 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
| |
 |
|
|
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
|
 |
 |
 |
 |
July 25th, 2010
What is the Angel /Venture Capital funding catch-22? Well, startups need venture capital to start, but venture capitalists and angel investors only fund companies which already have traction (i.e., sales). This is one big reason why no one is funding you.
Part 1: The Bad News
Before Embarking on a Campaign to Raise Venture Capital Funding, You Should Look at Yourself Objectively and Honestly to Determine if You Even Qualify. Most People Don’t Stop to Do This.
Since the vast majority of venture capital hunters don’t qualify, you will, in most cases, end up wasting 6 to 12 months of your life writing a business plan which will never be read and doing “dog & pony” shows for audiences who are at best only mildly curious or at worst engaged in “brainsucking” you for ideas.
Who Qualifies for Venture Capital Today?
Industry “stars” qualify for venture capital. This means someone who has already taken a start-up from zero to 50 million in sales or better. So if you’re counted amongst the stars in your industry, you stand a good chance of attracting venture capital provided your current deal has the following elements:
* at least 2 other senior executives with experience in building wildly successful companies,
* a proprietary technology in a sector currently considered hot by the venture capital industry,
* a top-notch technical team,
* a target market at least one billion dollars in size,
* a minimum of one year of rising sales to blue chip customers.
If you don’t meet the above criteria venture capital funding won’t happen.
The Three Dirty Little Secrets About Raising Outside Capital
* First, chasing outside capital is by far the most unpleasant and drawn-out ordealexperienced by entrepreneurs. It always seems to take forever. (For this reason, veteran entrepreneurs try to avoid raising outside capital at all costs.)
* Second, based on the fact that your typical early stage venture capital firm invests in only one company out of every 500 business plans it reviews, your odds of succeeding are only 1:500. (If you are pursuing angel investors your odds improve to maybe 1:200, although no one knows the numbers for certain.)
* Third, in about 50% of instances where an early stage company actually succeeds in raising venture capital, the founder is fired within the first year and kisses most of his or her stock good-bye.
“If you ask a VC what value they add, and you get
them after a few drinks, they’ll say, ‘We replace the CEO’ “,
he said. And that, he indicated, does not vary
with the economic climate.
So your odds of being a successful venture capital-backed founder/CEO are actually only 1:1000.
The Funding Problem
Here’s what typically happens when a company needs to chase outside capital in order to commence or expand operations. After about 6 months one of three things occurs:
1. The lucky 1 in 500 finds investors.
2. Most die on the vine. In many cases, the wannabe entrepreneur simply abandons the project and moves on to something else. (As the joke goes, “That’s why God created ‘jobs’ “.)
3. A savvy and tenacious tiny minority of entrepreneurs finally gets mad at having wasted so much time. Then it begins to figure out a creative way around the funding problem by focusing on creating cashflow with the resources and opportunities at hand, instead of continuing the futile quest for outside capital.
Don’t waste money on these resources: Lesson: put very little faith in these services and never pay up-front fees.
* Matching Services: We’ll match your project with one of our many accredited angel investors. Call now! Operators are standing by! Just $199 to register.
* Business Plan Services: We’ll write a business plan for you which will attract funding. Only $999.
* Finders: I can help you raise money for a fee…and, by the way, I require a retainer up-front.
* Money-Raising Bootcamps: Attend our weekend bootcamp for $1,195, and you’ll discover that it’s not what you know but who you know that counts when it comes to raising money.
* Online Business Plan Repositories: Post your b-plan on our site for 6 months. Only $59.
* Venture Capital Directories: VC’s are waiting to fund you! For just $49 you can buy our CD directory with 12,952,734 venture capital firms listed on it. (How these can sell in the age of Internet search engines is beyond me. PT Barnum was correct about a sucker being “born every minute”.)
in a nutshell, most of these middle-man services don’t work in 99% of instances. This is also why they won’t tell you the Three Dirty Little Secrets of Raising Capital.
Part 2: The Good News
Real Entrepreneurship is About Cashflow Creation
It’s all about positive cashflow. If you can make it happen, you get respect and investors to fund you so that you can make even more.
Repeat three times daily until the delusion goes away:
With cashflow I’m a somebody; without it I’m a nobody.
With cashflow I’m a somebody; without it I’m a nobody.
With cashflow I’m a somebody; without it I’m a nobody.
