As a startup founder I often think about money, including raising it. Yet the overall name of the game is forward progress.
Raising money can be a smart use of time or a waste of it. You need to decide quickly what is, and isn’t worth your time: it’s better to make a bad decision than no decision at all.
Should you apply to the new $100 million OpenText Enterprise Applications Venture Fund?
I heard about the OpenText enterprise fund recently and Googled it. But the only information available online currently are different versions of the same press release. I asked myself how the fund could help Media Spot Me, my startup. With scant details to work with, I determined it was worthwhile to look into.
An email to a contact at OpenText led in short order to the fund’s manager Luc Filiatreault. A bit to my surprise he immediately set up a 30-minute meeting where I would give him an initial pitch over the phone.
Here’s what I learned about the fund:
Where does the fund’s money coming from?
Luc Filiatreault: “Multiple Limited Partners (LPs) are investing in the OpenText Fund. OpenText is the only “industrial” investor. The others are strictly financial.”
OpenText runs the fund but you don’t need to have a product or service that works on or with OpenText. If you do it could be an opportunity. Having OpenText in the name of the fund confused me.
What sectors do they fund?
LF: “Information Technology. Mobile, Cloud, SaaS applications in the Business to Business IT world”.
It’s business focused, and I didn’t get the impression that they have much interest in consumer products. They feel they can add most value in the business-to-business (B2B) world. I’m not sure where hardware fits in.
What stage companies are they looking for?
LF: “Stage A and early B”.
In practical terms it means the product exists and you have at least a few initial sales. But in my experience, “a few” is subjective, so it’s hard to say what exactly it means. They are not interested in ideas and they want products where the main part of the technology has been deployed and the funding would accelerate commercialization.
The fund is closing in mid-2014, so look for a website at that time with more details. However, being early to the table of a new fund is smart and Filiatreault is already screening potential applicants.
How much do they invest?
LF: “$2-10 million, possibly in multiple tranches”.
This means if you’re looking for a smaller, initial round by choice or if this is the reality of your product then the fund may be a waste of your time. They’re willing to put in serious money, which comes with serious equity loss as well.
When I asked Filiatreault about smaller initial investments he was open to it, but made it clear that they focus on products in the market rather than in development.
As a founder of an early stage company my spidy-sense goes off when I hear the bar starts at $2 million. It sounds like a huge amount of effort to get anywhere, and while they say you need some traction it normally means a lot of traction. It’s always a very low percentage of companies they talk to that they consider investing in, and an even lower number that get actual investment. More generally the investor community is looking for more proof everyday before shelling out money.
How is this fund different than others?
Luc Filiatreault: “One of the rare funds in Canada to focus on B2B and commercialization”.
Translation: they don’t care much about consumer and support commercialization of the product. While I get the business focus it’s hard to say if the commercialization support would be that different, all funders want to help commercialize the product at this is how they will get money, either through profit or acquisition.
The next steps after talking to Luc
In my case it would be submitting a full business plan. It would take time and mental energy to update our business plan and cater it to the fund. But the biggest reason I’ve decided against taking this next step at the moment is that traction is paramount – we need to focus on more paid clients, and time spent on updating a business plan is time not spent on getting clients.
Want to learn more? Email Luc Filiatreault at lfiliatr@OpenText.com.