Looking for seed money for your new venture? This TON Tuesday – another sell-out with 55 people attending – focused on how start-ups can access funding. Featuring a discussion moderated by James Smith at the LeBarge Weinstein offices in Kanata, Raymond Luk and Mark MacLeod discussed what you need to do to gain the attention of investors. Raymond, a classically trained musician, today owns Flow Ventures and a few other enterprises, and is currently working on developing hands-on workshops and mentorship programs for entrepreneurs. Mark, originally from Scotland, has spent 11 years arranging angel investment deals for entrepreneurs, now runs Startup CFO Enterprises. Here now a summary of their comments and advice for obtaining the funding you need to get your start-up out of the gate.

Reality Check

Today investors are different. “It used to be that you could go in with a concept and a business plan and get a $1M.” says Mark. “Today, those funds are not around. The investment today is smaller, and the bar is higher.” With $150K being the average investment, it means you have to work hard as a start-up to get the biggest bang for your buck. “If fundraising the first time takes 5-6 months, when it comes through you are right back to raising your next round. I believe mentoring with the right partners can help you make the most of your seed fund.”

Finding the Right Funds

“Ottawa angels haven’t been very active lately.” states Raymond. Your early research into the angels you want to reach out to is critical to your success. “Educate yourself…know the difference between angels and VCs.” Raymond recommends that you check out www.angelcapitalnework.com and the National Angel Capital Organization at www.angelinvestor.ca for more information. “You can cold call Angel Investors and make your pitch,” explains Raymond. “You can also go outside Ottawa – they(investors) are getting more outside their backyards now.” Some events in the US are even targeting investment in Canadian companies. “I love that Canadians can go to the US, get what they need in terms of funding, get successful and then come back to Canada as Angels!” says Raymond.

Raymond further explains that most angels don’t have access to entrepreneurs, and he is working to organize more meetings to get these two sides together. “A lot of them tweet, many have blogs – you can do your due diligence. The kimona is definitely open.” Raymond further stresses that investors work for you, and entrepreneurs do have the power in the relationship. “If an investor is difficult to get ahold of early on, they aren’t going to be good investors.” he cautions. Also a big no-no – paying to pitch. Raymond and Mark both agree, this is a waste of time and money. “Don’t hire a broker,” says Raymond. “Especially with early investment, it doesn’t work.”

To figure out the kind of financing you need, you have to know where you are today. “Angel investors or seed money is typically a lower investment,” explains Mark. This seed money is geared to get you off the ground. VC Funding is larger and should be your target when you are established with some traction and market penetration.

Being Attractive to Investors

For seed money, Mark stresses that it is better to go as early as possible. “Talk to investors about your plans, go away and execute, then come back and show that you did what you said you were going to do. Investors bet on the founder – your credibility and your brand are critical.” Raymond adds that your attitude towards investors counts for a lot. “If you’re friendly…people WILL spend time with you.” he says.

“There is a new Lean Start-up trend,” explains Raymond, and he advised TON to check out Steve Blank and Eric Ries and their funding philosophies. “Your goal as a start-up is to find a business model that works. Investors are paying attention to this and it will help you do a lot, with a lot less.”

Mark adds that first impressions mean a lot to investors and you should pay attention to how they react to your story. “If they are cold from day one,” explains Mark, “That doesn’t look good. If it isn’t love at first sight…move on!”

Options to Consider

An alternative to straightforward seed money, is convertible debt. “Sometimes, investors don’t want to value your shares and will walk away from a deal rather than have to do that.” explains Mark. Rather than lose the investment, you could consider convertible debt options. It works like this. The investor loans the corporation seed money and charges a healthy interest on that. When you gain your VC funding down the road, you convert the debt into discounted shares. This eases the investor’s jitters and gives them a solid return on their investment. Raymond cautions that some angels are uncomfortable with this arrangement, feeling that if they were the first ones to put their money into a venture, they should realize a full return, not a discounted one.

RECAP of TON Tuesday events are written by Patricia Heard, Director Client Relations, at HireSmart Human Resources Inc. If you don’t have professional in-house HR talent on your team, learn how you can save time and money and reduce risk to your company by contacting Patricia at pheard@hiresmarthr.com.