Fact: Successful entrepreneurs invest the same level of time and energy into creating cashflow during the first year that wannabes invest in polishing their business plans and offering them to complete strangers.
The Solution
Once you have cashflow life becomes much simpler. Cashflow not only enables you to pay your bills but it places your company into the “stream of opportunities” that established businesses enjoy. Cashflow also earns you respect and gives you the ability to say, “No thanks!”, to those notoriously outrageous offers made by venture capitalists and private investors.
Cashflow = Respect from Investors
* Cashflow–any cashflow–earns respect from investors, lenders, customers, suppliers, and even your Aunt Mabel. Cashflow attracts equity capital from investors.
* Cashflow will place you in a stronger bargaining position with potential investors since it will allow you to walk away from a bad deal. Pre-deal cashflow equals power. Power for you.
* Cashflow will give your company a higher valuation which in turn will allow you to hold onto more of your equity if a deal is done.
If you are truly committed to building your business then do everything you can today to achieve this goal.
Don’t kid yourself.
So ask yourself, in 3 months from now do I want to:
* still be polishing my business plan and chasing investors with nothing to show for my efforts, or
* do I want to have an operating company with positive cashflow?
The decision is yours.
Tags: Angel Investors, cash-flow, funding, VC money Posted in Uncategorized | Comments Off
July 19th, 2010
Understanding how money moves in and out of your company will help you measure the amount of cash you have on hand and prepare you for any surpluses or shortages down the road.
Projecting your cash flow is a bit like preparing your budget and balancing your checkbook at the same time. You’ll begin with a starting point—say, the first of the year—and then you’ll outline your anticipated income and expenditures for the next several months or year. Be careful about assuming too much—and don’t forget to factor in everything from insurance payments to raises in employees’ salaries.
Cash flow projections should be updated on a regular basis with the most accurate numbers. For instance, a customer who’s been reliable in the past might suddenly flake on paying. Or a vendor might decide to raise prices or tack on extra fees. Plugging in that new data will help you predict any cash crunches that might arise as a result.
Let’s take a closer look at why a cash crunch might occur in the first place. Not all are predictable, of course. When the economy hit the skids in 2008, many business owners found themselves suddenly worrying about making payroll or paying bills. Aside from the economy, here are other reasons why cash crunches happen:
A big customer falls behind in payments
A normally busy season is unexpectedly slow
Manufacturing, shipping or other business costs rise
Inventory is mismanaged
Expansion into new space or territory is overly expensive or poorly timed
Because it’s tough to predict the circumstances your business will find itself in weeks or months down the road, it’s always smart to have a cash cushion. The next best thing is to have a line of credit to cover short-term cash shortages, which might happen if there’s a lag time in accounts receivables coming in.
If your company has forecast or found itself in an unexpected cash crunch, there are some ways to fix this cash emergency:
Get out there and sell. Jump-start cash flow by finding new customers or tending to existing ones. Even if your gut is wrenching, it’s critical to make sales calls. Keep in mind that your competitors may be waiting to steal your business—especially if word has gotten out that you’re in a bind.
Step up collection efforts. Analyze your receivables. Do your customers owe you money? If so, then it’s time to get aggressive about collecting debts. (For more on that, read related article, “Business Owners Find Creative Ways to Collect the Bills.”) You might also consider giving some customers discounts for early payment.
Review your line of credit. See if there is room to borrow, or ask your banker to increase the ceiling if you need more money to cover the deficit. While the credit crunch still lingers, the situation is not as dire as in 2009.
Ask vendors/suppliers for a favor. The people who supply your merchandise, equipment or other products or services don’t want to lose your business. Especially if you’ve been a good customer, your suppliers might extend repayment terms or issue a line of credit. If you haven’t already built a relationship with a vendor, check with industry groups, trade associations or even owners of similar businesses to see which vendors offer financing. Make sure to check a vendor’s credentials before signing up—and shop around to get the most favorable terms.
Cut costs. Downsize to a smaller space, or consider moving back home (to your garage or spare bedroom). Sell off excess furniture or office equipment. Trim principals’ salaries. Conduct layoffs, as unpleasant as that may be, if it means keeping the business alive.
Tags: cash-flow, management, small business Posted in For business owners, Uncategorized | No Comments »
July 12th, 2010
For a start-up company, landing that first check from an investor is a milestone.
