Freel aroused knowing smiles among other financiers who addressed the gathering by adding, “We don’t believe in forecasts that much. But we do believe in proven track records. Even if a company is new, if their managers have done commendable things in their roles in the past, this might just be enough to secure financing.”

Freel said ARC, like all financial houses, is also concerned with the strength of business plans and whether they are in “alignment” with a company’s timeline, vision and motivation. The money managers also look at the capital financing structure. “We would like to see some leverage. A debt to equity ratio of 35 per cent used to be the rule of thumb. That is coming back now.”

Freel’s sentiments were echoed by Terry Freeman, managing director of Northern Plains Capital, a private equity firm with a focus on early stage investments in the energy services and industrials sector. Since his investment house deals with smaller investments and less proven firms, Freeman added that when he is considering a commitment he is concerned with whether the potential deal involves a proven product and whether the target market is well understood.

Ventures seeking financing had better do their research, Freeman insisted. To obtain investment, it is essential to understand the nature of the product or service market involved. That has to include knowledge of competitors, the size of the target market and the potential share that can be captured. There are types of companies that Northern Plains just won’t finance. Those include the three S’s, a trio of crowded fields: seismic, software and science-project products that still require large amounts of research and development.

Bill Addington, executive vice president of Canadian Western Bank, said that his even more conservative establishment looks at the financial capacity built into a company’s capital structure when considering a potential investment. Like other senior lenders, CWB looks for historical track records.

Firms that are not usually good candidates for the bank’s support are “greenfield startups,” or entirely new facilities where none exist, said Addington. But there can be exceptions, he added. A strong management team with a proven track record might mitigate the risk seen in projects by his bank.

One-trick ponies automatically wave a warning flag in the eyes of Northern Plains, said Freeman. Too much reliance on one client makes a company risky for investors. “One customer cannot penetrate a market.” And the risk that the single customer might abandon the service or supply provider is also far too great for most financiers to take on, he said.

Another problem arises if a company has multiple shareholders that have differing goals and visions. Freeman said this usually augurs trouble and often indicates that the company will flounder when looking for direction as different hands grasp at the steering wheel.

The money managers also advised the Edmonton entrepreneurs that when their companies are looking for investors, they must really know who they are approaching and what they are seeking. It is essential to know what type of capital is needed and who will be most likely to provide it.

“There sometimes is a disconnect between what a company needs and what the financial world provides,” said Freel. “You have to match your financing needs to who you are approaching.”

An underlying theme of all the money managers was expressed in plain speech by Bruce McDonald, global energy chief of Canaccord Adams. The firm is wary of risk, whether it comes from over-exposure to a single asset or any other sources.

“It is risk that can’t be financed in this marketplace,” McDonald stated.

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