Awhile back I posted some questions to VCs on the forums of the Waterloo Technology Startup (“Watstart“) website and Jacqueline Murphy of Waterloo VC Tech Capital Partners was kind enough to answer. As I think the resulting answers were pretty interesting, here they are:
- Do you get alot of unsolicited proposals? How many do you get a month? How many interest you enough to contact the sender?
Yes we get a lot of unsolicited proposals — we’re currently receiving about 150 proposals a year that meet our base criteria (Waterloo region, technology focused, seed/early stage) — I’d say about 1/2 of these are unsolicited and about 1/2 are referred to us by local service providers or people who work at our current portfolio companies. We conduct light due diligence (contact the sender for more information, take a meeting etc.) on about 20% of these opportunities.
- Is there a methodology you use to determine what % of a company their investment is worth?
Yes there are a number of methodologies that can be used to determine valuation of a company. At the very early stage (which is when we invest) the company doesn’t typically have a lot of value — we often invest at just the idea stage — and most of the valuation methodologies (based on revenues etc.) don’t really apply at this stage. We typically determine how much $ the company requires to get to its first significant milestone (and an increase in company value as a result) — lets say $2 million — and then value the company “pre-money” (which means before we put our money in) at $2 million in order to make sure the founders have enough of the pie to be incented moving forward.
- How much more liquidity is there in California compared to tech centers in Canada like Ottawa and Waterloo?
By liquidity, do you mean is it easier to sell your company/go public in California or do you mean is it easier to raise money in California? There are definitely more VCs in California than in Ottawa or Waterloo but if the investment opportunity is compelling, you can raise money just as effectively here in Canada. The key is to find a VC that can add more value than just $. Look at the types of companies they’ve invested in the past, look at their reputation, talk to people at their current (and past) portfolio companies — these things really matter.
- Is there enough VC capital in Canada for startups that require large amounts of startup money to get off the ground, > $20m (ex. FedEx)?
Yes. There is more than enough VC capital in Canada — as long as the investment opportunity is compelling
- What is your preferred exit strategy? What kind of return of investment do VCs look for? After how many years?
Our preferred exit strategy involves a big $$$ amount — if we can get that by going public great, if we can get that through an acquisition great. Target returns vary depending on stage of investment — as I mentioned, we invest at a very early stage — quite risky — so we are looking for a 10x return on our money. We’re looking for companies who can hit the ball out of the park.