What many start-ups don’t realize is that the seed capital they raise – often from friends and family – is just the first step in a fundraising journey that can drag on for months or even years.
Here are some of the lessons learned along the way:
• Don’t expect to raise all the money at once. While the purpose of a business plan is to show investors your company’s true potential, but don’t fold your cards if you can’t raise the money you need to execute your entire plan right away.
• Be prepared to give investors more. Even in good times, investors in early-stage companies expect to be compensated for the risk that your company might fail and they’ll walk away with nothing but a write-off. With early-stage capital in short supply, start-ups need to be ready to give away a larger chunk of their company than they might have when times were flush and to pay higher interest on the money that they borrow. As an example a company raised $800,000 in convertible debt at 12% interest in 2008. After the market crashed, they raised another $600,000 but at 15% interest in April 2009. The new note will convert to equity upon a $5 million capital raise.
• Adapt your business plan to the funds available. If you wait to fund your entire plan before starting operations, you may never get your company off the ground. At the same time, you may need to scale back your plans if you decide to start your company with less. Reformulate the business plan in a way that will allow you to execute on a reduced scale.
• Be ready to survive on a shoe-string. Many entrepreneurs think that, once they raise capital from investors, the pressure is off and they can get back to running their company. The truth is that you’ve got to keep a laser focus on expenses – especially if your company is burning cash and you don’t know where the next check is going to come from. When you raise money in pieces rather than all at once, you have to stretch the money as far as possible, particularly tricky is managing your payables to keep your suppliers current while waiting for payments from your customers.
• Be honest with your investors. Whether your investors are friends, family, angels or VCs, nobody wants to be kept in the dark. It’s better to break the bad news about money concerns, such as missed revenue projections or cash-flow gaps, before there’s nothing left in your company’s bank account. Communicate!
With the market for small-business capital still tight and the recovery lackluster at best, start-ups looking for capital would be wise to take a page from the Score playbook. Raise money when you can, be prepared to pay a premium for your capital and scale back your plans if necessary, but do whatever it takes to get your business up and running and your product out the door.
For Help preparing Private Placement Memorandums or Angel/VC investment presentations contact SCORE.
Tags: Business Capital, Business Funding. Private Placement, investors, VC Posted in Area Activities, For business owners | Comments Off
July 1st, 2010
Now Mint.com, a website that already offers user-friendly options for studying how one’s money is spent, has introduced an easy way to set budget objectives, link them to accounts and learn specific steps on how to reach those goals. The goals can even be personalized with digital photos, like an image of the car you’re saving up to buy. And this service is FREE!
The Goals feature uses pop-up windows where users can quickly input data, like annual salary, to get estimates on how much they can afford to spend on things like a vacation, as well as how much they need to save for that vacation. Monthly savings estimates can be set to aggressive savings plans or conservative ones with just a mouse click.
Finances in One Place
Mint.com has been around for almost three years and is used by millions of people. Its proprietary algorithms encrypt data so people will feel confident enough to input their usernames and passwords for their online financial accounts, allowing them to see all of their financial activity in one place. These accounts include those tied to credit cards, banks, retirement savings and others. Mint is known for displaying colorful visuals like pie charts and graphs, so it’s easy for people to see where they’re spending their money or how it’s being invested.
Mint Goals is a new tab on the Mint.com site, and clicking on it directs users to a group of eight popular goals and one that can be customized (more will be added over time). The preset list includes goals to get out of debt, buy a home, buy a car, save for college, take a trip or save for retirement. A digital checklist in each goal called “Next Steps” gives people serious, doable tasks to complete, so they can actually make progress toward a goal in ways other than just putting money aside. This instant gratification saved me from doing a lot of calculating.
The Best Account
When you set up a goal for the first time, Mint suggests what type of account would work best for saving toward it. Examples include a 529 savings plan for people who are saving to put their kids through college or a Roth IRA for retirement savings. Mint will also tell you the provider with the best interest rate.
Each goal includes the overall amount of money intended to be saved, today’s balance, planned and projected dates for reaching the goal and how much has been saved this month (like $200 of $750). You’ll like looking at Mint’s colorful thermometers, which quickly showed how you was progressing in a particular goal.
