Ideas To Deals

When To Jump

One of the keys to launching a business is knowing when to make the jump into the market.  I usually run into either the entrepreneur that wants to rush in or the one that wants to over-think everything.  One will want to know the answer to every question and continually build, rebuild and delay the launch.  The other usually uses more of a "Field of Dreams" strategy...if we build it they will come.

I don't think there is any one thing that will let you know it is time to jump and launch your business.  There are many factors that should be considered and these often vary by type of business.  The way to identify and address the issues specific to your business is through preparation.

If you think about a long jumper they spend time in advance getting their steps down so that when they are ready to jump they hit the board at the right place to allow them to get the maximum distance without either leaving precious distance on the runway or fouling.  They have gone down the practice runway thousands of times both in real life and in their minds before they jump in competition.   This preparation is what will allow them to be confident that they are ready and will hit the board where they should when they jump so they can succeed.  You can do the same thing.  Preparation in a business case will include knowing your market and how you are going to address that market.  The more you know about your customers they better you will be able to execute when you do launch.  Advanced research and interactions with prospective customers will allow you to avoid many costly stops and restarts after launch.  Note...stops and restarts after launch equal unexpected expenses and lost revenue, not a good thing.

Preparation also allows you to create your own game.  In the Chris Brogan / Julien Smith book Trust Agents they talk about setting your own rules.  More now than ever before you are able to change the rules of the game through use of social media tools.   These game changing tools can allow you to bring your message to more people than ever before for less money than ever before.  However, I have always said that just having the tools will not make you successful.  It is the strategy in employing those tools that will make you successful.  By understanding where you want your business to go you can come up with innovative ways to promote your concepts, ideas and brand.  You can determine where your customers are and how to best communicate and reach them. Without this knowledge you may be taking shots in the dark.  As a business owner you want to hit the target more often than not, preparation allows you to do that.

So when is the right time to jump?  When you have identified your entrepreneurial passion and coupled it with strategic, customer focused preparation you will be ready to jump and succeed.

Ideas To Deals...Live

Ideas to Deals Live...It's pretty cool to have an event that takes the concepts of my blog and brings them to life in a live training.  Granted, I created the event so maybe it's not really that cool but still...

Over the past three weeks we have been discussing issues relating to building an investment ready business. We have covered topics such as seeking government SBIR funding, structuring your business to accept investment and how to approach and pitch investors. 

Its often difficult to control various parts of the fund raising process.  One thing you can control is your level of knowledge.  You need to know what is going on in the mind of the person across the table from you.  Some of this only comes with experience but as long as you take every opportunity to learn you will be in a better position.  Below is my PowerPoint presentation relating to approaching and pitching investors, hopefully this will help. 

Ideas To Deals 8 27

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If you have questions or recommendations please leave a comment.  Let's learn from each other.

Don't Be Stupid...Do the Opposite

I was meeting with Tom Williams, CEO of InnoGage, and he mentioned that Microsoft's guidance for it's employees for using social media is..."Don't Be Stupid".  That got me thinking about early stage companies seeking investment capital.  Companies can do all the things right to be successful in raising capital and it can all go out the window if they do something stupid.  OK what if they think what they are doing is right but it is really wrong?  When you are seeking investment you need to do like George Costanza said..."Do the Opposite".  "If every instinct you have is wrong, the opposite must be correct."  Maybe a better way to look at it is to take off your entrepreneur shoes (the ones that make you think the business is a can't miss) and put on the shoes of the investor (the ones that need convinced the business can succeed).  What would you want to see in a plan or presentation? Investors are looking for reasons to say  no sooner rather than later.  The quicker they can find a reason to say no the quicker they are on to the next deal that might be a yes.  

Aside from the obvious things (insulting the investor's mother, kicking their dog on the way into the meeting, etc.) here is a list of stupid things not to do when raising capital.

