential. Mr. MacDonald, who has 23 years of experience building businesses, talks about the investor-entrepreneur relationship.
What's your advice on how entrepreneurs can attract investors? What are investors looking for?
Dan MacDonald: Entrepreneurs need to be aware that individual investors – be they angel investors or institutions – tend to invest in certain types of industry sectors, business models, stages of growth, business size, locations, etc. While investors can obviously expand their scope from time to time, it is important to understand, as much as possible, the investor's tendencies in order to determine compatibility.
Investors who are open to considering investments in entrepreneurs are looking for opportunities that have the right combination of five elements: people, market, “barrier,” fundability and potential return. (And, of course, a product or service that is compelling and articulated clearly in a couple of minutes.)
People: This one is key. Investors might make their mind up in the first 60 seconds based on the approach and style of the entrepreneur. Beyond first impressions, investors want to understand the entrepreneur's relevant expertise, commitment to success, the level of their own skin in the game (money and time), ability to recruit and lead additional talent, to manage finances and to clearly communicate and execute the path forward.
Market: The addressable market for the product or service needs to be large enough for the potential revenues and profits to be interesting.
Barrier: The barrier to entry for a potential competitor must be high. The recipe of expertise, trade secrets, industry contacts, intellectual property, partners – or put another way, the “unfair advantage” of the opportunity – must be such that it will not be relegated to one of many.
Fundability: When the investor considers the amount of funds and time that will be needed to obtain a return on investment, the investor needs to believe that the business can attract the required funds and execute the plan.
Return: At the most basic level, investors are looking for a return on their investment. The potential risk and return from investing in an entrepreneur competes with the other types of investments. Entrepreneurs must appreciate the fact that the opportunity they are presenting to an investor may be one of many the investor has been presented with that month, that week, even that day.
What are common pitfalls of negotiating with an investor from the perspective of the entrepreneur?
Dan MacDonald: Entrepreneurs commonly approach investors before they are ready to clearly articulate the opportunity and answer or defend the questions on people, market, barrier, fundability and potential return. Many investors do not give second chances.
It's also not ideal to negotiate with your back against the wall. Obviously an entrepreneur who is virtually out of money is not going to be able to negotiate as good a deal as one who has time to consider other options.
Also, entrepreneurs need to consider the investment under negotiation in the context of what will likely happen, in at least the medium term. For example, how will the company valuation (that is, enterprise value based on the percentage of company purchased for the amount of investment) set by this investment look to future investors? Ideally, the valuation of the company will rise over time.
Another common pitfall is providing too much information too early. To get to a point where you are actually negotiating with an investor who seems compatible and trustworthy is an accomplishment in itself. Until this point, the entrepreneur needs to be careful to be truthful, of course, but also be aware of the timing and depth of certain information provided to the investor.
Proprietary information relating to the technology, detailed plans, financial information, etc., should be held until the investor has put an offer, pending due diligence, on the table. While the investor can back out of the deal at any time, the entrepreneur needs to understand the types of terms and conditions the investor expects for the given amount of investment. Better to know early on than find out after you have bared all.
Geneviève Gagnon, owner of La fourmi bionique granola company, got to know her investor. But she had her business mentor do the actual negotiating, so as to limit tension. She says this worked very well for her. What are your thoughts on this?
Dan MacDonald: Having a representative negotiate on your behalf has its pros and cons. Potential pros include avoiding potential damage to the working relationship, and time to consider and discuss terms and conditions without the pressure of a face-to-face encounter.
But there are cons, too. If you delegate negotiation responsibility, then you may end up with a deal you do not like. If you can't negotiate your own deal with a potential investor, it may be perceived as a weakness. You could also miss getting to really know the character of the investor. Many investors would not accept negotiating through a delegate.
Ideally, you, the entrepreneur, would seek advice prior to and during the negotiation. If you are uncomfortable with a term or condition, ask for it in writing so that you can seek advice. Have a sense of urgency but do not let yourself be rushed during negotiations.
Ms. Gagnon regrets sharing with the media the percentage of her business she sold (she did not disclose the dollar amount). What are your thoughts on how openly entrepreneurs should talk about such deals?
Dan MacDonald: While it is very tempting to share the details of an investment – especially one involving an investor whose name or brand can improve the credibility of the entrepreneur – it is not advisable. With the investor's permission, simply stating that they are an investor is all anyone should know. Depending on the market the entrepreneur is addressing, customers might request financial information looking to ensure solvency. This should be handled carefully, again without disclosing details of the investment.
Once the deal is signed, what's your advice on managing the investor-entrepreneur relationship?
Dan MacDonald: Regular and clear communication is key. Understand the investor's expectations for communication and involvement, and exceed these expectations without overdoing it. Communicate sales won only after the deal is truly closed. Whether it is good news or bad news, communicate the impact and your plan to capitalize on the good or manage and minimize the not-so-good. If there is neither good nor bad news to share, then call with a regular update anyway.
If you have set an expectation that for good reason is no longer achievable, or that you discover is not feasible, then reach out and explain yourself. Suggest a new go-forward plan and ask for their advice. Follow up in writing with the new agreed path.
Should entrepreneurs be prepared in case things go unexpectedly bad between them and their investors? If so, what can they do?
Dan MacDonald: Like most relationships, there are bound to be some rough spots. If things go unexpectedly bad, and you have regularly communicated and tried your best to keep things on track, then the investor-entrepreneur relationship may change but should be manageable.
If things go unexpectedly bad, and you have not regularly communicated and you surprise the investor with the bad news, you should expect – and maybe deserve – a rough ride.
