By understanding what investors are looking for in a business opportunity and what their potential questions about an opportunity can be, will help you tremendously when looking to raise private equity finance and venture capital. I was in the private equity business for several years and learned a few things along the way in attracting private capital. Here are some of those crucial things I learned about investors along with some suggestions from a venture capitalist, which I agree to 100%.
Review your original Business Plan Questions for possible Investors Questions. Know your Product Development Plan, Marketing Plan and Strategic Plan cold.
Answer these Five Key Questions about the opportunity before the meeting:
- Why is this a viable opportunity?
- Why I am doing this venture?
- Who I talked to in a equal business?
- Have I tried out the Product or Service in the Market?
- Has my Plan been critiqued by Accountants, Attorneys, Bankers, Consultants, Key Business Influences, Business Mentors and other Professionals?
From the VC Insider Section of the January ’09 Entrepreneur Magazine, Venture Capitalist, Brad Feld, has an Article, “Perfect your Pitch”, which lists common mistakes entrepreneurs make when pitching for Venture Capital…
Not Knowing Your Audience: Take the time to do your preparation to understand if the VC’s niche investment areas and philosophies match well with your opportunity.
Asking the VC to Sign an NDA: And we quote Brad Feld directly on this one: a Non-Disclosure Agreement “is a stupid idea perpetuated by lawyers.” Most VCs won’t sign an NDA so why try? Present your Funding Business Plan and supporting materials in a way that protects your interests. If a VC gets serious, then you can discuss Confidentiality issues at that time.
Sending a 74 page Business Plan in the mail: Begin by sending a concise email introducing yourself and your company. Make sure the email isn’t a form one and is personalized to the investor. VC will commonly let you know what are the next steps and what documents they are looking for and when.
Spamming 150 Venture Capitalists with a “Dear Sir” Email: This is a big common mistake. More does not mean better. Avoid shopping your deal around a bunch of VC. Do your research, develop a plan and only target one or two at a time whose objectives closely match your opportunity.
Name-Dropping other Venture Capitalists: This will result in an unsuccessful contact. Let the VC lead, and he / she will ask you who else has looked at your deal, and who else maybe potentially interested. VCs by their nature aren’t impressed with name dropping or pressure tactics. However, it is good business to use other Venture Capital Firms to refer you to a VC which they feel will fit well with your opportunity.
Listing 27 Advisors but only one Co-Founder: And I quote Mr. Feld again, “advisory boards, especially at the very early stages of a company, are generally useless”. I can’t argue this point. Strategically placed, exceedingly engaged Advisors, numbering 3 to 5, is much more credible than having a bunch of well-known names that have little to do with your business.
Using the Wrong Materials at the Wrong Stages: In my capacity as Marketing Consultants, I preach this to clients all the time. It is important to have an “arsenal of presentation materials to go. However, dumping it all on the Venture Capitalist with one big thud is rarely effective”, says Mr. Feld. I completely agree. I suggest you have ready the following items but use them carefully.
- Commercial Loan Package
- Funding and Comprehensive Business Plan
- Due Diligence Package
- Product / Service Demo
- Power Point Presentation
- Marketing Plan
- Strategic Plan
It is important to keep two key things in mind when sending VC information on your Company:
- Let the VC lead and tell you what he or she prefers.
- Customize all your materials to the particular VC’s objectives, background, history, track record, current portfolio, outlook, etc.
When researching Venture Capital Firms, be sure to find one that will bring valuable connections, experience and resources in your Industry. Venture Capital isn’t just about investment of monies in your Company, but also a potential, valuable resource to tap for your Company’s Future Success.
This article is written by Frank Goley, Business Turnaround Consultant for ABC Business Consulting.