• Asking the investor to sign a Non-Disclosure at the first meeting: The first meeting is a get-to-know meeting.  You need to generate interest and get to the next meeting.  You don't need to reveal the secret sauce at the first meeting.  Once an investor in interested they will gladly sign the NDA, until then, frankly it's annoying...next.
• Your total market is greater then the total population of the planet: Unless you are planning to scale and sell on other planets this could be a problem (I have heard this by the way)...next.
• Not being able to discuss the business proposition: If all you have is a technology and all you can talk about is the technology you still have a lot of work to do.  Investors are interested in the "deal".  You have to be able to articulate how you fit into the market, how you will succeed and how you will generate significant returns.  This doesn't need to be totally complete but you should be able to talk about the business of your idea of how it will work.  No saying "This is cool" is not enough...next.
• Not understanding what it means to scale a business: So many entrepreneurs think they can get to critical mass with one single investment then they are going to grow with internally generated capital.  Funding is like gasoline, it makes the business go and go fast.  If you really want to scale (Read "Go Big or Go Home" by Wil Schroter to learn what scale means) you are going to run out of gas with only one seed stage investment.  As an investor I want the car to go fast not stall out...next.
• Every dollar of investor money isn't driving growth: Don't tell the investor you want to buy office chairs, give money to charity, payoff existing debt, etc with their money. When it comes to non-growth activities the investor will tell you how they want their money spent...next.
• Creativity: Creativity itself is a great thing but not in your business plan and for sure not in your financial statements.  Good investors know what they want to see in a financial statement and their eyes go straight there.  If you have some strange way you have structured your plan and they can not easily find the information they are looking for they may think you are hiding something...next.
• Valuation: You need $250,000 to build a prototype and your valuation is $20 million, get real...next.

What you need to do is be smart.  Seek advice from those that have been there and done that.  Focus on how you are going to execute. Do your homework.  Be clear and concise.  If you feel the urge to do something stupid...stick to the opposite.

Navigating the Mysterious World of VC...Are You Prepared?

I'm sitting in the Caribou Coffee on Lane Avenue doing some work before heading over to TechColumbus for my usual Monday morning meetings.  One thing I always like to do is scan my blog reader for anything that I may have missed over the weekend.  The upcoming TechColumbus "e-Track" luncheon series caught my eye.  That reminded me about a great blog written by Dan Casey an "Entrepreneur in Residence" at TechColumbus (it doesn't hurt that Dan just walked in either).  An Entrepreneur-in-Residence (EIR) is an experienced and successful businessperson offering expertise, advice and encouragement to individuals building new ventures.  Dan brings a great deal of entrepreneurial and senior management experience to the funded TechStart companies here in central Ohio.  Dan's blog is called "The EIR Corner, A Resource for Entrepreneurship".  Dan covers a variety of topics important to building a high growth business.  Much of this information is a mystery if is your first time seeking investment.  If you are considering testing the investment waters this is a MUST read. The topics covered in his blog are (I've linked each topic):

• Term Sheet Topics
• Top Seven Capital-Raising Mistakes
• Valuation
• Learning to Let Go
• Elements of Sustainable Companies
• 10 Rules for Business Success
• The PowerPoint Introduction
• Lifestyle Business
• Coachability
• Searching for the Exit
• Due Diligence
• Dilution
• Business Plan Thoughts 
• Building a Business Plan
• The Elevator Pitch

You've all heard the saying that you only get one chance to make a first impression.  When it comes to seeking investment you don't want to make a BAD first impression because you don't know what you are talking about.  I have seen entrepreneurs say and do the wrong thing in a first meeting and not be taken seriously again. Remember that venture capitalists and angels invest in people and teams that can execute.  You want to go into meetings doing things for the correct reason.  If you have done your homework and the investor doesn't agree with the valuation, structure, etc. you can either negotiate the point or at least you can part in a positive way.  If you go in and have done something that shows you haven't done your homework relating to the investment process investors may feel you are not worth the effort and move on.  Remember the adage..."A" teams with "B" products/markets will outperform "B" teams with "A" products/markets.  You want to be an "A" team...prepare yourself and be ready before you lose the chance to make a good first impression.

"...the skillful fighter puts himself into a position that makes defeat impossible and does not miss the moment for defeating the enemy.  Thus it is that in war the victorious strategist only seeks battle after the battle has been won, whereas he who is destined to defeat first fights and afterward looks for victory"...Sun Tzu

 

Ideas to Deals Live

I'm not sure if this is the same as Sesame Street Live (which I have seen by the way) but on September 11 in Dublin I am taking this blog LIVE!!!  The Ideas to Deals Base workshop will cover many of the aspects involved in building a business capable of reaching and appealing to investors.  Topics to be covered include:

• Determining what type of business you have, investable or life style
• Are you ready to take investment capital
• The difference between investable and bankable businesses
• Government R&D funds such as SBIR and STTR
• Pitching investors...what to say and more importantly what not to say
• How to structure your ask and develop a Cap Table
• How to access and work with the TechStart program and the Ohio TechAngels
• Exits, what are they and how to position for an exit

This is a good session to provide you the information to move forward on your business development.  This will be the fourth time we have done this session and this year we are expanding to a full morning format to have enough time to cover all of the information contained in the session.  Representatives from TechColumbus and the Manufacturing and Technology SBDC will be in attendance to answer questions.  Oh did I mention...there is no cost to attend.