Dan MacDonald
Dan MacDonald is president and CEO of Halifax-based InNOVAcorp, which operates as a venture capitalist through management of the Nova Scotia First Fund. Its seed and early stage investments target emerging technology companies that have high growth potential. Mr. MacDonald, who has 23 years of experience building businesses, talks about the investor-entrepreneur relationship.
What's your advice on how entrepreneurs can attract investors? What are investors looking for?
Dan MacDonald: Entrepreneurs need to be aware that individual investors – be they angel investors or institutions – tend to invest in certain types of industry sectors, business models, stages of growth, business size, locations, etc. While investors can obviously expand their scope from time to time, it is important to understand, as much as possible, the investor's tendencies in order to determine compatibility.
Investors who are open to considering investments in entrepreneurs are looking for opportunities that have the right combination of five elements: people, market, “barrier,” fundability and potential return. (And, of course, a product or service that is compelling and articulated clearly in a couple of minutes.)
People: This one is key. Investors might make their mind up in the first 60 seconds based on the approach and style of the entrepreneur. Beyond first impressions, investors want to understand the entrepreneur's relevant expertise, commitment to success, the level of their own skin in the game (money and time), ability to recruit and lead additional talent, to manage finances and to clearly communicate and execute the path forward.
Market: The addressable market for the product or service needs to be large enough for the potential revenues and profits to be interesting.
Barrier: The barrier to entry for a potential competitor must be high. The recipe of expertise, trade secrets, industry contacts, intellectual property, partners – or put another way, the “unfair advantage” of the opportunity – must be such that it will not be relegated to one of many.
Fundability: When the investor considers the amount of funds and time that will be needed to obtain a return on investment, the investor needs to believe that the business can attract the required funds and execute the plan.
Return: At the most basic level, investors are looking for a return on their investment. The potential risk and return from investing in an entrepreneur competes with the other types of investments. Entrepreneurs must appreciate the fact that the opportunity they are presenting to an investor may be one of many the investor has been presented with that month, that week, even that day.
What are common pitfalls of negotiating with an investor from the perspective of the entrepreneur?
Dan MacDonald: Entrepreneurs commonly approach investors before they are ready to clearly articulate the opportunity and answer or defend the questions on people, market, barrier, fundability and potential return. Many investors do not give second chances.
It's also not ideal to negotiate with your back against the wall. Obviously an entrepreneur who is virtually out of money is not going to be able to negotiate as good a deal as one who has time to consider other options.
Also, entrepreneurs need to consider the investment under negotiation in the context of what will likely happen, in at least the medium term. For example, how will the company valuation (that is, enterprise value based on the percentage of company purchased for the amount of investment) set by this investment look to future investors? Ideally, the valuation of the company will rise over time.
Another common pitfall is providing too much information too early. To get to a point where you are actually negotiating with an investor who seems compatible and trustworthy is an accomplishment in itself. Until this point, the entrepreneur needs to be careful to be truthful, of course, but also be aware of the timing and depth of certain information provided to the investor.
Proprietary information relating to the technology, detailed plans, financial information, etc., should be held until the investor has put an offer, pending due diligence, on the table. While the investor can back out of the deal at any time, the entrepreneur needs to understand the types of terms and conditions the investor expects for the given amount of investment. Better to know early on than find out after you have bared all.
Geneviève Gagnon, owner of La fourmi bionique granola company, got to know her investor. But she had her business mentor do the actual negotiating, so as to limit tension. She says this worked very well for her. What are your thoughts on this?
Dan MacDonald: Having a representative negotiate on your behalf has its pros and cons. Potential pros include avoiding potential damage to the working relationship, and time to consider and discuss terms and conditions without the pressure of a face-to-face encounter.
But there are cons, too. If you delegate negotiation responsibility, then you may end up with a deal you do not like. If you can't negotiate your own deal with a potential investor, it may be perceived as a weakness. You could also miss getting to really know the character of the investor. Many investors would not accept negotiating through a delegate.
Ideally, you, the entrepreneur, would seek advice prior to and during the negotiation. If you are uncomfortable with a term or condition, ask for it in writing so that you can seek advice. Have a sense of urgency but do not let yourself be rushed during negotiations.
Ms. Gagnon regrets sharing with the media the percentage of her business she sold (she did not disclose the dollar amount). What are your thoughts on how openly entrepreneurs should talk about such deals?
Dan MacDonald: While it is very tempting to share the details of an investment – especially one involving an investor whose name or brand can improve the credibility of the entrepreneur – it is not advisable. With the investor's permission, simply stating that they are an investor is all anyone should know. Depending on the market the entrepreneur is addressing, customers might request financial information looking to ensure solvency. This should be handled carefully, again without disclosing details of the investment.
Once the deal is signed, what's your advice on managing the investor-entrepreneur relationship?
Dan MacDonald: Regular and clear communication is key. Understand the investor's expectations for communication and involvement, and exceed these expectations without overdoing it. Communicate sales won only after the deal is truly closed. Whether it is good news or bad news, communicate the impact and your plan to capitalize on the good or manage and minimize the not-so-good. If there is neither good nor bad news to share, then call with a regular update anyway.
If you have set an expectation that for good reason is no longer achievable, or that you discover is not feasible, then reach out and explain yourself. Suggest a new go-forward plan and ask for their advice. Follow up in writing with the new agreed path.
Should entrepreneurs be prepared in case things go unexpectedly bad between them and their investors? If so, what can they do?
Dan MacDonald: Like most relationships, there are bound to be some rough spots. If things go unexpectedly bad, and you have regularly communicated and tried your best to keep things on track, then the investor-entrepreneur relationship may change but should be manageable.
If things go unexpectedly bad, and you have not regularly communicated and you surprise the investor with the bad news, you should expect – and maybe deserve – a rough ride.
Dan MacDonald
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