| |JUNE 20228CIOReviewIN MY OPINIONDespite - or in some cases, thanks to - the COVID-19 pandemic, the Innovation sector continues to benefit from the entrepreneurial spirit that's woven into the fabric of America's business culture. Startups have been attracting disruptive entrepreneurs since the 1980s when Silicon Valley was the only place to succeed unless one came from substantial family wealth. Just as technology innovation has evolved, making it much easier to bring start-ups to market, so has the financing landscape. There are now more venture capital funds than at any other time, LOOKING TO FINANCE A TECH STARTUP? YOUR TIMING MAY BE JUST RIGHTBy Kurt Nichols, Managing Director, Portfolio Manager, CIBC Innovation Banking with almost $80 billion in 2020 - a new high, according to VentureMonitor. While the majority of that capital was raised by established funds, investment in new venture funds remained robust, with a record $32.7 billion raised across 141 funds in the first quarter, setting up 2021 to surpass last year's milestone. Several new and established private equity (PE), growth equity, and venture debt funds have emerged to target investments in Software as a Service (SaaS) businesses. Some estimate that undeployed PE capital (i.e. dry powder) has now reached almost $2 trillion globally. The commercial banking landscape has also changed, with a dedicated handful of financial institutions offering loans to cash flow negative companies without asking for personal guaranties from founders or investors. Here are the financing options available, and insight into each. Venture Capital ­ The best-known source of financing for early-stage software companies, these funds also reserve capital for additional cash injections and are often willing to continue to invest in a company when certain milestones are achieved (i.e. revenue growth and gross margin improvements). These investors typically seek minority stakes with a preferred class of equity accompanied by a liquidity preference upon sale. This option has the highest "cost-of-capital" and involves different constraints than you might see from other financing tools. VCs have a long investment horizon at 7-10 years, and tend to be focused on revenue growth. Private/Growth Equity Funds ­ Usually follow an early-stage Venture Fund, coming in at a later stage and invariably need to reserve proportionally less capital for follow-on investments than their VC colleagues ­ unless capital is required for acquisitions, at which point their generally larger-sized funds show their flexibility. Some Kurt Nichols
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