Ads With Context
The Goals feature comes with contextual ads, which help it remain free. One checklist item suggests opening a high-yield savings account and also offers links to the Discover and American Express websites, which offer the accounts. If you’ve started a Mint Goal to save for a trip to Iceland, travel insurance is suggested, along with Web links to sites that sell trip insurance.
While these links might allow people to get started right away on a particular task, they also beg the question of whether these are the best options for users—or just the biggest advertisers on Mint. Goals can be linked to several of your accounts on Mint so they’re updated with real-time data. A long-term retirement goal can link to a 401(k), brokerage account and retirement account. If the stock market takes a dive and money is lost in an account, that loss is automatically reflected in the overall goal’s balance. If you tie a savings account to a goal to save for a house, every dollar added to that account (on the bank’s end) is automatically reflected in the goal.
Mint already gave people a visually engaging way to know more about what their money is doing, but Mint Goals give people a real reason to come back to the site more often.
Tags: accounting, Free service, saving, small business Posted in For business owners, Personal Activities | Comments Off
June 28th, 2010
Let’s take a look at the basic financial statements that every business owner should prepare and review on a regular basis: the profit-and-loss statement, the balance sheet and the cash flow statement.
Profit-and-loss statement.
This is a historical record (also known as an income statement) that shows how much you’ve made in revenues, how much you’ve spent and what your net income is over a specific period of time. The time period could be a week, a month, a quarter or a year, although monthly is the most common. The P&L tells you whether or not you’re making money, and how much you’re either making or losing. A further benefit: if structured properly, the P&L can show you which products or services are selling the best and where you are spending too much on expenses ranging from office personnel to advertising.
Balance sheet.
This is a snapshot of your company’s financial health, providing a summary of your company’s assets, liabilities and net worth. In other words, the balance sheet (sometimes called the statement of financial condition) tells you what you own and what you owe. Your assets will be the resources that your business controls: cash, equipment, buildings, furniture and money owed to you. Your liabilities will be the debts or other obligations that you owe others, such as accounts payable, taxes, loans and payroll. Your net worth (also known as equity) is what’s left over— or assets minus liabilities.
Cash flow statement.
This captures how cash has flowed in and out of your company over a specific period of time. Think of it like the ledger of your personal checkbook, which shows money coming in, money going out and the remaining balance. The cash flow statement is a very important financial statement because even though your P&L may be showing a profit, the business may not be generating cash. And the reverse is also true. For instance, your sales may be growing as billings increase to new customers, but your new customers may be slow to pay, she says. At the same time, you might be spending more on inventory in anticipation of growth. The cash flow statement will show how all those changes affect your cash position.
Posted in For business owners | Comments Off
June 18th, 2010
Quotes from Steve Jobs:
1. “Innovation distinguishes between a leader and a follower.”
Innovation has no limits. The only limit is your imagination. It’s time for you to begin thinking out of the box. If you are involved in a growing industry, think of ways to become more efficient; more customer friendly; and easier to do business with. If you are involved in a shrinking industry – get out of it quick and change before you become obsolete; out of work; or out of business. And remember that procrastination is not an option here. Start innovating now!
2. “Be a yardstick of quality. Some people aren’t used to an environment where excellence is expected.”
There is no shortcut to excellence. You will have to make the commitment to make excellence your priority. Use your talents, abilities, and skills in the best way possible and get ahead of others by giving that little extra. Live by a higher standard and pay attention to the details that really do make the difference. Excellence is not difficult – simply decide right now to give it your best shot – and you will be amazed with what life gives you back.
3. “The only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.”
I’ve got it down to four words: “Do what you love.” Seek out an occupation that gives you a sense of meaning, direction and satisfaction in life. Having a sense of purpose and striving towards goals gives life meaning, direction and satisfaction. It not only contributes to health and longevity, but also makes you feel better in difficult times. Do you jump out of bed on Monday mornings and look forward to the work week? If the answer is ‘no’ keep looking, you’ll know when you find it.
4. “You know, we don’t grow most of the food we eat. We wear clothes other people make. We speak a language that other people developed. We use a mathematics that other people evolved… I mean, we’re constantly taking things. It’s a wonderful, ecstatic feeling to create something that puts it back in the pool of human experience and knowledge.”
Live in a way that is ethically responsible. Try to make a difference in this world and contribute to the higher good. You’ll find it gives more meaning to your life and it’s a great antidote to boredom. There is always so much to be done. And talk to others about what you are doing. Don’t preach or be self-righteous, or fanatical about it, that just puts people off, but at the same time, don’t be shy about setting an example, and use opportunities that arise to let others know what you are doing.
