- What is your general investment philosophy?
- What types of companies does Advantage invest in?
- What do you look for in a potential investment?
- How much will you typically invest in a company?
- Do you invest alongside other VCs?
- Do you help syndicate investment rounds?
- How do I engage Advantage?
- Do you always ask for a Board seat?
- How do you manage your investments once you make them?
- How do you feel about the public markets?
- What kind of reporting do you want?
- Can you provide a general overview of your due diligence review process?
- Can you provide some additional insight into how your due diligence review process works?
- How does your investment approval process work?
- Do you always want Preferred Shares?
- Why would I do business with Advantage?
What is your general investment philosophy?
Many VCs have narrow guidelines defining the types of investments they make. They may be sector, stage of development or size of opportunity specific. We have chosen a broader approach centered around our core operating principle – to provide the best returns we can to our investors. Rather than define our investment strategy by the things we won’t invest in, we approach it from the perspective of whether we believe the potential investment will provide us with a strong return for our investors. As such, we do not rule out a lot of investments that other VCs might. For instance, we will invest in public companies. We will also invest in companies that may not appear, at first blush, to be “VC investments.” If we believe we can achieve our targeted return in the potential investment, then we will seriously consider the investment.
What types of companies does Advantage invest in?
We invest in emerging companies in the life science, medical device, information technology, and clean and industrial technology sectors.
Advantage is a “VCC” registered under the Small Business Venture Capital Act of British Columbia and as such can only invest in BC based companies that meet the criteria of an eligible investment under that Act. These companies are referred to as “Eligible Small Businesses” or “ESBs”. Basically, this is a company in the technology business that has less than 100 employees, pays a majority of its wages to employees in BC, and maintains 80% or more of its assets in the Province. Before approaching us for investment, it is best to check to see if your company qualifies as an ESB.
What do you look for in a potential investment?
The usual answer you will hear from VCs goes something like this:
“We are looking for a company with a product that addresses a billion dollar market opportunity, where the company has first mover advantage and is being pulled into the market by customers who are experiencing extreme market pain. We like a company that is led by a fully built out, senior management team, who have a proven track record of growing start-ups from inception to a successful exit, and who possess deep domain expertise and have invested their own money in the deal. Further, we like to see strong IP protected by a robust patent portfolio.”
If only it were that simple. The reality is that few companies that approach VCs will be close to satisfying all of these criteria. Given this, our principal focus is on the people. We look for the core of a strong team, possessing domain experience, surrounded by a knowledgeable group of advisors. The team does not need to be fully built, as we will use the Lions’ mentor pool to help build it out.
We like to see a good sized market opportunity but it does not necessarily have to be a billion dollar market. We are interested in products that are market driven, where customer pull can be demonstrated. While a strong patent portfolio is nice, we will invest in technology companies with "feature rich" products with first mover advantage.
In summary, we are looking for a core group of people we can work with to take a great idea and chase an exciting market opportunity. Young companies may go through a roller-coaster existence in their formative years, so we look for a team that we feel we can partner with to make it happen.
How much will you typically invest in a company?
Obviously, it will be driven by and depend upon the company’s financial needs. Generally, our over-riding objective is that a round of investment should see the company financed for at least 8 to 24 months of runway. Our participation in a round will depend upon various factors including the stage of development of the company, the size of the syndicate and the amount of investment needed.
Our preference is to invest at least $500,000 in our first round of investment. Subsequent investment rounds will typically be in the $1,000,000 to $2,000,000 range. We are not rigid in these amounts, as we work to meet the company’s financing requirements and that of the financing syndicate. Ideally, we like to place somewhere between $3,000,000 and $5,000,000 in a given company over the course of our involvement.
Do you invest alongside other VCs?
Yes, we are happy to invest alongside other VCs, as well as angels and friends and family investors. We have co-invested with all of the major VCs in BC, and with Eastern Canadian based VCs, US VCs and International VCs as well. We have led some deals, co-led others and acted as smaller syndicate partners in some situations. We are pre-disposed to being a very active investor, but have also taken less active roles in some of our investments which are well resourced from a people perspective. We are open minded and will tailor our role in a way that works for the company, the financing syndicate and, of course, ourselves.
