I had a great chat last week with Suzie Dingwall Williams, a lawyer and former venture capitalist now with Venutre Law in Toronto. She works with growth-oriented entrepreneurs to help their businesses make the right decisions, especially about venture capital.
She agreed with me that too many companies think they deserve venture capital money when they don't. VC money, after all, has traditionally been reserved for a very tiny group of growth-oriented companies with huge (usually worldwide) potential and defensible niches.
“A true VC kind of risk investment has such a disruptive business model or technology that there’s no real model for it yet,” says Suzy. “Nobody is going to back it unless they're willing to risk all their [investment] for a 1,000% return.”
“VC money is gasoline you pour on a smouldering flame.”
Canadian entrepreneurs with more modest growth ambitions often wonder why they can't get venture capital. Here’s your answer: unless you're a smoldering flame waiting to be sparked into a forest fire, you just ain’t their type.
The same conundrum, of course, afflicted the CBC’s Dragons' Den last fall. The entrepreneurs promoting their businesses thought they were pitching a small business investment opportunity.
Nobody told them that the investors (the dragons) were looking to invest in big businesses that are just temporarily small.
You can read more about Suzie in my Financial Post column next week. Or check out her blog here.