5. “There’s a phrase in Buddhism, ‘Beginner’s mind.’ It’s wonderful to have a beginner’s mind.”
It is the kind of mind that can see things as they are, which step by step and in a flash can realize the original nature of everything. Beginner’s mind is Zen practice in action. It is the mind that is innocent of preconceptions and expectations, judgments and prejudices. Think of beginner’s mind as the mind that faces life like a small child, full of curiosity and wonder and amazement.
6. “We think basically you watch television to turn your brain off, and you work on your computer when you want to turn your brain on.”
Reams of academic studies over the decades have amply confirmed television’s pernicious mental and moral influences. And most TV watchers know that their habit is mind-numbing and wasteful, but still spend most of their time in front of that box. So turn your TV off and save some brain cells. But be cautious, you can turn your brain off by using a computer also. Try and have an intelligent conversation with someone who plays first person shooters for 8 hours a day. Or auto race games, or role-playing games.
7. “I’m the only person I know that’s lost a quarter of a billion dollars in one year…. It’s very character-building.”
Don’t equate making mistakes with being a mistake. There is no such thing as a successful person who has not failed or made mistakes, there are successful people who made mistakes and changed their lives or performance in response to them, and so got it right the next time. They viewed mistakes as warnings rather than signs of hopeless inadequacy. Never making a mistake means never living life to the full.
8. “I would trade all of my technology for an afternoon with Socrates.”
Over the last decade, numerous books featuring lessons from historical figures have appeared on the shelves of bookstores around the world. And Socrates stands with Leonardo da Vinci, Nicholas Copernicus, Charles Darwin and Albert Einstein as a beacon of inspiration for independent thinkers. But he came first. Cicero said of Socrates that, “He called philosophy down from the skies and into the lives of men.” So use Socrates’ principles in your life, your work, your learning, and your relationships. It’s not about Socrates, it’s really about you, and how you can bring more truth, beauty and goodness into your life everyday.
9.“We’re here to put a dent in the universe. Otherwise why else even be here?”
Did you know that you have big things to accomplish in life? And did you know that those big things are getting rather dusty while you pour yourself another cup of coffee, and decide to mull things over rather than do them? We were all born with a gift to give in life, one which informs all of our desires, interests, passions and curiosities. This gift is, in fact, our purpose. And you don’t need permission to decide your own purpose. No boss, teacher, parent, priest or other authority can decide this for you. Just find that unique purpose.
10. “Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”
Posted in Uncategorized | Comments Off
June 17th, 2010
Start-ups hungry for cash are often expected to pay a fee to pitch to angel investors. But some free services are cropping up to counter the so-called pay-to-pitch model.
Venture Hacks, a for-profit site that provides advice to start-ups—say they have received pitches from more than 1,000 start-ups, mostly consumer Internet companies. Of the 48 companies featured so far on AngelList, about half have received funding, they say.
The service, he says, “is good at getting worthy start-ups into the inbox of investors.”Marco Zappacosta, founder of Thumbtack Inc., a site that lets people book services like tutors and dog walkers, won three commitments from angels after pitching his company in March at an Open Angel Forum event in San Francisco. He then turned to AngelList and received three more commitments to close a funding round at $1.2 million in June.
Not all entrepreneurs have won investments. Jen Lilienstein, one of six entrepreneurs selected to pitch last month at an Open Angel forum in Los Angeles, hasn’t raised any cash for her start-up, Kidzmet.com, which helps parents enroll their kids in extracurricular activities.
Some pay-to-pitch services have changed their business models amid the criticism. In September, FundingUniverse LLC stopped charging a $125 fee for entrepreneurs to pitch at its events, attended by angels and loan providers like banks. The winners of its events receive a few thousand dollars in in-kind services, and sometimes, investments.
FundingUniverse does, however, sell products through its website, such as a $99 online “diagnostic tool” that analyzes a business’s funding prospects. “We think the services we do charge for are perfectly acceptable,” says Alexander Lawrence, a partner at the company.
Open Angel Forum, which holds free pitch events in various cities where entrepreneurs selected from a pool of applicants can pitch to about 20 to 30 angel investors. At Open Angel’s first event in Boulder, Co., in February, three of six companies found new investors.
