Last Wednesday (02/02/2011), Pléiade Capital and HEC Montréal were the hosts of a conference on Venture Capital in Québec (in French). This event was the first conference on venture capital organized by students. The speakers were François Gilbert (Anges Québec) and Chris Arsenault (iNovia Capital). This post is a short and simple summary of the topics that have been discussed that evening.
What is Venture Capital ?
Businesses will always need capital. The question is, what kind of capital does my business need? There are many sources of capital (customers, love money, angels, venture capital, etc.) and some of them are not available to everyone (~8 businesses are chosen out of 500 every year for VC). To play big, you need big returns. Investors in the venture capital world are looking for returns on investment around 20 to 30%. In fact, investors need large returns to compensate on losses. According to M. Gilbert, 15% of the investments will generate all revenues while another 25% of the investments won’t come back. This is why investors are so good at evaluating risks : their job is to measure the risks and the possible gains of each project.
Funds are generally specialized to an industry. This allows the investors to make smarter moves, by helping businesses operating in fields where the fund has expertise. One important fact to note, is that investors do not help only by providing capital. They also act as mentors, where their knowledge of the industry can help the entrepreneur. It is common to see investors work with businesses where synergies can be created. This minimizes the risks and creates a environment where entrepreneurs working in similar fields can help each other succeed.
When do they invest ?
Usually, investments are made when :
- the business is doing well and needs more money to scale (easiest investment, as there is less risk);
- when things go bad (usually risky, unless there is a good recovery plan);
- when the business is not running yet (an idea, but no operations yet).
Investors invest in exceptional entrepreneurs
Most of the time, the first business plan never makes it. Ideas and strategies evolve (to fit the ever changing market) and this is why startups need “exceptional” managers : managers that can adapt quickly and reinvent their businesses as soon as the market changes. Entrepreneurs must not be too tenacious. If their ideas do not work out, they must be intelligent enough to understand it, and react consequently (easier said than done).
Venture Capital in Quebec
According to the speakers, Quebec has a pretty healthy Venture Capital ecosystem. However, there are still a few challenges to overcome, including :
- It is hard to raise money.
- The ecosystem needs to be less dependent on the government.
- Good investments need to be recognized.
What do you think?
What do you think the Venture Capital / entrepreneurial ecosystem needs the most in the next years? What do you think will be the greatest challenges for young and innovative entrepreneurs?