Creating a smooth path to funding for technology companies

Technology companies need to make good governance a priority to improve funding opportunities, which drives growth and innovation. However, with the evolving nature of business and its various demands, knowing which governance practices to prioritize and when can be a challenge. But there is help available.

What governance practices matter at each stage of growth

Depending on where a company is in its lifecycle, different governance priorities will dictate where to focus limited resources:

• Emerging company seeking angel investment—Angel investors primarily look to invest in founders and, more importantly, their vision. As a result, angel investors are unlikely to have high expectations for a business’s financial documentation and forecasting, and policies at the early stages of the cycle. However, beginning to develop accurate financial data and implementing robust policies, processes, and controls at this stage will help attract later-stage investment.
• Scaling company seeking venture capital (VC) investment—Venture capital (VC) firms look to obtain higher potential returns in exchange for taking more risk earlier in a company lifecycle. They tend to be more sophisticated and obtain larger stakes in the company. With the risk that VCs take comes additional scrutiny. Therefore, VCs will typically want to see more robust financial statements, financial models, and relevant financial documentation for valuations and equity transactions. VC firms often expect more experienced management teams and the beginning of scalable internal processes to manage and mitigate risk. It’s even more essential for companies that operate outside of Canada as this can compound risks and complexity.
• Growth company seeking private equity (PE) investment or an initial public offering (IPO)—At the growth stage, companies will often consider two paths: finding a PE investor or going public.
  • Private equity investment—Getting ahead of PE firms’ expectations enables companies to attract a better PE fund, therefore boosting the investment opportunity and their success. When a company seeks PE investment, it knows that the investment will bring in additional stakeholders. These stakeholders bring their experience to drive company growth, but they have high expectations for the business and its overall performance. These expectations will likely include providing accurate financial information, implementing robust controls and processes, and installing a board of directors.
  • Going public—To improve the value of an IPO and prevent any future loss in value and confidence, it’s vital for companies going public to get their house in order. A company should start planning 18 to 30 months ahead of an IPO. Going public requires historical, current, and future financial statements to be audited and reviewed on a frequent and timely basis and compiled in adherence to accounting standards in the jurisdiction the company will list. In addition, a board of directors with public company experience is required to promote sound decision making and risk management for the benefit of the company and shareholders.