Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Knowing Your Customers Can Help Drive Your Start-up Company to Success in the Market

Every year over 500,000 would be entrepreneurs in the United States prepare and present their business propositions in front of angel investors and venture capitalists. Many of these same entrepreneurs often over look one important item, knowing their customer base. This faux pes can be detrimental to their start-up company, as investors need to understand that you know your customers and their needs, intimately.  Also, by not engaging with their potential customers early on, start-up companies can miss the market by developing the “right” product with the “wrong” features, functions, and capabilities.  In addition, these same internally focused start-up companies may miss the best benefit of all, developing a strong strategic relationship with a customer that is a market leader. This article addresses some of the reasons it is always beneficial to engage with your customer base early and often.

Do You Know Your Customers?

As a potential entrepreneur interested in taking your technology, product or service offering to market, you need to “know” your customers. This includes identifying the market leaders, market laggards, and the up and coming rising “stars” in all of your target markets of interest. This type of familiarity with your customer base will allow you to develop an appropriate go-to- market strategy and associated tactics when addressing your targeted market space.  Market leaders of today are not necessarily the market leaders of tomorrow.  Therefore, doing your diligence on the various competitors in your market and understanding their status, product portfolio, market position, etc. is invaluable when presenting your technology, product or service offering to these same customers. What is important to one customer will not necessarily be important to the next. So, by familiarizing yourself with your customer base and you will be much more comfortable when you call on them and ultimately present your product offering to them.  Remember, Apple was not even in the cell phone market a few years ago, now they are a major player in the “smart phone” segment of the market.  Therefore, anticipating this and familiarizing yourself with your potential customers puts you and your start-up company in the driver’s seat when engaging with your potential customers.

 What Segments of the Market Are You Addressing?

Most markets can be broken up into several market segments.  This generally includes the following:

  • High tier segment,
  • Medium tier segment, and
  • Low tier segment.

These segments are often based on price, but also as such, usually have many different sets of features, functions, and capabilities for each product offering to each market segment.  Often, start-up companies entering a new market cannot afford to address all market segments of a given market space.  Therefore, as a new company entering the market you need to familiarize your company with the various sub-segments within a given market and then determine the product features, functions, and capabilities that are necessary to address these market segments and also at the same time have an understanding regarding those same features, functions and capabilities that are “nice to have”.  This market segment familiarity will drive the features, functions and capabilities of your technology, product or service offering.  Not trying to be everything to every market segment is often a key attribute of successful start-up companies.  When entering a market for the first time, it is much better to be focused on a given market segment than trying to do everything for every potential customer.  Therefore, knowing what market segment or segments you are addressing up front will provide you with focus and allow your start-up company to be successful when entering a new market.  Later on, after you are successful in your target market segment, you can expand your product offering.  This strategy worked very well for the Japanese car companies entering the US market in the late 1960’s and early 1970’s. Originally, they entered the low-end segment of the US car market. Today, these same Japanese car makers are dominant players in all US car market segments.

Develop A Strategic Alliance with a Key Customer

Historically, the most successful start-up companies have often had the good fortune of developing a strategic alliance or “close relationship” with a market leader in their target market space. This relationship can be mutually beneficial to both the start-up company and the market leader. From the start-up company’s point of view developing a strong relationship with a key strategic partner will allow them to focus their product features and develop a first product offering that has a guaranteed market.  This is invaluable to the start-up company, as this key strategic alliance partner knows the end market application better than they do, and at the same time will help them focus their development efforts to a product offering that will be market driven and as a result successful in the market. From the market leader’s perspective, developing a relationship with a start-up company with a unique technology, product or service offering, will often allow them to differentiate their end-product in the market, gain market share, and address new emerging market opportunities, much faster than they would be able to by developing the technology, product or service offering on their own. This mutually beneficial relationship results in a win-win opportunity for the start-up company as well as the market leader.

Allow Customers to Drive Your Strategic Road Map

Many start-up companies do not have a well defined product road map. This is generally seen by investors as a gaping hole within their business plan, as only presenting a single product offering often indicates to investors a lack of familiarity with the market, and the long-term general market trends.  Seldom are start-up companies successful with their first product offering. Often, given market competition and the rapid pace of a changing market, these same start-up companies only become successful, gaining significant market share, after their second or third generation product offering.  So, only presenting a single product offering to your investors is a recipe for disaster.  This is where your customers can have a large impact on the future product offerings of your start-up company.  By engaging early with your customers and listening carefully to their needs and the market requirements, you can allow these same customers drive your product strategic road map. This will provide you with a basis to move forward and although it may change over time, a customer driven product road map is invaluable when presenting to you potential investors.  Nothing is more valuable to an investor presentation than having real customer input, based on actual conversations with your target customers. This provides instant credibility and market expertise not available by any other means.

