Company Logo Friday, February 23, 2001

Secrets to a successful launch

Kevin Crowley, Record staff

Psst! Want to learn the secret to scoring financial backing for your high-tech startup?

Here it is, straight from a real venture capitalist.

"Find the biggest problem facing the way we live, then find a solution to it."

Simple, huh?

Well, there's more to it than that. But Andrew Abouchar, co-founder of Waterloo-based Tech Capital Partners, says it all begins with a compelling problem and a novel solution.

"We're looking for really smart scientists and engineers with solutions to really big problems," Abouchar told students and faculty at the University of Waterloo this week.

As part of the Infranet lecture series, Abouchar and three other panelists discussed the basics of launching a successful high-tech company.

Shirley Speakman of Royal Bank Ventures said technology companies go through a four-stage life cycle: concept, startup, growth and expansion.

At the startup stage, financial backing often comes from family, friends, grants and "angel" investors -- private individuals with loads of cash.

Some entrepreneurs turn to a business "incubator" in the early going.

Incubators differ widely, but most offer more than just cash. Some provide office space, business advice and professional services, such as accounting.

Entrepreneurs who go the incubator route ought to choose carefully, Speakman cautioned.

Make sure the incubator has the technical and financial savvy to evaluate your idea and to structure an investment deal that will be attractive to the next level of investor, the venture capitalist.

Venture capitalists, or VCs as they're known, provide larger sums of money -- the kind of amounts needed to fuel rapid growth. In return, they take an equity stake in the company and play an active role in the management.

(At a separate forum this week, industry expert Mary Macdonald said most venture capitalists are only interested in fast-growing enterprises -- companies with the potential to generate revenues of $50 million to $100 million within three to five years.)

Not everyone will want to share their company with a venture capitalist.

But Thomas Astebro, a professor of management sciences at UW, said studies show that few startups survive and the ones that do usually received professional guidance early on.

Still, this doesn't mean you have to deal with a venture capitalist, he said.

Waterloo's high-tech community has loads of helpful resources for budding entrepreneurs, from the industry association called Communitech to the university's own entrepreneurship scholars and courses.

If you do partner with a venture capitalist, Astebro said to choose one who's located nearby. Someone who works around the corner will be more involved than a guy who lives in California's Silicon Valley.

Several students asked how much control and ownership they would have to give up to venture capitalists.

Both Speakman and Abouchar said entrepreneurs should focus on building a successful enterprise rather than retaining absolute control.

Abouchar said a founder can expect to end up with five to 10 per cent ownership after several rounds of financing.

But he stressed that it's "better to own a small piece of a big pie than a big piece of a small pie."

Entrepreneurs must also realize that a time will come when they should step aside and bring in seasoned managers.

"Stick your ego in your pocket," Abouchar said, adding that entrepreneurs must be committed to doing whatever it takes to make the company successful.

A fourth panelist, Mark Schisler, discussed intellectual property.

Such property can be protected by trademarks, trade secrets, copyright, industrial design and patents.

The first step is deciding what kind of protection, if any, you need, he said.

It's not practical to protect software as a "trade secret" because software designs have short lives, Schisler said.

Patents, on the other hand, protect the way something is done.
However, a patented idea must be published within 18 months and, therefore, is exposed for all the world to see. 

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