Mina Keriakos, Invotrax vice-president of marketing and sales (Darren Brown, OBJ).

Less early-stage seed money means more companies must rely on themselves to get their products to market and many wouldn't have it any other way.

Bootstrapping, as it's commonly called, is becoming more prevalent as venture capital levels remain depressed and angel investors lick their wounds from the last bust.

Family, friends, banks, tax credits and small governmental funding programs all serve to get the ball rolling, but as research and development plods on, money becomes scarce and struggling organizations have to find other ways to keep going.

Lori O'Neill, a partner at Deloitte & Touche LLP, said she sees a trend.

"There are more companies bootstrapping now. Will it continue is the question. I think that in the short term it'll stay like this because there's less early-stage seed money and some companies don't want to go that way in the first place. They're either not ready yet or they want to develop their technology before going down the path for VC money."

Ms O'Neill, who specializes in the tech sector, explained that many startups fear losing too much control by bringing in outside investors too early in the game.

"They have to give up a lot with VC money. Sometimes they have to give up their autonomy. I think a lot of companies should see what kind of options they have before going that way."

She said her company tries to maximize any kind of money available to young companies, whether it be through networking or taking full advantage of what the government has to offer.

"We do a lot of general business advice and offer introductions to lawyers, bankers, CFOs – whatever their needs may be. Tax credits can be fairly lucrative and refundable as well. A lot of companies aren't optimizing them as well as they could be."

Further, cash flow can be accessed through a company's own resources while development is underway.

"Now, more of them than before do get customer funding through consulting revenue, service and other means. That helps fund development."

Most importantly, though, Ms O'Neill urges her clients to complete a thorough investigation of any apparent angel investors who may have ulterior motives for financing.

"It's a matter of understanding the alternatives and knowing your business plan when you decide whether you need financing. The key is to know what you're getting into. Do your homework and find out what kind of company (the investors) are, who they've financed and what they expect in return."

Sheldon Stevens, self-described "Virtual CFO" for five companies, including DNA Genotek, said new companies hoping to bypass the VC route must be able to accomplish three main tasks if they wish to be successful – self-sufficiency, quickness and a product in demand.

"You need to have a product that people need and want. You know, designing a cool widget with all the bells and whistles is very nice and it may really be cool, but if it doesn't really do anything you're not going to make any money."

He agreed with Ms O'Neill that a concrete business plan, good common sense and the ability to generate some kind of revenue all pave the road to success.

"The ability to raise early-stage money is getting tougher and tougher," he said, "and the definition of early stage is getting later and later.

"You need solid business fundamentals and you need a good product. Many companies make money selling services such as consulting before going to trial. Once you have some money in the bank, you can make it stretch."

Debbie Weinstein, senior partner at law firm Labarge Weinstein LLP, pointed to Ottawa's Hivva Technologies as an example of a company that has put itself through the school of hard knocks while developing products for market. While it has received some assistance, the duo who have put everything together have done so on a wing and a prayer.

"They're two very successful engineers who are a great example of two guys putting their money together and building a company," she said. "They had very little seed money – a couple hundred thousand – and they're now at the crossroads. They haven't come out of the tunnel yet, but they're determined to do it on their own."

In a recent story in the Ottawa Business Journal, Ms Weinstein and others spoke of a seed-money drought in the tech sector. She predicted more and more companies would have to find ways to research and develop their products without angel investors handing over millions to get them there.

Now she adds that many new companies are actively trying to bypass the handouts in order to keep firmer control of their own destinies.

"There are those who think they can get alpha, beta and even go to trial with customers, and only then go for venture capital so they don't end up diluted. They realize if they come with a more robust product and customers instead of a $2-million valuation, they may get a $6-million valuation. There are only a limited number of investors out there."

Almonte -based Invotrax has just released the Digital Clothing Assistant (DCA). The first-ever DCA has been set up in the changing rooms of Buffalo Jeans' flagship store in Carrefour Laval Mall in Montreal.

Shoppers of the mall now have the opportunity of using the DCA for a unique shopping experience. When they enter the change room, a touch screen in the room displays all the garments they have brought in to try on. The innovative aspect of the DCA is the information it displays on the touch screen. The system will make suggestions of in-stock clothing and accessories that complement the garment displayed on the screen. With a simple touch, customers can mix and match garments and decide on the outfit that suits them best.

A product of the Foundry Program of Carlton University, Invotrax now feels ready to seek venture capital after a year of funding strictly through the school. Co-founder Anuj Nijhawan, who is also in charge of business development, said the university's program is the sole reason the DCA is in trial.

"The foundry program gives you financial support and the support of MBA students and businesspeople that have become successful," he said. "They help you plan a marketing strategy, polish it up and they give you support on how to commercialize the product and how to deal with the media. The knowledge was a great benefit."

Mr. Nijhawan said the success of the program can be attributed to the old adage, "what goes around comes around."

"As soon as success is achieved, it will be up to us to go back and help the next ones. We would definitely pitch in volunteering or with financial support."

With the first unit in trials and talks underway to place units in 10 more Buffalo Jeans stores, including one in Ottawa, the five founders of Invotrax are looking for an investor, knowing what the consequences could be.

"That's part of the game," Mr. Nijhawan said. "No one is going to give you money for free. You have to play the game."

That said, "You would rather be a small part of something big than a big part of nothing."

By Scott Taylor

scott.taylor@transcontinental.ca