Do you help syndicate investment rounds?
We have good relationships with angels and other VCs and are happy to make warm, qualified, introductions to syndicate partners for you to pursue. We will often share our due diligence materials with other investors, and will work to help get the financing done. We will take an active lead as one of the syndicate members and, if applicable, in our role on your Board.
How do I engage Advantage?
We receive many investment inquiries by way of “cold calls” and through our website, and we have invested in a number of opportunities that have come in that way. You can submit your materials by clicking on the “Submit Materials” tab. In the initial stages of contact, we would prefer not to receive your full Business Plan. The most helpful thing you can do to get your materials reviewed quickly is to tailor them to the form we prefer. We will be able to review your materials faster if you limit them to a four to seven page Executive Summary, and an Investor Presentation (power point) of no more than two dozen slides. We have provided some guides for these materials on our website if you would like to use them.
Another way to approach us is to be referred in by someone we know. So, if you know one of our Directors or Mentors, we would encourage you to use them as your conduit. Similarly, if you have local angels in the company or the interest of another VC, you can always ask them for a referral to us. If you don’t have a referral source, don’t worry as we are still happy to review your opportunity.
We have worked hard to make our review process efficient, and pride ourselves in being relatively fast movers once we have engaged with a company. The key point here is once we have engaged. Because of numerous competing claims on our time (such as annual fund-raising and managing our existing portfolio), we sometimes do not get to new investment opportunities as fast as we would like. So, don’t despair if you don’t hear back from us right away, but don’t hold up your other efforts to secure financing either. The fact that we have not responded immediately is not necessarily a reflection on the quality of your opportunity – it may be nothing more than competing interests. Further, you do not need to follow-up once you have submitted your materials. If we are interested, we will get back to you.
Once we get a chance to look at the opportunity, we can move quickly to review and close if we are interested and have done so in less than 30 days in a number of cases. More typically, our review process from first contact to close is more like 60 to 90 days.
Does Advantage always ask for a Board seat?
This will depend on the circumstances, but in most cases the answer is “yes”. Where we have not taken a Board seat is in situations where we are a small investor in a much bigger syndicate. In those cases we have asked for “Observer” status.
It is important to stress that we do not ask for Board seats simply for over-sight purposes. We do so as our investment management philosophy is to be hands-on, value-added, investors. You will find that we tend to be very active Board members and work hard, hand in hand with our entrepreneurs, to drive their companies forward. You don’t need to take our word for this. You can speak directly with some of our portfolio company CEOs and hear it in their words.
How do you manage your investments once you make them?
We are active investors and work hard to add value. One of the key differentiators of our Fund is our “Mentor Model”. We draw on the knowledge and skill set of our Fund Managers and our mentors to help build out our portfolio companies.
VCs often like to use the terms active investors and value-add, but don’t always define what these terms mean. In our situation, we have been very active participants and can provide references and case studies. Some of the things we have done to assist our portfolio companies include:
• Sourcing and engaging Board members, Advisory Board members and Senior Management
• Leading syndicated financings with angels, VCs and other institutions
• Forming and negotiating engagements with Investment Bankers
• Leading IPOs and M&A transactions including actively leading exits
• Introducing strategic partners and helping negotiate and manage strategic partnerships
• Sourcing additional IP
• Managing legal and other advisors
• Leading the implementation of governance processes
• Advising on regulatory matters
• Generating media exposure and leading public relations efforts
• Helping develop investor relations materials and generating presence in the investment community
Our goal is to help you grow your company and move aggressively towards an optimized exit that benefits all of the stakeholders in the company, whether by sale of the company or initial public offering.
How do you feel about the public markets?
All of the Partners in our team have significant capital and public markets expertise, and have been involved in numerous IPOs on the Toronto Stock Exchange, NASDAQ, AMEX, AIM and the TSX Venture, among others. We are not shy of using the public markets as financing vehicles for our portfolio companies, and will invest in public companies as well. We believe that any prudent Board member of a company that is in the process of raising money should consider all avenues, including the public markets.
