If ever you plan on raising capital to fund your start up or venture you will have to consider this blog post I have out here. raising capital is not an easy thing as there is a lot of competition involved and entrepreneurs may feel overwhelmed or discouraged to do so. here are 10 secrets i have learnt in the years i have helped businesses to raise capital.
SECRET #1: Who are you dealing with?
Every capital provider, be they an angel, venture capitalist, private equity firm, or your favorite crazy, rich uncle, has their own set of investment guidelines they follow when making investments. You should learn as much as you can about the people you will be asking to become a part of your company. In today’s internet age everyone has a website. Visit the on-line home to potential investors to learn about them and their investment strategies. They will do the same to you. Typical rules include geographic focus, investment stage preference, lead/follow-on investor, minimum and maximum investment amount, industry focus and board seat requirements. Make sure that the strategy of the firms you are targeting match your funding needs. Use the Bplans to automate this exercise.
SECRET #2: Get personal
If you’re cold calling, stop the insanity! It just doesn’t work. You’ll hear the expression, “Deals thrown over the transom,” more than once. It means someone just tosses their business plan over the door hoping someone finds it, reads it, falls in love with it and funds it. We built Bplans to eliminate this practice by selecting quality business opportunities and matching them with quality investors. Capital providers are looking for good investments and tend to prioritize personal introductions.
SECRET #3: Get to the point, will you?
You’ve secured your first meeting with the person with the money. Hooray! Now, get right to the point. Time is money and if you’ve gotten this far, don’t waste their time or yours. I’ve sat through countless meetings with a capital seeker looking for money; they usually have a great idea or concept, but can’t articulate it and loses me in minutia. Be crisp. Be clear on what you do, who buys your products, how you make money, and how you plan to grow. Keep presentations under 12 slides and executive summaries under 2 pages. Guy Kawasaki talked about this in his 10-20-30 rule. He says when presenting your business plan to a potential investor, use 10 slides and present them in 20 minutes and use a font size of 30 which means you won’t be using a lot of text
SECRET #4: Is your team the right team?
Does your founding team have the passion you do, or does Cousin Eddie think he can help because he has known someone who knows someone? If you don’t have people on board that have the unique combination of experience, passion and who are smarter than you, it’s going to be a tough grind. You don’t have to have a complete executive team, that’s what the new money is for. Be flexible and be willing to listen and give up some portion of the deal to the capital seekers…and don’t think they’re interested in giving you a simple loan and you’ll pay them back when it gets huge, that’s for rookies. One of my old mentors, the late, and very great Hy Federman used to say, “Money is honey, use the company’s paper as wampum for trade. Never be afraid to give up equity for cash.” It’s true.
SECRET #5: I’m different…I really am!
If you don’t know who your competition is and why you’re better than they are, at least after funding, then save the trip. Everyone has competitors. Those that say they have no competitors are not believable. Directly present yours and the measurable difference your product or service offers. Identify them, don’t be afraid of them, and make your deal better than theirs. After all they were there first and can be picked apart for weaknesses.
SECRET #6: The ROI
What is your value proposition to the customer? How does your business save time or money or both? What is the cost to the customer of not using your product or service? Show the investor how valuable your product or service is to the market you address.
SECRET #7: The real market size may not be as big as you think
Who exactly are your customers and what is the real market you are serving? Don’t be expansive. Be realistic. What is the exact size of the addressable market of purchasers of your product or service? Don’t use “fuzzy math”. If you tell the capital provider “if we capture 1 zillionth of 1% of the market we’ll make billions!” your credibility will be called into question. The people with the money have resources necessary to corroborate or refute your claims. After all they have the money for a reason.
SECRET #8: Know your numbers!
How will your company spend the money and how does this all come together to break even and make a profit? Explain the key business drivers such as number of customers, sales per customer, cost per customer etc. Show a bottom-up analysis of how many customers you need to hit your numbers. Be prepared to discuss what you would do with more money and how you could make it with less, which is usually what the capital provider wants to know.
SECRET #9: Tell me how I exit
These days, the public exit strategy is dead, and I mean DEAD! Don’t even go there. Assume the only way for your investors to realize a return (what this is really all about) is an acquisition of this wonderful business you are going to create. Provide tangible examples of recent and related acquisitions by at least three different categories of potential acquirers (suppliers, distributors, competitors). Be prepared to cite five companies in each category to show that there are plenty of viable of exit options. Oh, and don’t forget to tell the investor the time line to harvest his reward.
SECRET #10: Valuations come last
Valuations for startups and early stage deals are virtually worthless, so don’t get too excited. If there is virtually no operating history and financial data is spotty, be realistic. DO NOT use the words “it’s based on conservative numbers”. Early stage valuations are subjective, so get over it. Your first round of investors will probably own 30%-50% of the business.
Keep these 10 points in mind when you set out to build your business plan, build your company and seek the capital you need to forward it.