Seed Series Part 3

Seed Series Part III:

What Alberta’s Early-Stage Funding Gap Means For Founders

Bryan Slauko, CFA, May 2020

Hand holding Coin in a glass jar with growing tree with green nature as background

Let’s talk about Alberta’s funding gap.

Traditional venture capital has lost relevance for most early-stage startups in Alberta.

Many have invested their own hard-earned money and raised more from family and friends. They’ve built great momentum and are on-the-cusp of commercialization and growth. But they face an impossible paradox – they need funding to generate revenue but can’t get funding until they have more revenue. How did we end up in this situation? What is the reality facing most of Alberta’s early-stage founders?

Alberta has a relatively young ecosystem and under-developed early-stage capital market that is extremely hard to navigate. Options are limited. It’s left many founders feeling stranded and will continue to do so until we build a more robust local and regional early-stage capital market. Part 3 of our Seed Series examines some of the reasons we’re in this situation and what this means for Alberta’s founders.

$500,000 is the New $5 Million

The cost to start a new venture has dramatically declined thanks to open source, cloud solutions, and new distribution channels. Today’s early-stage startups initially need less capital to get started. $500,000 in the new $5.0 million. This is demonstrated in the figure below from Kauffman Fellows, when we compare the ‘Old Paradigm’ to the ‘Startup 2.0 Paradigm’.

Need for Capital Graph

As we made clear in Part 1 of our Seed Series, startup capital needs have decreased at a time when traditional venture capital funds are getting larger and investing in bigger and later stage deals. The seed-stage funding gap left by these diverging trends means that a founder’s path in accessing traditional venture capital funding to scale up their business has dramatically changed.

When Might Traditional VC Become an Option?

Years ago, traditional venture capital would consider a Series A investment once a founder could demonstrate proof of concept and some early form of product-market fit and market validation. They were comfortable taking earlier stage risks and could fund what used to be much larger round sizes efficiently.

With startup costs drastically lower today and venture capital fund sizes much larger, it is not economical for a $300+ million fund to execute its investment strategy by making $500,000 investments. They need to invest $5 to $10 million at a time to deploy their capital efficiently. The only way to do that is to move further to the right in the figure above and invest at a later stage of development when capital needs are greater.

Unfortunately for founders today, this means they need to achieve further major development milestones before a traditional Series A venture capital investment is likely. These are illustrated above and include:

1) A final working version of a product.

2) A strong and growing customer base and distribution system.

3) Meaningful revenue and a strong sales ramp to evidence both.

These milestones also require a bigger team to achieve them. All of this requires money. This shift and the resulting early-stage funding gap are best summarized in the image below from Unusual Ventures.

This is a major shift that the Alberta funding ecosystem needs to understand. We hear and read a lot about venture capital and how hot the VC industry is. The truth is, venture capital is not accessible or a funding option today for the vast majority of companies in Alberta’s ecosystem. The breadth of the funding gap between pre-traction and post-traction companies is wider than ever.

Is Revenue Really That Critical to Traditional VC Funds?

While traditional Series A venture capital funds may make occasional investments in pre-revenue or early-revenue businesses, more and more of their investments are made into companies generating revenue. The chart below demonstrates the percentage of portfolio investments made by venture funds in the U.S. generating revenue at the time they received a Series A investment.

    • In the U.S., 76% of new Series A investments are now made in companies generating revenue. This is a massive increase from only 14% in 2011. It is also a strong indicator of how far more mature companies are today when they receive a Series A investment.

Graph of % of series A Generating Revenue - USA

The study is based on details of 6,456 financings at 3,389 companies invested in by one of 21 elite U.S.-based venture firms over a 10-year period.

While similar Canadian data is not readily available, similar trends are likely given the large increase in the average venture capital investment size over the last 9 years (see Part 1 of our Seed Series).

What does ‘meaningful revenue’ mean?

There is no single answer and there are always exceptions. However, it is not uncommon for most traditional Series A venture capital funds to want to see a minimum of $2 million in annual revenue in their portfolio companies.

