tips for Canadian entrepreneurs

An important part of launching a company is deciding who owns what. When you have multiple owners or when giving out shares to employees, you need to have a shareholder agreement in place.

This is not as well understood among entrepreneurs as you might hope. I have two clients who recently came to me to look at their proposed share structure because they had an inkling something was off. They were right. The share structure included non-voting shares – that’s a non-starter when it comes to raising money. After all, who is going to buy non-voting shares in a company?

The basics of a shareholder agreement and corporate governance

For those who may not be entirely sure what a shareholder agreement is, let’s go over some basics. The shareholder agreement sets basic rules about how the company is governed. For instance:

• Who sits on the board?
• How are directors selected?
• When can shareholders sell their shares?
• Can shareholders be forced to sell their shares?
• Who has the authority to make certain kinds of major decisions for the company, such as changing the firm’s strategic direction?

The shareholders agreement is a vital document for a private company. After a company goes public, that company will be governed by securities regulations.

Do Canadian entrepreneurs need to up their game? That’s the conclusion from a recent Vancouver Sun article that caught my attention, though I disagree with the premise; it’s more accurate to say that we still need to work on building a business environment that helps entrepreneurs thrive.

Here’s an excerpt:

“Then it becomes interesting. I’m a big supporter of the Vancouver tech community and I feel like we have a really good base here. But in the end, the only thing we can do to accelerate the development is attracting better entrepreneurs and more entrepreneurs to Vancouver. The more talented entrepreneurs we can get into town, the better.” Senia Rapisarda shares that sentiment.

The vice -president for strategic initiatives and investments at Business Development Bank of Canada, Rapisarda said that while Canadians have the technology and skill to compete in the high-tech market they are “a bit behind” when it comes to fostering development of what she described as “serial entrepreneurs.”

“Doing something, being successful and coming back for more, or doing something, failing, and coming back for more. We don’t have a lot of those, and we need them.”

I don’t think the problem is a lack of entrepreneurial spirit in Canada or even parts of the USA outside of traditional business hubs. If somebody tries to make it as an entrepreneur, fails and keeps failing, they still have to put food on the table. No one wants to keep banging their heads against the wall, so would-be entrepreneurs go back to working for others. The main stumbling block to creating serial entrepreneurs is how to provide an environment that supports entrepreneurship.

How to Develop an Entrepreneur-Friendly Business Environment

How do we develop an environment that creates more entrepreneurs and give these aspiring entrepreneurs (and serial entrepreneurs) an  edge? Here are a few ideas:

• Get people thinking about entrepreneurship earlier. Think back to high school or your childhood and when someone asked you what you were going to be when you grew up. How many of us listed a type of job rather than “starting a business”?
• Educate entrepreneurs about the resources that are available, such as government grants like SRED that help companies get the most out of limited budgets. All entrepreneurs understand the concept of bootstrapping, but not all understand that they can apply for funding even before they are ready to raise capital.
• Promote mentoring. The knowledge and wisdom of a board of advisors can be as critical to success as the raising of capital. There are some avenues for startups to take advantage of these knowledge resources through organizations like New Ventures BC, but these opportunities have plenty of room for expansion.
• Fail Fast; but fail cheaply. Entrepreneurs need to know the benefits of doing market research and how it can avoid costly mistakes. Make this business analysis tool set a fundamental part of any new and existing enterprise to minimize risks and increase value propositions. We know entrepreneurs rarely consider it an important element of business success.  Companies should be encouraged by funders and advisers to do market assessments, market validations, new product development research, customer segmentation and other research activities to make better decisions.

What else can we do to provide a more supportive environment for entrepreneurs? Leave a comment