- What is our business model?
- VCF's philosophy is to work with entrepreneurs for a period of approximately 12 to 18 months on a
consulting basis within well defined business disciplines including strategic planning, business
development and corporate finance. Our observation is that it takes this amount of time to prepare a
business for professional investors such as private equity and institutional investors or to land the first key
customer or contracts. Also, VCF prefers to takes this amount of time to evaluate the management team for
their ability, acumen and personal traits in order to ascertain a comfort level for a longer term commitment.
- Why does it take 12 to 18 months to develop a strategic model?
- Branding a product, developing a proper marketing strategy, mentoring the entrepreneurial team,
developing infrastructure, or hiring key people all takes time and needs to be done correctly. Mistakes are
very common at this stage - so taking time to develop and institutionalizing proper business practices is
prudent - to avoid further lost time down the road. - VCF also believes that the Canadian context plays an important role in our assessment of a "incubation"
time. New firms whether they are start-ups or entering into Canada to expand their corporate footprint face a
number of inherent challenges. These include: a GDP 1/10th the size of the U.S.; a competitive landscape
entrenched with "blue-chip" firms (including the branding and "best business practices" associated with
such marquee names); a conservative attitude towards risk taking; a highly regulated financial services
sector; and high tax rates which prohibit wealth formation including the development of a sizable private
equity pool relative to the U.S.
- What stage of business development does VCF get involved in?
- VCF currently prefers early stage (seed) companies. However, we do look at all stages and mature firms for
traditional consulting contracts. Currently, we do not provide any financing for later stage companies unless
they have an interest in our "sweat" financing arrangement. - For direct investment considerations, VCF only prefers firms which have not exceeded their exemption
requirements under the closely held issuer provision of the OSC code.
- Can you elaborate further about VCF's concept of "sweat financing"?
- In early stage companies, VCF's experience has shown that companies are strapped for cash flow. Outside
consultants typically charge between $100 - $500 or more per hour in advisory fees. Hiring a full-time
executive can cost anywhere from $75k to $200k depending on what they bring to the table. In order to ease
the pressure, VCF has developed creative solutions as part of our corporate finance package. First, we can
provide you with "sweat" financing in exchange for the right of taking an equity stake in your company -
commonly referred to as "sweat equity". Alternatively, entrepreneurs that do no wish to give up equity in their
company are provided with another "financing" package. VCF can enter into revenue sharing or licensing
agreements to develop a defined market such as an exclusive geographic area. These initiatives entitle the
entrepreneurial team to engage VCF's managing director as a fiduciary executive advisor within pre-defined
business disciplines. VCF waives the traditional hourly advisory fees, retainers, salary and other direct
expenses in exchange for a "piece of the pie". VCF considers this as a form of deferred compensation with
built in and laddered incentives given the high future growth rates associated with information technology
start-ups. From a start-ups perspective, this can be viewed as a form of "reverse financing" by taking direct
costs off the income statement and; consequently, fits well with VCF's concept of a corporate finance
solution.
- At what point will VCF consider taking a direct equity stake in a early stage company?
- As indicated previously, VCF takes approximately 12 to 18 months to evaluate a strategic partner and its
products/services. Our approach is designed to develop a "close" professional relationship to mutually
assess long term commitments. - Within the 12 to 18 month working phase between VCF and its' strategic partner, VCF will evaluate if it will
exercise an option to take an equity stake in its' strategic partner This will depend on a variety of factors
including VCF's operating cash flows, revenues generated from the partnership, our assessment of the
start-ups chances of success and any regulatory considerations. - VCF may also choose to opt out of the relationship at that point. VCF typically will have an "opt out" clause in
contracts with our strategic partners within the 12-18 month time frame. If we feel that the firms probability of
success does not meet our expectations or that we cannot work with the management team for various
reasons, we will exercise the "opt out" clause
- Can you elaborate further about VCF exercising an option to take an equity stake in a strategic partner?
- VCF may negotiate a built-in option to take an equity stake in a strategic partner within the 12-18 month
evaluation period. This will be above and beyond any "sweat" financing arrangements that may have been
negotiated with the early stage company. - The option may have a pre-negotiated strike price or built in discount to a later round of financing.
- VCF will reserve the right to let the option expire and not invest any funds in the strategic partner.
- The start-up will be responsible for issuing the equity option and complying with any regulatory
requirements which may govern its operation in a particular jurisdiction.