Develop Valued Customer Relationships for Your Future Success

Developing valued customer relationships is a key to the success of any start-up company. Doing so allows you to gather invaluable input, vet new ideas, and at the same time stay close to the market trends.  Remember a “market driven” company will have much more long term success in their targeted market than that of a “technology driven” company. So, as a start-up company you need to value your customers, listen to their input, and reflect this invaluable information in your product development plans and associated product road map.  Too often, companies tend to believe they know more about the market than that of their customers. This is not the case.  Since your customers are one step closer to the end market application they are the ones to drive the technology, product or service features for your current and next generation product offerings.  Remember to use these same customers as a basis for your decision making and learn to value this relationship, as it will provide you with invaluable insight to both the near term and long term trends in the market.   

Knowing your customers will help drive your start-up company to success in the market.  By knowing your customers, determining your target market segments, developing strong strategic alliances, presenting a customer driven product roadmap and ultimately valuing your customers, you as an entrepreneur will be miles ahead when presenting to potential investors.  This customer familiarity will help you develop successful product offerings, both near term and long term, and at the same time allow your start-up company to secure significant market share, ensuring your long term success in the market.  So get out there and talk to your customers, you can only benefit from such one-on-one interaction ant it will help drive your start-up company to success in the market place.

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June 29, 2009 Posted by | Customers, Strategic Alliance, Target Markets, Venture Capital, venture finance, Venture Funding | , , , , | 1 Comment

A Business Idea or Concept Does Not Make A Venture Fundable Business Proposition

Every year millions of individuals come up with a business “idea” or “concept” that they believe could be the beginning of a fundable start-up venture.  While many of these ideas or concepts may have merit at the 30,000 foot level, it is the process of taking a business idea or concept and making it a valuable business proposition that makes the difference between a fundable start-up company with a technology, product or service offering, or just a business idea or concept, to be left by the potential entrepreneur as a passing thought. This article addresses some of the basic steps that need to be addressed to take your business idea or concept and create a real business proposition that can then be presented to the venture funding community.

Is There a Market for your Business Idea or Concept?

As a potential entrepreneur interested in developing your business idea or concept, the first place to start in your due diligence planning process is to analyze the market.  Here, you need to identify and then determine which target market or markets are addressable with your proposed technology, product or service offering.  No market means no potential for selling your business idea or concept. Remember, the last thing you want to do is develop a product that is looking for a market. You need to solve a “problem” or “market need”. That being said, you not only have to identify which markets may use your product offering, you have to determine the basic characteristics of these markets including:

  • Market size (Revenue and Unit Sales), and
  • Market growth (High Growth, Low Growth, Declining Growth).

Both of these market characteristics have an effect on the ability to sell your idea or concept and at the same time generate a “scalable” business that will be attractive to potential venture investors.  For these given market characteristics, you want to identify markets that are large and are growing. These are the ideal characteristics of the target markets for your proposed business idea or concept. 

 Does your Business Idea or Concept Have a Long-Term Sustainable Competitive Advantage in the Market?

Just having an idea or concept does not necessarily imply that you will be successful in the market.  From an investor’s point of view, you also need to have a long-term sustainable competitive advantage in the market. Here, investors look to invest in start-up companies with an idea or concept that they consider to be “disruptive” in nature.  That is, the idea or concept needs to change the “basis of competition” within the targeted market(s) or sub-market(s) of interest. A disruptive technology, product, or service offering, with a long-term sustainable competitive advantage does not invoke an evolutionary change in the basis of competition (e.g., 10% cost reduction), but a revolutionary change that results in a new competitive paradigm shift for a given market. A revolutionary idea or concept can address any or all of the following:

  • A shift in the structure or nature of the technology offering in the market,
  • A significant reduction in the average selling price,
  • A significant reduction in the time-to-market, and
  • A new avenue for sales channel logistics.

Overall, the underlying theme of a disruptive idea or concept is that it provides the means and justification for the target customer base to change their status quo and go with your start-up company with its new technology, product, or service offering as a way to facilitate and obtain a competitive advantage in the market. Historically, there have been many companies with unique, disruptive technologies that have changed the basis of competition in the market and at the same time created a long-term sustainable competitive advantage in the market, some of these companies include: Ford Motor Company, Apple Computer, Google, Netflix, etc.

Does the Business Model of Your Idea or Concept Reflect an Industry Standard Business Model?

Venture investors are risk adverse.  This concept is not really intuitive for potential entrepreneurs, but by the very nature of their business they need to “manage” risk to protect their investments, and at the same time secure a return for themselves and their limited partners.  That is, investors do not invest to lose money!  With that being said, typically investors look for ideas or concepts that have business models that reflect well understood standard business operations for a given industry.  This allows these same investors to weigh the advantages of your business idea or concept over an industry standard financial model to see where and how you are going to secure a financial advantage over your competitors. Therefore, when developing your business idea or concept, look to the industry leaders in your market and model your financial statements (e.g. income statement, balance sheet and statement of cash flows) after these competitors.  This will provide your investors with a basis for their financial analysis, and at the same time provide a historical reference point to measure your projected financial success in the market. 

What is the Projected Return on Investment for your Business Idea or Concept?