This is a must if you are looking to build a high-growth business.  I have seen so many people make mistakes early that have come back to bite them.  This session will help you be better prepared to move forward and succeed. 

Visit the SBDC on-line at http://www.cscc.edu/cpe/SBDC/ideas2dealscourse.asp for more information.

Value Inflection Points

Contrary to popular belief investors don't want to run your business.  They aren't interested in the day to day operations of your business.  It's YOUR business.  Granted investors are part owners but if they wanted to run the business they would have started it themselves.  They have invested money into you and your team to "execute" and create the return you promised in your pitch and meetings leading up to the investment.  If an investor is in your day to day business then you've not executed.  You have not hit the milestones set forth in your plan.

Milestones...What's that?

If you know what milestones are and use them then you will think I'm crazy for mentioning it but I see so many entrepreneurs that ask for a boat load of money but have not developed a solid execution plan for spending the money.  My favorite pitches include...

• We need $X,XXX,XXX (note the number of commas)
• We need $X,XXX,XXX although we don't need it all at once.  We can phase it in monthly.
• We need $X,XXX,XX.  That includes six months of reserves in case we have problems.

What each of these are missing are milestones.  Milestones are points in the future by which certain activities will be completed.  These milestones often are tied to when funds will be released to you.  In the book A Good Hard Kick in the Ass milestones are described as "Value Inflection Points".  Value inflection points are points in time where certain activities have been completed...these activities have "added value" to the company and you are ready for funding to take you to the next value inflection point.  At each of these points, because of the activities you have completed, your business is worth more and your valuation has increased (that's a good thing).  What the book is big on is "execution-oriented" activities versus "output-oriented" activities.  Execution-oriented activities are those that add value to the business.  Everything you do should add value.  Output-oriented activities are kind of check off activities and will eat up cash yet not get you any closer to the end-goal of the company.  Often when a company gets to much money they focus on output-oriented activities like office space, furniture, infrastructure, events, etc.  If your funding is tied to activities that increase value such as market validation, securing customers, hiring key personnel you will be more focused and protect your precious resources such as your cash. 

Key points with Value Inflection Points:

• Execution milestones reduce risk
• They increase company valuation
• You should carefully plan them in advance
• Hit all of them before you raise more cash
• Raise enough to accomplish the next set of value inflection points

If you are concerned about the amount of your company that you are selling each time you raise money you need to focus on these concepts.  By executing around value inflection points you will increase your company's valuation and create a better situation for you when you raise capital.

Ads and Web 2.0 Business Models

This is a video from Bambi Francisco.  Bambi is founder of Vator TV, a social media and social network focused on emerging technology companies and private investments.  I met Bambi a few years ago at Stanford and she is very insightful and very tuned into the new wave of technology development in Silicon Valley.  Below you will find an interview that Bambi did with Tim Chang, Principal at Norwest Venture Partners.  There is a lot of stuff at the beginning about VC's and there interaction with Hollywood and social networking but about the six minute mark he starts talking about business models for web 2.0 companies and how ads can't support a business unless you can drive significant scale.  It is more important to diversify your revenue strategy and actually sell something.  I thought this was interesting...

Who's Out There to Buy It?

Entrepreneurs love to talk about their product.  All of the technical intricacies and what was involved in getting it to this stage as well as what needs to be done to take it from idea to prototype.  Very few of the pitches I hear really answer the question "Who's out there to buy it?"  To an investor that is the key.  I cover this in some previous posts but wanted to touch this again because it is so key. 

John Huston of the Ohio TechAngels used to tell me that explaining the business case was simple.  All investors really wanted to know was "Who is out there to buy the product?" and "How are you going to get them to buy it?"  If you could answer that the business case would be clear.  A lot of people in the early stages of business development miss that because they don't really understand the market and fall back on what they know, the product.  When pitching investors you need to you really need to discuss they business case.  Investors at the early stage will assume the technology does what you say it does or will do.  You need to convince them that there is there is enough money to be made that the investor should spend more time with you investigating your opportunity.  Investors are looking for a reason to say "no" initially because they don't have time to waste on a bad business.  If you can't articulate your business value proposition, even if it is unproven in the market, you are dead on arrival. 