- Will VCF's strategic partners always have to negotiate an equity option or give up an equity stake to VCF?
- No, VCF may simply be providing a well defined advisory service for the client or some sort of revenue
sharing or licensing arrangement with no further contingencies.
- How much will VCF typically invest in a strategic partner if it does exercise the equity option?
- VCF''s business model is to selectively negotiate an option which permits the right but not obligation to
invest between $10,000 to $50,000 in an early stage (seed) company. Our initial assessment for late
2009/FY 2010 is that our investment range will likely be between $10,000 to $30,000 if VCF chooses to
negotiate and subsequently exercise an equity option with a strategic partner. This will be limited to a single
strategic partner that meets our criteria. Again, this will occur within the 12-18 month working evaluation
period of the firms' management and products/services. Also, this will depend on a number of factors
including VCF's operating cash flow, revenues generated from the partnership, our assessment of the start-
ups chances of success and any regulatory considerations. VCF reserves the right to change these
estimates without notice based on the conditions mentioned herein and our perception of the overall
environment for technology firms. VCF also reserves the right to withdraw this offering at any time without
any notice.
- Why does VCF not invest in a start-up from the inception of the business relationship?
- Our assessment is that the risk and probability of failure is simply too high at this point. Also, VCF needs
time to assess the founders of the company in order to ascertain if they have "the right stuff" and whether the
product/service has customer acceptance.
- How does "VCF accelerate technology centric ventures"?
- One way to answer this question is to describe what we are not. VCF is not an incubator or accelerator in
the traditional sense. We do not provide office infrastructure, on-site support to strategic partners or up-front
equity financing. Instead,. VCF prefers to conduct its' work as a strategic business partner through virtual
means and creative "sweat" financing. - We "accelerate" technology centric ventures primarily through our experience, contacts, creativity and
"sweat". We will roll up our sleeves, provide innovative ideas/solutions and get involved in key areas such
as business development which assist the start-up in opening new markets or developing the first key
customers. - Given the advancement in technology, VCF experience shows that much work can be "accelerated" virtually
over the Internet, through modern day communications or using robust software applications.
- Which niche area is VCF looking to establish strategic partnerships with start-up firms?
- VCF is looking for start-ups that provide robust, intelligent and cutting edge software solutions primarily for
the financial services and asset management sector.
- What do you look for in a management team?
- VCF prefers that the entrepreneurial team come from an academic/professional background or the
product/service has been developed from an academia setting. VCF believes that the rigour, discipline and
peer review process of an academia environment provides the most fertile ground to develop early stage
firms which meet our criteria. - VCF looks for integrity, honesty and high degree of emotional and intellectual capability
- VCF evaluates prospective clients on their open mindedness, flexibility and willingness to try different
strategies. In our option, multiple approaches and tactics need to be tried in order to succeed as no one
idea ensures success.
- How often does VCF engage in Strategic Partnerships?
- VCF's preference is to add one additional strategic partner every 12-18 months. We are currently looking for
a new strategic partner for the 4th quarter of 2009. Our strategy will evolve as VCF grows and matures.
- Is VCF interested in other sectors other than Financial Services and Asset Management?
- Yes, we are interested in other sectors that encompass information technology.
- Does VCF get involved in later stage companies or established public/private companies?
- Yes, VCF will provide consulting services to more mature companies. Our compensation will adjust to a
more traditional model with an hourly/contract structure and a retainer fee.
- How much does VCF charge for advisory services to established public/private companies?
- In order to engage VCF's managing director, a fee of U.S $350 per hour plus expenses and a retainer is the
required compensation. The fee is negotiable for long duration contracts extending beyond 1 year with
equity incentives and other upside "kickers".
- Yes, VCF's treasury consulting area will provide services to high net worth families (HNW's), endowment
funds, pension funds, hedge funds in addition to the treasury group of a public/private corporation.
- VCF brings key attributes to the table including creativity, resourcefulness and unwavering business ethics.
VCF's position is that these attributes are the key ingredients which act as a "catalyst" to building a
business venture into something of enduring value.
- VCF can be characterized as primarily a boutique consulting company. VCF's long term plans are to evolve
the company into the venture capital space. - VCF is not a "venture capital or venture catalyst fund" and does not provide institutional level funding
associated with such funds.
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Venture Catalyst Finance Inc.
