You want money? Get Noticed!

How do you get funding to
start a business? How do you differentiate your business so as to get noticed
by investors? Investors look at a a lot deals before they find one
to fund. You need to position yourself as a hot company. To do this you to need
to show visibility in the market, create a buzz in the community and show your
business has momentum.

Visibility:

Visibility is about having a
presence in the market. Your ability to show that you are serving an unserved
segment of the market and with an infusion of capital you will be able to scale
operations to a point where you can be a significant enough player to generate
exponential returns. How can your business dominate a market? Do your homework
and be specific with your answer. Don’t talk in abstract terms about how you
are going to reach customers. In the “New Economy” of
1999 investors funded branding. In the current “New, New Economy” investors
fund results and the abilty to execute.

 Many start-ups don’t understand this and feel that
they can only get into the market after they have received funding. Not so.
There are alternatives to venture funding to get started. First is ‘FF&F”,
Friends, Family and Founder. Talk to friends and family, use your credit cards
or take out a home mortgages to get funds. This isn’t comfortable for everyone
but if you aren’t willing to put yourself on the line for your business why
should someone else?

 Another
alternative is “strategic partners / customers”. Strategic partners will often
provide funding to get you up and running so that you can provide a service
that can help their business. They will often do this for an equity stake in
your company. Strategic partners can also help you fill some of the voids that
emerging businesses have in terms of technology or management. They also can
give you presence in the market or visibility.

Buzz: 

 Creating a
buzz is done through your ability to tell your company’s story and your ability
to get others to tell your story. To create a buzz you need to have a good
elevator pitch. What needs to be in an elevator pitch?

  • What does your company do? Keep it focused, simple and don’t use technical jargon.
  • Why is your company different?
  • How are your products compelling and to which buyers?
  • What has changed in the market that you will be able to serve?
  • Who are you competitors and how will they be defeated?
  •  When and what will the payout be?

Momentum: 

 Show you
are going to have great returns. A key for creating momentum is to master
marketing. Decide what specific programs can move your company forward. Create
a validation or milestones around these events that lead to revenue and profit
generation. These milestones will drive your funding. The obvious examples are
revenue targets. For very early stage companies other events such as technology
development or customer acquisition may be appropriate milestones.

 Final
thoughts for pitching investors. First, you need to maintain focus. What is the
business, how will it make money and how much. Venture capitalists look to make
5 to 10 times their investment so you have to show them the money.

Second, you must cast a wide net. Fund raising is a
process and the odds of scoring on your first attempt are remote. It often
becomes a numbers game even for quality businesses. It is not uncommon to make
dozens of pitches before you score funding.

 Finally,
do a great job when you pitch your business plan. Practice, practice, practice.
Do your presentation for others and get feedback. Tape your presentation and
watch it so you can see areas for improvement.

How do you know
an entrepreneur is pitching? Their lips are moving.  To be successful in
fundraising you need to be persistent and pitch your business concept at every
opportunity. There are millionaires  who could fund your idea  in
unlikely places.  You never know who you will be next to on your next elevator
ride so be prepared and have a good story ready.

 

Turn Ideas into Deals

I’m often pitched by entrepreneurs who have great ideas (and some that don’t) but are living in fantasy land when it comes to raising money because they haven’t articulated how they would turn their idea into a fundable deal.  The key is to make it easy for the investor to say yes.  Speak to the investor about things that are important to them.  Don’t try to convince them that everything they know and have experienced with early stage companies is wrong and you know better.

Here is a list of do’s and don’ts when pitching an investor.

Why Me:  Why did you select this particular investor to pitch?  Do you have specific reasons you selected them or did you just stumble over them?  You should show that you are focused on the right investors for your industry/business, not just to getting the money and the best valuation.  Remember, the wealthier the Angel the more concerned they are about their protecting their time.  They are “time impoverished” and you have to cram your way into their calendar so when you get to them be respectful of their time and make the right pitch.

Father of the Year:  Are you into work/life balance?  Are you going to be at every one of little Jimmy’s soccer games?  That is great!  Don’t ask for money.  An investor wants to hear two things:

• WIT, I will do “whatever it takes” to make this business successful.

• NEM, “Nothing else matters” more than this business being a success.

An investor wants you to give all you have for 24 to 36 months.  Once you cash out with your millions you can head to the islands and relax until then its full throttle.

What are you reading?  Is you favorite book “Good to Great”?  Are you interested in building a great, lasting company?  Don’t ask for money.  Investors want to see an end in sight and a path to an exit with a significant return.  If you are a serial entrepreneur who has the desire to build multiple companies and create value for “all” involved you are on the right track for investment.  Remember, investors don’t like recaps as an exit strategy so don’t even bring that up.

Is it more important to be CEO or for this company to be successful?  The litmus test is do you have such a great passion that the idea succeed (because it is so important to the team and society) that you would be willing to step aside as CEO if needed.  If it is more important for you to be the CEO don’t ask for money.

If you give me money and buy my common stock and I guarantee you will never be diluted.
  Unless your exit is tomorrow common stock insults professional investors so save that for the employee pool.  Also, the last money in sets the rules so promising no dilution is not realistic.  You will probably need more cash if you are truly building a significant opportunity and dilution is part of the deal.  The key isn’t how big your piece is, it’s how big the pie will be at the end. 

ROI vs. R”OF”I:  ROI is a great number and you usually see it in presentations but it is really a mathematical calculation.  When pitching focus on R”OF”I, return "of" investment.  Discuss the exit.  Work back from when the investor will get their money back.   Often times during initial pitches the investor will assume that your product is the greatest innovation since fire.  What you need to convince them is that there is somebody out there that will buy your product and that the company will be a big score.  Once you get investors interested you can get into the tech-speak on the product.

The money is needed to create an iron clad patent:  Patents are nice to have but in reality a patent is only as good as your ability to defend it.  I’d rather hear how you are going to out-execute your competition instead of how you are setting yourself up to spend more money on the defending the IP.  Remember, IP is the lawyer’s best friend.

While some of the suggestions might sound like 1999 .com speak, they aren’t.  You still must create value for the customer and execute like any other business but there are special rules for investable businesses.  If you are seeking investment it is your job as the entrepreneur is to show that your opportunity will create a great deal for the investor.  Show them your product is an aspirin not a vitamin.  Vitamins are nice and make you healthier but you don’t need them.  Aspirins really relieve pain.  It’s the same in business.  Are you improving a process that is working OK now or are you truly curing a pain for your customer?  If you follow these few simple rules you will improve your chances of successfully landing investment.