To do this start with the first question..."Who is out there to buy the product?".  I'm going to recommend two books that are MUST reads..."The Art of the Start" by Guy Kawasaki and "A Good Hard Kick in the Ass" by Rob Adams.  Guy discusses the concept of the "Total Addressable Market".  This is not the $100 billion market of everyone in the world that uses the internet as identified by the Gartner Group.  It is the $100 million market of people that use the internet that have a particular problem that will buy your specific product to solve their problem.  You need to get to that level.  I have seen a resurgence of the "speed to market" businesses in the Web 2.0, social networking market.  They feel that they can't accurately identify the market through traditional methods and the only way to really prove the market is to build a beta site, launch it and see how the market reacts.  I know things move fast in this space but there is no reason not to do your homework.  In Rob Adams book they do a great job discussing market research and how to really do it.  I will agree that his process, while comprehensive, does take time and may be to long for some internet markets but you need to at least do some of the research and show some proof that there is somebody out there to buy your product before asking for money to build a beta site.

In conclusion, always be thinking who is out there that will buy my product when you are building your business.  If you are coming up with ways to get to buyers that really have a problem that you can solve you will be in your way to success.

Pitching...

We've been getting ready for the Columbus Investment Forum and we're seeing great opportunities that are unable to get a crossed what it is they do in a 10 minute presentation.  I wish I had a dollar for every time I've heard "We can't get everything we need to say about our company into 10 minutes".  Actually you shouldn't try to tell everything about your company, only the important things.  The key is to convey your value proposition and convince the investor to ask questions and look deeper at your opportunity.  That should not be a problem in 10 minutes.  Even if you have more time you should still keep your presentation to the point. That way if you get interrupted or you get cut short you can still get the key points in. 

Here is something to think about when you are building an investor presentation.  An investor is usually deluged with business plans.  Let's say they have 100 plans.   They know there may be one or two good ones there.  What they are doing is looking for ways to get to "no" on the 98 so they can focus on the two that have potential.  You need to hit the right points and make it easy to say "yes".  Things that are out of the ordinary make it easy to say "no", avoid those things.  Remember at this point you are not trying to get the check you are trying to get them interested and asking questions.

Here is a good format for your presentation.  It is from "The Art of the Start" by Guy Kawasaki.  If you are in start-up mode you should read this.  I've linked to Guy's blog from this site.   This is 10 slide format to consider using.

Title Slide: This is where you tell what you do and give a simple to understand example.

Problem: Describe the pain you are alleviating for your customers.

Solution: Show how you solve the pain. Make sure everyone understands what you sell and your value proposition. Keep it easy to understand.  Paint the picture in the investor's mind so they can quickly get it and move to other parts of your opportunity.

Business model: Explain how you make money. Talk about what you have done to get to this point. Why have you decided to target the verticals you have selected. Here is where you can discuss you margins.

The advantage you have:  What is the "secret sauce".  Why are you different than everyone else?

Marketing and Sales: "Clearly" tell what your sales strategy is. This will be key to getting them to agree with your financial projections. You should also discuss the size and penetration of the market you expect. You can begin to introduce how the marketing portion of your ask will be used and what it will yield in sales growth.  Do not forget to discuss your pricing.  The listener will be trying to calculate what has to happen for you to reach your financial projections.

Competition: There is competition for what you do. It may not be exactly the same but there is.   Show there is enough of a market that is available to buy the service even with the competition.

Management Team: You need to convince the investor that you have the team that can execute and will succeed. Saying where you worked is not enough. You need to show why your former positions as well as your experience has equipped you to execute. What are your specific experience/skills?

Financial Projections: You need a simplified, clear slide here. You need to justify your numbers. You need to convince the investor that your numbers are real. Nobody will believe you until you lay out your case.

Current Status/Future Status: Show your use of funds and how that will drive the growth of the company. You can also talk about exit here. While you may not have exact date/time of your exit you do need to discuss exit options. Who are buyers and when. Don't hem-haw around.  You need to show the investor that they can not only expect the company to succeed (which is about you) but also that they can expect a return in a certain time frame (which is about them).

Be positive. Be clear. Be confident and get the investor to understand what you do and how you are going to make money. If you want them to invest in you, you HAVE to convince them to trust you know what you are doing.

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.