What They Look For
Here are some of the factors that angels and venture capital firms may use in evaluating your business. Even if you are not seeking venture capital funding, you should consider these factors.
• Feasibility. Do you have a sound product, a defined market, and a means to bring the product to market? Some companies define their
Market too broadly or cite volumes of meaningless industry market size and growth data.
• Scalability. Is the business scalable? What is the company's potential for growth? Can the business be ramped up to a larger market or is the market small by definition? Is it a lifestyle business like a small restaurant? (You can still raise capital but not from a venture capitalist.) What is the size of the market and will it accept your product?
• Experienced Management. Does the management have sufficient experience to implement its business plan? Is this a situation of running vs. learning? Is the inexperience of management partially offset by the depth of the board of directors or advisory board?
• Market Risk. Is the market risk of the business acceptable? What are the risk reducers that come into play here?
• Viable Exit Strategy. Does the company have a viable exit strategy? How are the investors going to realize a substantial return and how long is their investment going to be illiquid? For example, is the company's exit strategy to have a public offering or merger within five to ten years?
• Value Engine. What are the basic economics of the business? How conversant is the management with the industry and its economics? What is the channel of distribution? Is the distribution channel already established or is missionary selling necessary to establish the channel?
• Intellectual or Human Capital. What is the raw intellectual capability of the company? There has been a recent trend to assess the human capital in an organization. Remember that, notwithstanding your beautiful business plan, smart investors invest in people, not plans.
• Commitment. What is your commitment to the project? Do you have the ability and the motivation to give the intense focus necessary to make this company happen? If not, all the other factors are irrelevant. How are you sharing in the risk? Do you have your own money in the company?
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Figure 7.2: FUNDRAISING: A REAL WORLD EXAMPLE
Eric Delisle is the former CEO of Digibelly, Inc., an innovative software firm that provided websites and e-commerce solutions to small businesses. In raising capital for his company, this is what he learned.
One of the most important things I learned in fundraising was to focus on a few primary things.
The early stage investors buy YOU. Focus on integrity and knowledge. Tell the TRUTH always. ESPECIALLY when you don't know something. Be proud of the fact that you, at least, know it is something you don't know but are willing to learn.
Know what you are talking about. Do your study and research so you are confident. It will show through in your presentation. If you are not good with numbers, have a business accountant hold YOUR hand through building your projections and use as much detail as you can muster.
Be sure to understand your risks. I recommend writing your own risk analysis document. This is a big list of What if... questions that you answer to the best of your ability. When you begin making presentations to investors, they will typically ask the same questions repeatedly from one investor to the next. If you already have their questions written down BEFORE they ask them, and you can show them your best guess of how you will handle the challenge, they will not need to ask many more questions.
Know what your exit is. One of the most important things is to have a planned exit. Whatever your planned exit is, be sure you begin with the end in mind. All investors have one thing in common—they invest expecting a positive return on their investment that they can use for something else. They don't invest because they want to tie their money up in something where they can't get it back out!
Be committed, not desperate. Don't EVER put yourself in a position where you only have one investor that you are counting on to come through without having other prospects. Investors want the best deal that others want too. The best way to accomplish this is to have at least five solid investor leads being juggled at the same time and try not to fall below that number. When one falls out, even if you still have four active, go out and start two new prospects.
Don't give presentations to anyone who can't write a check. There is no free lunch or easy way to get someone else to raise the money for you. So, if you are constantly looking to present your offer to people who would like to hear
About it, or think they know someone they can talk to, or haven't told you they could invest personally if the deal was right, DON'T waste your time presenting to them or handing out business plans. Generally, business plans don't sell your investment. YOU sell your investment.
And finally...
ASK for the money. If you give a presentation, ask for the investment. I can't count the number of investor presentations I have seen where the business owner gets to the end and says, Well, that's our company. Thank you for coming. And everyone in the room gets up and walks out. Try this phrase..."Mr. Investor, I don't know if you will invest in my company, but IF YOU DID, how much would you be interested in investing?"
If you follow all of these points, you are head and shoulders above the average person asking someone to invest in their business and you will most likely earn those investors because of it. Good luck.5
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