The essentials of raising capital
Monday, 14 April 2008
By Gail Geronimos
An entrepreneur I met at a lunch earlier this week asked me a great question… “I’m a bit confused about exactly what I’m supposed to do when I meet with investors. What are the basic rules that I need to obey?”
And it can be confusing. So here’s two lists that have worked for me.
The essential 6 do’s of raising capital
1. Work out exactly how much money you need. To do this you’ll need to prepare a set of financials – profit and loss, cash flow, balance sheet, sales forecast details. And be able to say what you want the money for. Basically, you need to have some form of business plan before you make that first meeting with an investor. (See www.planforprofitnow.com for more tips.)
2. Give the investor the executive summary and have a PowerPoint presentation ready – no more than 15 slides in 15 minutes. Keep both short and sharp. Succinctness is the secret of success here. (See www.pitchingtoinvestors.com for more tips.)
3. Ask for 60 minutes, and no more. That is all that you need for the 1st meeting.
4. Be professional – check the room before (if possible), be on time, dress well, make sure all your technology works (projector, computer, etc).
5. If you feel you need a non-disclosure agreement executed before the meeting, don’t be surprised that the prospective investor might want you to sign their own, rather than yours. If you see 100 or more companies a year, you can imagine how hard it would be for the investor to execute 100 different NDAs.
6. Do your homework on the investor. Check out their website, find out their investment strategies, talk to other entrepreneurs about the investors, contact companies they have invested in (very carefully), go to networking events.
The essential 9 things that you must not do…
1. Don’t send a 10 page NDA to prospective investors. This is the deal; investors promise to not steal your idea or tell a competitor about it, they promise to keep your private data private, and they promise not to poach staff they meet during the process. That shouldn’t take 10 pages to document. Their professional reputation is your best protection. If you are nervous about their integrity then don’t go to them.
2. If you don’t have your business plan with detailed financial forecasts, then don’t ask for the meeting. It doesn’t matter how good your technology is and what the circumstances might be. Investors need to assess your company and they need a business plan to do that.
3. Don’t organise a meeting if your pitch is not very, very convincing. Your fate will be determined by how well you pitch in this 60 minute meeting.
(For the record… I know that I have repeated these two points. There’s a very good reason for that. THEY ARE IMPORTANT.)
4. Don’t compare yourself to Google, as in: “What we’re doing is more robust than Google,” “What we’re doing is harder than Google,” or “We are going to be the next Google.”
5. Don’t go alone. It’s OK to have two or three people, but no more. You’ll need the support and it will show that you have a strong team behind you.
6. Don’t disappoint the prospective investors. Follow up on everything from the meeting – send them material that you promised on time, let them know what’s happening, keep in touch, respect their comments.
7. Don’t make wild claims. For example: “We’ll generate $50 million in just two years.” They’ll think that you’ve cracked, or worse that you don’t know what you’re talking about.
8. When talking future valuation, don’t use numbers that involve “billions”. As in, “we’ll be worth north of a billion by 2012”. People will think – fair or not – that you’re on drugs.
9. Don’t be offended if the investor turns you down, as long as they are polite about it. There is nothing personal in a rejection.
These are the essential issues. Follow these do’s and don’ts and you’ll be on the right track.
Till next week…
Gail Geronimos, is the founder of Achaeus, which helps entrepreneurs develop their businesses and she has just started a new site www.pitchingtoinvestors.com with tools and tips about how to develop killer presentations to raise capital.
To read more Gail Geronimos blogs, click here.
Comments
Reuben Buchanan writes: The pitch just like the skin on an apple. It’s just the surface – it’s whats inside the apple that will get you the money. If you impress investors with your pitch, you are about 5% there in terms of getting the money. A good pitch will ensure you don’t get pushed off the investors desk that day. Savvy investors (those who see 100 proposals a year) will then ask for info that backs up your pitch such as management profiles, historical financials, projections, valuation model, share capital structure, contracts, IP, etc etc. So a good pitch is essential however you’ll stumble at the next block if you don’t have your house in order. Even more so in the current market.
Gail replies: You're absolutely right. In my view you don't do a pitch until you have a thorough and well thought out plan. It's not so much the plan but the information that you need to gather during the planning process. The process also forces you to make decisions about your business. Magic happens when you write something down.
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