Canadian Entrepreneurs Need to Toughen Up or Face Extinction - It's Not Personal, It's Just Business

People often ask me:

"Paul, why do VCs seem so scary?"

I gave a speech in Ottawa a few weeks ago, focused on the 7 things that entrepreneurs needed to understand about VCs and the startup business. It was direct and honest. And while I spend most of my time talking to entrepreneurs, it was the first time I had structured my thoughts in that way, and it was the first time I would be delivering it to a Canadian audience.

The result was surprising. Many entrepreneurs in the room were shocked - at the candidness of the delivery, and at the content itself. If Canadian entrepreneurs want to survive these tough times, that is a very bad sign. Here are some of the lines that attendees gasped at:

• "...I am not your friend..."
• This is absolutely correct. Your investor is not your friend. In fact, your investor SHOULD NOT be your friend. Entrepreneurs get very emotionally attached to their businesses and to their people. That passion and emotional drive is what makes entrepreneurs great. However, that emotion can also cloud an entrepreneurs judgement in difficult situations. It is far better for the business to have a VC who is somewhat removed, and can look at things objectively, rather than worry about his friend. Of course, this doesn't mean that VC and entrepreneur don't have to get along. I spend a LOT of time with my portfolio companies and only invest in people that I know I would love to work with. If you asked them, I think they would say the same about me. I shouldn't have to be your friend to get your business - we just have to make a great team in terms of working together.
• "...greed is good...all I care about is making my 10x return..."
• This once again, is absolutely correct, yet lost on many Canadian entrepreneurs. My only motivation is the desire to make money. It's what I'm paid to do. No breach of ethics, just a focus on returns. In tough times, this becomes even more significant. VCs today want to build real businesses with real business models. 
• "...cash is more important than your mother..."
• This is true in good times, and even more true in bad times. The startups that survive are the ones that focus on cash flow. Cutting costs to conserve cash, and doing whatever it takes to build the top line. VCs all over the world have had discussions with their portfolio companies in the last few weeks about cash. In the startup game, cash is truly more important than anything else. You may love your mother very much (as I do), but she won't help your business survive. If you want to build a great business, focus on cash.

I love Canada, I love canadian entrepreneurs, and I want to see the startup environment here flourish. When we invest in companies, we often see ourselves as a founder, and get involved accordingly, working every day to help our entrepreneurs build their businesses. But when I give the same exact lines to US entrepreneurs, they don't even blink. They understand the beast. That understanding makes them tougher and more resilient to downturns. That understanding makes it easier for them to raise funding. 

Canadian entrepreneurs need to start building that toughness. The world is a scary place, with competition and failure lurking around every corner. Be afraid of your competitor, not the VC who wants to make a huge return (and you very wealthy in the process). Be afraid of the investor who tells you everything you want to hear, not the VC who gives you the big picture perspective by removing the emotion factor and can help you make the tough decisions. 

Get tough, and you'll survive.