Alberta’s Early-Stage Startups are Stranded

Alberta’s early-stage startups are in a very difficult position. Reaching $2 million in revenue is not an easy task, especially for many founders who lack the sales and marketing expertise needed to get there. Finding enough capital to grow and achieve the above milestones often feels impossible. Friends and family investments are not enough to bridge this funding gap, so where will founders find the solution when these initial sources of capital are already exhausted?

Earlier-stage capital is typically easiest to source from local investors.

With a relatively young ecosystem and many local investors who are inexperienced at investing in the ecosystem, Alberta’s early-stage capital market is small, fragile and extremely hard to navigate.

Angel investors traditionally invest at this stage but even angel groups are moving further up the funding gap and looking for meaningful revenue in their portfolio companies today.

Options are extremely limited. Finding a local or regional lead investor who will invest in a pre-revenue or early-revenue situation is a major challenge. Raising early-stage equity in Alberta’s ecosystem without a meaningful lead investor in place is extremely difficult. Many give up, leave the province, or see opportunity pass them by because they’ve spent so much time looking for investment.

Alberta needs more full-time, professional investors focused on leading local investments at this stage. This will encourage additional capital to step off the sidelines, where so much of our province’s wealth is sitting, and help close the funding gap.

Government Funding Programs Can’t be Unlocked

Funding available through various government funded programs at organizations such as Alberta Innovates, Tecterra and IRAP, is critical for early-stage startups. These programs may fund up to 75% of the cost of a project provided a founder can fund the other 25% through equity. If companies can’t raise the equity to meet the matching requirements, funding doesn’t get advanced.

Without access to venture capital funding and limited other early-stage funding options to find equity investment, early-stage founders are having difficulty unlocking these critical, and often non-dilutive, funding sources. Growth is delayed and investors miss out on the opportunity to leverage these programs into stronger returns on the equity invested in these businesses.

The Keys to Unlocking Equity Investment

There is some positive momentum but the foundation of the early-stage capital market for investment in Alberta’s ecosystem remains very weak and underdeveloped. Much of the net worth in Alberta is unfamiliar with investing in innovation outside of the energy sector and remains on the sidelines. How can founders help mobilize this capital when speaking to investors, and start to close the funding gap?

1) Know Why You Exist

      • Clearly articulate your company’s purpose and the values that drive you and your business decisions.

      • Use your story to be relatable to your audience.

      • Make an emotional connection. Buying decisions are based on emotion not logic.

2) Focus on Business Fundamentals

      • Build your business with a path to positive cash flow and profitability in mind.

      • Understand unit economics in your business to build systemic, long-term value.

      • Own a single target market and know your ideal customer profiles.

3) Keep it Simple

      • Keep it simple enough that your 12-year-old could understand your story.

      • Find a way to relate your product or service to your audience and their experiences.

      • Know your audience. Alberta is more conservative than Silicon Valley.

4) Make it Easy for Investors to Say Yes

      • Be conservative with valuation.

      • Demonstrate strong alignment of interests between founders and investors.

      • Be open, honest and transparent in your communications.

5) Find a Meaningful Lead Investor

      • Very few like to be first. It’s a lot easier to get investors to commit when you already have a strong lead investor in place.

      • A strong lead investor will be contributing at least 20-30% of your round.

This is all difficult to execute on effectively and there is no easy answer. Finding a lead investor is especially difficult given the challenges in Alberta’s early-stage capital market. Knowing these challenges, founders need to work extra hard to do these things well, stand out from a lot of competition out there to raise money, and rise to the top of the minds of potential investors.



Metiquity Ventures is a Calgary-based early-stage growth equity fund partnering with innovators to modernize the regional funding ecosystem, unlock emerging growth potential and protect our families’ futures.

We partner with innovators in emerging innovation hubs who are creating long-term, systemic business value and are on the cusp of commercialization and significant growth, regardless of industry. We focus on early-stage investments where we can amplify the impact of our expertise and help partner companies accelerate growth by implementing the efficient use of systems, processes, and a well-defined purpose. We make meaningful lead investments in up-and-coming companies using technology to digitally transform and fundamentally disrupt the way traditional industries operate.


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