What kind of reporting do you want?
Assuming we have a Board seat, we rely on two levels of reporting. Firstly, the regular Board reports that you will provide to all of your Board members. We have worked one on one with our portfolio company CEOs to help them refine the reporting process for their Boards to make the information useful, and the process efficient. Secondly, we will reach out to our CEOs on a regular basis for one on one updates. The better informed we are, the more value we believe we can add.
The only additional reporting item we like from technology and industrial companies is a Monthly Report to be provided to us within 10 days of the end of each month. The format was developed by us, but has been adopted by many companies in the technology community. The form is available for your review here.
Can you provide a general overview of your due diligence review process?
Once we have engaged with a company, we complete our review process fairly quickly. We have closed financings from first contact to close in less than 30 days. More typically, it will take us 60 to 90 days to complete the process.
The process will vary with the circumstances, but will usually follow these steps:
1. You submit your initial materials – Executive Summary and Investor Presentation. As noted under “How Do I Engage Advantage?”, if you tailor your materials to the forms we prefer, it will speed up the process.
2. Our partners serve as Fund Managers. Each investment is lead by one Fund Manager. A Fund Manager will pick up your opportunity and the first decision point is whether to have you in for an initial presentation. If not, we will let you know as soon as we can that we are not proceeding any further. There are considerable demands on our time and some of them, such as managing our existing portfolio and fund-raising, can take precedence over seeing new opportunities. As such, it may take us a few weeks to get back to you from first contact.
3. If one of our Fund Managers decides to champion your company, he will contact you to come in for an initial presentation to several members of our team. We will give you guidance on what we are looking for in that initial presentation so that is as useful as possible for ourselves and for you, and we encourage you to follow that guidance. The main purpose of the initial meeting is to help us to decide if we wish to dive deeper into your opportunity. We do not expect you to answer all of our questions at that stage, and will limit the session to what is necessary to make that decision.
4. If we decide to move forward after the initial presentation, we will provide you with a list of due diligence questions and materials that we would like to see. If we identify any potential “show-stoppers” as we go through the due diligence process, we may halt the review and deal with those before proceeding further. The intention here is to make sure that we don’t waste your time or ours if something significant comes up that would stop us from investing.
5. As we go through the due diligence process, we will have several in person due diligence sessions with members of your team. These will be working sessions and not presentations and will be used to address the items coming up in our review.
6. Once we have finished our due diligence review, we will schedule a final presentation for you to come in and present to our Fund Manager Partners. We will give you guidance on what we would like to cover in that presentation and will focus on the specific items of interest identified in our due diligence review. Please note that all of our investments must be approved by all four Partners so this final presentation is very important. It is not an academic step and several investment opportunities that have gone through due diligence have not passed this final step.
Our goal is to make the process as fast and efficient as possible, and provide visibility to the companies we work with. We must stress that until we have completed our approval process, there is no guarantee that we will invest.
Can you provide some additional insight into how your due diligence review process works?
We understand the time commitment that the due diligence process means to a company, so we have worked hard to make the process as efficient as we can. We will provide you with a list of due diligence materials we would like to see, and a list of due diligence steps we will need to take. We will be open and transparent in our processes.
As we are very people driven investors, we like to conduct one on one, in person, interviews with each member of your senior management team. We may also want to interview your Board members and Advisory Board members as well. We also like to make as many customer and strategic partner calls that we can, and will ask for your assistance in organizing them and qualifying those calls. We are sensitive to making demands on your customers or partners and we understand that these relationships are extremely important to you, so we will work with you to make sure these calls are handled professionally.
Once we sift through the initial materials you provide us, and conduct our own independent research, we will generate several rounds of follow-up due diligence questions. We will provide these to you in written form. We have found that the best way to address these questions is a combined approach of written responses from you, provided with supporting materials, and in-person due diligence sessions. The latter used to address the questions that are better answered by dialogue rather than a written response.