Free service, AngelList, started in February by angels Naval Ravikant and Babak Nivi, vets dozens of deals before highlighting the best ones in emails each week sent free to a group of 200 investors.
The free services come in the wake of recent criticism of the pay-to-pitch model, which some angel investors have argued is justified because they offer advice and should be paid for their time. Mr. Calacanis, an outspoken figure in the tech industry, last fall publicly admonished angel investment groups for charging bootstrapped entrepreneurs hundreds, if not thousands, of dollars to pitch to them.
Some pay-to-pitch services have changed their business models amid the criticism. In September, FundingUniverse LLC stopped charging a $125 fee for entrepreneurs to pitch at its events, attended by angels and loan providers like banks. The winners of its events receive a few thousand dollars in in-kind services, and sometimes, investments.
FundingUniverse does, however, sell products through its website, such as a $99 online “diagnostic tool” that analyzes a business’s funding prospects.
Tags: Angel Investors, Business Investment, Start-up Funding Posted in Uncategorized | Comments Off
June 15th, 2010
Do Your Homework
If you’re financially motivated to launch a business, you may be tempted to simply jump in. But experts strongly recommend first taking the time to do some research to determine if your venture has legs to stand on. Otherwise, you could end up in worse economic shape.
“Once you’ve started a business, you’ve already invested a lot of money and time,” says Andrew Zacharakis, professor of entrepreneurship at Babson College in Wellesley, Mass. “If you find out afterward that consumers don’t want what you’re selling, it can be very hard to make a midstream adjustment.”
One way to explore a business idea’s feasibility is to solicit the opinions and advice of experienced professionals in your target industry, even prospective competitors. Mr. Zacharakis recommends starting at trade shows, seminars and other business events if you don’t have specific contacts in mind. Ask people what they like and don’t like about your planned venture, if they foresee any obstacles to building it, and what suggestions they might have.
Also go directly to your target market and ask about their interest in your product or service and how much they’d consider paying for it, Mr. Zacharakis says. If you plan to sell a product or service to pet owners, for example, you could canvass dog parks, groomers and veterinarians’ offices.
Low-cost services like SurveyMonkey.com and Zoomerang.com let you compile a survey online. In general, you pose a question and select answer options, such as multiple choice or fill-in-the-blank. Then you receive a Web link that you can post to your Facebook page, Twitter feed, personal blog or other website.
Get Real Feedback
Richard Daniels and Seth Burgett implemented this strategy before co-founding Yurbuds, a St. Louis-based maker of custom-fit earbuds, in early 2009. More than 300 survey takers provided insights into the features that matter most to them in portable listening devices and how much they’d pay for the ideal pair.
The duo—who met soon after Mr. Daniels was laid off from an executive job and while Mr. Burgett was in business school—now sell the earbuds in about 200 retail outlets. The firm is on target to be profitable by next year.
“You have to roll up your sleeves and talk to real people to find out if your business idea has value,” says Mr. Daniels. “Hope is not a strategy.”
Tags: Starting a business. Posted in For business owners, Personal Activities | Comments Off
June 8th, 2010
If starting your own business later in life is an appealing idea, keep these tips in mind
1. Keep things lean. As with any entrepreneur, older people who start their own business would do well to keep expenses in check, particularly at the outset. Says Liz Dahl, 61, who started the travel Web site Boomeropia.com: “I first thought of starting a travel magazine for boomers, but it made more sense financially to create a Web site instead. That way, money was not really an issue.” Matthews says that sort of caution is typical among older entrepreneurs: “With their experience, they’re better at managing risk than others.”
2. Leverage networks. “Be sure to use your network of friends, family and colleagues throughout the launch and growth of the company,” says Rodrigues. “Capitalize on their assistance and collective wisdom.” Use the resources at SCORE.
3. If you lack a skill, partner with someone. “I found a partner who knew the things I didn’t — particularly the technical side,” says Dahl. “I knew [public relations], buttechnology was difficult. So by partnering with someone who had those skill sets, we put in very minimal money and relied on sweat equity to get launched.”
4. Don’t get discouraged because of your age. Although they’re starting ventures at record levels, older entrepreneurs say there’s no shortage of people who will attempt to disparage the idea of starting a business later in life, citing unnecessary risks, health concerns and other arguments. If the passion is there, stay the course. Nagamine countered naysayers by focusing on others who shared her entrepreneurial spirit: “I started to attend business classes, networking forums and surrounding myself with like-minded people.” Adds Dahl: “It’s never too late to pursue what you love. Boomers have always been rebels, so why stop now?”
