Investing in Early Stage Start Ups in Canada
What do you aspire to?
You might have heard of the phrase accredited investor before, but what does it mean? In a nutshell, it is a Know Your Customer (KYC) type test that financial professionals use to vet individuals seeking to acquire an equity position in a closely held and potentially high risk company. Not necessarily because they care about your well being and ability to assume risk, it is regulated under federal law to do so.
Some might say the government is looking out for you and your hard earned savings, but I'd like to think they want you to stay dependent on your earned income and registered retirement savings accounts - both of which keep you in the highest tax brackets possible while funneling your money into the hands of high touch, high fee "advisors" (read: salespeople) who work for banks that are very effective at lobbying for the right to write the language in laws such as NI 45-106 - Prospectus Exemptions.
Perhaps I am just cynical.
A sample of my rules for early stage investing
Investing in early stage private companies is a fabulous way to lose money if you do it wrong, but it is also a very interesting way to level up your personal net worth on multiple metrics - financial, skills, knowledge, network, advisor bench strength, and so on if you can be disciplined and get it correct.
I am constantly meeting with small business owners and founders, looking for my next acquisition. But every now and then I come across a start up or early stage opportunity that is simply too compelling to pass up. I might do one or two of these deals a year, if I am lucky. I do this in the way that jack plants his magic beans, they are more or less moonshots that are economically binary - it will either go to zero or 5 - 10x. That, and I do not expect any of these beans to sprout into tempting looking stalks before seven years minimum. So naturally, I only take the bean if I can lose the capital, wait 7 years for a return, it appears to have at least a 5 - 10x return within that horizon, has an exceptional team, and offers some of those other intangibles I mentioned above to help ease the pain in the event the dice come up snake eyes.
Four Questions from someone REALLY Good
Four questions I use to help me evaluate such opportunities were laid out by Jason Calacanis in his excellent book Angel. Go buy it.
1. Why has this founder chosen this business?
2. How committed is this founder?
3. What are this founder’s chances of succeeding in this business—and in life?
4. What does winning look like in terms of revenue and my return?
MyFirstSeven Opportunities for Exempt Investors
Would you like to be alerted when I have made a pledge of interest towards an opportunity that fits the above profile? Just drop me a note at firstname.lastname@example.org and I will be happy to do so.