Our internal investment approval process centers around an Internal Due Diligence Report that we prepare from the information you provide, the due diligence calls and sessions we have, and the research we do. We may send you some templates throughout the process to complete for us which we will in turn use in our Report. While we can complete these templates ourselves from the information you provide, our review will go much faster, and you will be able to ensure the information is properly explained and represented, by helping us complete these templates. The Internal Due Diligence Report is the core document the lead Fund Manager provides to our Partners when seeking approval for investment into your company.
How does your investment approval process work?
It is important to note that our being fully engaged in due diligence on your company should not be interpreted as a sign that we will invest - only that we may invest. Ideally, for both your sake and ours, we would prefer not to launch into full due diligence unless the end result is an investment in your company. However, our experience has shown us that that is simply not possible. What we do promise is to conduct our review professionally, sensitive to your interests, and to be as fast and efficient as we can.
We have two levels of approval:
1. All investments must be approved by all of our Fund Manager Partners. One Partner will “champion” the investment and lead the due diligence process internally, but the final decision requires unanimous approval of all Partners. On the completion of our due diligence review, the lead Fund Manager will provide a written Internal Due Diligence Report to the other Partners with a recommendation regarding the investment. You will be invited in for a final presentation to all Partners which will focus on the key due diligence issues we have identified. On the completion of that process, we will let you know if we are going to invest or not, or if we have any further follow-up issues to address. Approval is not academic at this stage even with a recommendation by the lead Fund Manager.
2. First (but not necessarily all follow-on) iInvestments into a company require the approval of our Investment Committee. Our IC is comprised of the independent members of our Board. Companies do not present to our IC. Instead, they present to the four Partners and if the Partners approve the investment, they recommend it and the Lead Fund Manager presents it to the IC for approval. Approval by the IC is not academic even with a recommendation of the Partners, and we have had investments get to this stage and not complete.
Once we have approved the investment, we will work quickly with you to close.
Do you always want Preferred Shares?
The simple answer is “No”. We have invested in common shares as well as preferred shares, and have pioneered a form of “convertible common” share that we use in early stage investments. The latter can convert into preferred shares if the company ends up going that route in later financings, or can remain a garden variety common share if the company is able to finance without ever issuing preferred shares. This protects the early investors from being hurt in subsequent rounds, while allowing the company to keep a clean cap table in early rounds. As we commonly syndicate with angels and friends and family in our early rounds, we welcome them acquiring the same kind and class of shares we do so that we are all aligned.
While we often use preferred shares for later rounds, we are very open to discussing what these terms look like. We do not follow a hard and fast template, and have tailored terms specifically in many cases to meet the competing requirements of both the existing shareholders and new investors. We have come up with some very creative structures to allow us to achieve the returns we desire, without resorting to the standard VC preferred share terms that are often repeated deal after deal without regard to the circumstances.
Why would I do business with Advantage?
Our Mission Statement and Values summarize it best:
To maximize financial returns to our investors by investing in, and helping build, successful and profitable companies.
Honesty and Integrity - As stewards of our investors’ money, we hold ourselves to the highest standard of honesty and integrity. We are always truthful and do what we say we will do. We conduct ourselves at all times in a way that instills trust and confidence in our capabilities and values.
Fairness - We treat our investors, investment advisors, employees and other stakeholders fairly. If there is any conflict between the welfare of our investors or investment advisors and that of ourselves, we put their welfare before our own.
Professionalism - We are professional fund managers and company builders. Everything we do reflects our commitment to excellence. We support and challenge each other to create a successful organization and achieve shared goals. We bring our "A" game every day and take pride in our work and achievements.
Relationships - We place great value on our relationships and strive for mutually beneficial outcomes. We believe in open, forthright and timely communication with our partners and we welcome and give each other helpful feedback so that we learn from one another and continuously improve.
Respect and Learning - People are our greatest asset. We respect and listen to team members and other stakeholders. Our working environment is fast paced, fun and provides continuous opportunity to grow, learn and succeed. We show appreciation for one another regularly, and we recognize and celebrate our wins, both big and small.