Posted in Uncategorized | Comments Off
June 6th, 2010
The process of selecting, pitching and ultimately negotiating with a VC can be intimidating, especially to those not accustomed to the world of high finance. I asked Lori Hoberman, head of Chadbourne & Parke LLP’s emerging-companies/venture-capital practice in New York, to explain the various steps. Here’s what she said:
Pinpoint the ideal VC.
First, an entrepreneur must target the right venture capital investment fund to pitch. That requires some research. It’s a good idea to attend venture capital and private equity conferences. Ask an attorney or accountant for a referral. Online databases such as VentureSource (owned by Dow Jones) provide information on the latest venture deals. And most VCs host websites that describe their “sweet spot” and existing portfolio investments, Ms. Hoberman says. Don’t waste time pitching your biodiesel fuel business to a VC that only invests in software.
Prepare a “teaser” document.
This one-or two-page document that you send to VCs is your way of introducing yourself—and it’s got to be memorable. Tell the VC who you are, what need you fill in the market and how that market translates into dollars. Because most VCs are barraged with investment requests and can give each one only limited consideration, every sentence of your teaser needs to “answer the question about why an investor would ever dream of putting money into you,” Ms. Hoberman advises. “It forces you, as the entrepreneur, to think in sound bites.” She recommends incorporating text and graphics (pictures, pie charts or graphs) into the document. “The whole idea is to tease the investor into wanting to hear more,” she says.
Send financials.
If your teaser has done its job, a VC often will ask you to provide financial statements, including projections. If you’re building out your business model and are attracting paying customers, “it’s a much easier sell,” says Ms. Hoberman. Show how you’ve gotten to your current stage, whether that’s through bootstrapping, help from family and friends, or funding from angels.
Prepare your pitch.
If a VC wants a meeting after reviewing your financials, the initial face-to-face encounter will probably last less than a half hour, so use the time wisely. Don’t forget the thirty-second rule, Ms. Hoberman advises. “You have to tell the investor in the first thirty seconds who you are and how you are going to make them money,” she says. If you plan to show visuals, such as a slide show or online demonstration, keep it short so that there’s time for questions. Demonstrate your belief in the company and your knowledge of the market or industry. “The VC wants to get a sense that you know what you are talking about,” she says. When a company has more than one founder, it’s also important for partners to demonstrate that they are a strong management team. “Look at each other when you talk, and show respect,” she says.
Review the terms.
If your pitch was successful, you’ll receive a term sheet for a first or “series A” round of financing (later rounds are called series B, series C and so on). The document outlines the deal that the VC is proposing before investing in your company. At that point, you and your advisors (specifically, an attorney who specializes in venture financing) should begin negotiations. The term sheet outlines voting rights, liquidation preferences and, more important, how much equity the VC will receive.
Figure out what you’re worth.
In order to negotiate, you need to place a value on your company, which can be tough or imprecise at such a young stage. One approach is a so-called back-of-the-envelope valuation, which can be determined by deciding how much venture capital the company needs and how much equity you’re willing to sell. “You try not to give away more than one-third of the company in the series A round,” Ms. Hoberman says. For example, if you need $3 million in financing for your consumer product company but don’t want to sell more than a one-third stake, you’d value your company (prior to receiving the capital) at $6 million.
Do your due diligence.
Before signing on the dotted line, take some time to consider the ramifications of your decision. Talk to other companies in the VC’s portfolio about their experiences. Keep in mind that the VC will take board seats and expect progress reports at monthly meetings. Good VCs “understand the hills and valleys and can wait it out,” Ms. Hoberman says. “The really bad ones ream the entrepreneur every time the slightest thing goes wrong.”
Posted in For business owners | Comments Off
|
|
 |
|
|
 |
 |
 |
 
SBA's participation in this Co-sponsorship is not an endorsement of the views, opinions, products, or services of any Co-sponsors or other entity. All SBA programs or co-sponsored programs are extended to the public on a anondiscriminatory basis. Reasonable arrangements for persons with disabilities will be made if requested at least two weeks in advance - contact the SCORE Chapter office.
|
 |
|