As equity funding has become increasingly scarce, some founders are continuing to find ways to raise capital.
Three founders spoke with Entrevestor about their experiences raising investment, with all three reporting that advance preparation and strategic planning had proven crucial to the process.
Retellio’s founding team includes two alumni of Newfoundland’s first unicorn. TheraPBios reimagined its product line before raising. And Rise spent much of last year re-evaluating its offerings in pursuit of profitability.
“The last 12 months have been pretty game-changing for us,” said Rise CEO Matt Daigle of his company, which sells green environmentally-friendly building materials.
“We’ve become really obsessed with profitability.“When you’re growing an online store, there’s this old notion that it’s about bringing in as many people as possible. But after a while of doing that, we realized that we really need to focus on the quality of our orders.”
All three companies have been raising money amid turbulent market conditions for the innovation sector. Macro-economic problems like high interest rates, inflated valuations and the threat of tariffs from the United States continue to plague startups across Canada. Compounding the issues are funding woes unique to the Atlantic Canadian ecosystem.
Data from the Canadian Venture Capital and Private Equity Association shows East Coast startups raised an anemic $23 million in the fourth quarter, weaker than many recent quarters, while the annual total dropped for the third year in a row to $176 million.
Key VC shops like Concrete Ventures and Build Ventures are tapped out on their existing funds and unable to invest in new companies. Others are known to Entrevestor to be at or near capacity. And Atlantic Canada continues to lack a pan-regional angel network. Yet some companies and funds are coming together to do financing deals. Invest Nova Scotia told us it has closed eight VC financings since the start of its fiscal year last April.
St. John’s
Brent Pretty and Andrea King
Retellio's Andrea King and Brent Pretty have created AI-based software that can monitor other companies’ sales calls and package key feedback from their clients into podcasts for decision-makers and employees.
Beyond a high-growth sector like AI, King said in a recent interview the prior experience she and Pretty bring to business has given them a crucial leg-up in putting together their latest, $1.3 million funding package.
Both are alumni of cybersecurity unicorn Verafin, which was sold to Nasdaq for a remarkable US$2.75 billion in 2021, making it one of the most valuable companies in Newfoundland history. Pretty was Verafin’s lead product manager for AI workflow automation. King was head of customer marketing, training and onboarding for Verafin and went on to lead Nasdaq’s media and government relations team.
“I think we had it probably easier than other startups, simply because Brent and I both worked at Verafin,” said King of the duo’s pedigree. “We’re also both a bit older, so we’ve got the experience going into Retellio.”
The duo’s raise was also underpinned by a pivot from an earlier business model focused on AI agents. In January of this year, the company launched its new product to what she described as a positive reception, with double-digit numbers of customers signing on in short order.
“We’re focused on finding product market fit, and once we see that traction take hold, we’ll pour gas on the fire and start spending more to get more users,” she said of Retellio’s current focus on capital efficiency.
Windsor, NS
Abdullah Kirumira and Glyn Davies
TheraPBios PHARMA, which is likewise meeting with success in its angel fundraising efforts, is also approaching investors on the basis of a successful pivot as founders Abdullah Kirumira and Glyn Davies prepare to seek a larger tranche of VC funding.
Chief Operating Officer Glyn Davies said in an interview that TheraPBios has spent the last year pivoting to a different product format with the aim of making the business more scalable, and consequently, more venture-backable.
TheraPBios originally sold a “ready-to-drink” probiotic liquid intended to double as a replacement for a range of about 30 dietary supplements. And while that offering is still available to buyers, it came with downsides.
As Kirumira and Davies looked to expand the business into Ontario last year, they discovered the liquid formulation of TheraPBios was difficult to transport compared to the powdered or capsule-based supplements it was competing with. Not only was it heavier, but crucially, it required refrigeration.
That also meant Bioteem40, as they call their product, was competing for very limited refrigeration space in supplement and health food retailers. And because the consumers who usually bought supplements were unfamiliar with the “ready-to-drink” liquid format, many were hesitant to try it or unsure how to incorporate it into their routines.
So, Kirumira and Davies pivoted to focus their efforts on a second product that would offer the same health benefits as their first, but in a more conventional powdered form. The new formulation also has the benefit of a longer shelf life, allowing retailers to buy inventory knowing they can stock it for as long as they need to in order to sell through.
Just under a year after raising a $600,000 round of angel investment, TheraPBios is set to close another, smaller angel deal underpinned by the success of its powdered formulas. In total, TheraPBios will have raised more than $1 million so far.
“By closing this second angel round, we’ll give ourselves four or five months to really check off some milestones,” Davies said. “That includes successful distribution in Ontario, opening up doors in the U.S. market and pushing some of our product out west.
“Having checked off those milestones should raise the value of our company — to where we don’t have to part with as many of our shares to get the money we need to expand.”
Davies added the reason they have raised a second round of angel funding, largely from existing strategic investors, is to ensure that when the company does seek institutional capital, they are well-positioned to make the most of the opportunities they find.
Raising too much money at lower valuations means fewer shares to sell later at higher values. So to protect existing investors and maximize the benefits of an eventual VC raise, he and Kirumira are aiming to first prove out the value of the business with robust sales numbers and strong growth.
“We want to make sure that our company is in a position where we’re not parting with too many shares at too low a price to keep it fair to our shareholders,” said Davies.
“Because when we look to continuously scale through three, four, five rounds of investment, each of those should come with a higher valuation so that everyone is not diluting their shares.”
Fredericton
Matt Daigle
Rise, the Fredericton B-Corp that runs an e-commerce platform for sustainable home renovation materials, took similar care to lay the groundwork for its current raise by focusing on improving its profitability. Sales were already strong, CEO Matt Daigle said in an interview, but there was room to improve the company’s margins and general operating efficiency.
“It’s very regimented,” he said. “On a weekly basis, we analyze every single one of our orders. … We go through each order individually, and we figure out what the true net margin of that sale was, including any advertising costs that we would have incurred.
“That allows us to eliminate ad spend for products that aren’t necessarily profitable and allows us to redirect our attention to products that are.”
Rise sells more than 12,000 products in its online storefront to buyers throughout North America, with every supplier relationship governed by a different agreement. Over the summer, Daigle and his three-person team sifted through each of those products and evaluated the net margin they were making off it.
In some cases, offerings with large sizes or bulky form-factors could be profitably shipped to some locations, but not others. Daigle cited the example of a water heater that could only be feasibly sold to buyers east of Virginia
Now, Rise is building on that groundwork by raising $1 million, with more than half currently committed coming from a mix of new and returning backers.
That raise, Daigle added, has also hinged significantly on New Brunswick’s Small Business Investor Tax Credit, highlighting the role government policy can play in attracting investors. Until the end of this month, backers who sign on to Rise’s funding round can receive a personal income tax credit worth 50 per cent of their investment.
“In my mind, that’s what brought the funds in that we’ve received to date," said Daigle of the tax credit, adding that every backer of Rise’s latest round is based in New Brunswick. “If I compare it to other years, I’d say we’ve had a lot more ‘yes’s’ than ‘nos.’
“Although I would say the pool hasn’t necessarily gotten any bigger. We are still in a very small province.”
Even with the tax credit to sweeten the deal, though, as with Retellio and TheraPBios, investors’ confidence in Rise’s leadership has also proven to be a key factor in Rise’s investment round.
“Oftentimes, it’s about who likes the team,” he said. “Do they believe in the company, where it’s going, the traction and the momentum?”