As part of developing a legitimate business idea or concept, you need to determine what the potential financial investment returns are for your prospective investors.  This concept, although not foreign to most potential entrepreneurs, does provide issues for most first time entrepreneurs, from a practical point of view.  In general, it is understood that venture investors look for a 5 to 10 times their invested capital in a 3 to 5 year period, respectively.  These numbers reflect expected historical financial returns and should only be used as a reference point. Some venture investors expect more, some will take less, but the key here is to develop financial pro forma statements that meet the expected returns of potential investors and at the same time are defendable.  Here, the best thing to do is develop three financial scenarios for your business idea or concept, including a:

  • Best case scenario,
  • Typical case scenario, and
  • Worst case scenario.

By doing this, you will have fully analyzed all financial aspects for your proposed product idea or concept.  In the end, you will have to pick one financial scenario to present to your potential investors.  But, by going through this financial scenario analysis, you will have a good solid basis for discussing the expected financial returns of your business idea or concept with your potential investors.

Who are Your Customers and How are You Going to Bring Your Idea of Concept to Market?

Another key attribute to developing your idea or concept is to identify your target customers and determine your appropriate sales channels for your technology, product or service offering.  These items are often over looked by first time entrepreneurs, and together are often a stumbling point for presenting your business idea or concept to your potential investors.  Here, one of the best things to do first is to identify your customer base and then break it down into tier one and tier two customers.  This will allow you to position your potential customers and determine, in your go to market strategy, which customers you talk with first and then second. In my experience, it is better to talk to your first tier customers second.  This will allow you to work out any issues regarding the presentation of your idea or concept to your customer base.  Then, by the time you talk with you first tier customers you will have already been exposed to most of their questions, and at the same time, this strategy will facilitate for a much smoother presentation.

Finally, you need to identify the sales channels you will develop to address your customers.  Whether, direct, indirect, or virtual, you need to spend the time to think through your sales channel strategy and determine why this will support your product idea or concept and at the same time provide the level of market penetration to allow you to be successful in the market. Here, a successful channel strategy can accelerate your time to market and break even, increasing the return on investment for your start-up company and your investors.

Having an interesting idea or concept is not enough to get venture investors’ attention.  As a potential entrepreneur, you need to develop your idea or concept into fundable business proposition.  Addressing the market, competition, business model, expected financial returns, customers and channel strategy, will get you moving in the right direction for developing a fundable business proposition.  The steps outlined here should be used as a baseline for any entrepreneur working to develop their idea or concept into a fundable business proposition and moving it to the next level with potential investors.

June 22, 2009 Posted by | Venture Capital | Leave a comment

Entrepreneurs: Your Executive Summary Sets the Tone For Your Potential Venture Investors

Your start-up company’s executive summary is typically the first document potential venture investors review when considering your start-up company as an investment opportunity. The quality of this document therefore sets the tone for these same venture investors (e.g. individual angels, angel groups and venture capitalists). A quality executive summary may be the difference between securing a meeting in front of potential venture investors or not receiving a call back.  Therefore, by considering the executive summary as their “door opener”, entrepreneurs need to focus on developing an “investor quality” document to put their best foot forward when introducing themselves and their start-up company to potential venture investors. This article outlines some of the things that entrepreneurs need to consider before they provide their start-up company’s executive summary to their potential venture investors.

Does Your Executive Summary Have the Appropriate Content?

The executive summary is a key element of the road show process. This document is used as the “entry” vehicle to secure the attention of venture investors. A well-written executive summary is necessary to securing a follow-up phone call and subsequent meetings with the venture investment community. The executive summary provides a two- to three-page overview of the company’s business plan. This document is to include an overview of the company, its technology, product, or service offering, as well as its management team and the financial requirements and expected return on investment. The executive summary must be a well-written, succinct document that describes all the essential points that are of interest to venture investors. Content to be included in an executive summary includes the following:

  • Company Overview
  • Background and Milestone
  • The Problem/Value Proposition
  • The Technology, Product, or Service Offering
  • Target Customers
  • Market Size
  • Market Strategy, Tactics and Execution
  • Competition Summary
  • Financial Projections
  • Management Overview
  • Funds Requirements and Use of Funds
  • Exit Strategy

 It should be noted that an “investor-quality” executive summary is very difficult to write and takes many hours of work by the whole management team of your start-up company.  But, given the importance of this document to securing your first meeting with potential investors, it is well worth the effort.

 Is Your Executive Summary Succinctly Written?

It needs to be emphasized that a considerable amount of time and effort should be spent by the management team of your start-up company to develop an “investor-quality” executive summary. This often requires that the management team to write, and then rewrite and rework the executive summary document many times, in different formats or layouts to get a succinctly written document having the proper flow, content, and message.

As previously mentioned, this document sets the tone by providing the proper introduction of your start-up company and its technology, product, or service offering that will determine whether you receive a call back and are able to arrange a first meeting with venture investors. So, the importance of this document can not be underestimated.  Your executive summary is the document that will make the difference between receiving and not receiving a call back.

To ease the process of developing an “investor-quality” executive summary, there are several items to adhere to during the development of your start-up company’s executive summary, including:

  • Length: 2-3 pages – The ideal length of an executive summary is two pages. Often, executive summaries are three to five pages in length. It should be noted that venture capitalists have a limited amount of time to review your executive summary and, as such, the shorter the better and the more likely it will be read. 
  • Font: 10 point or larger – Typical font size for an executive summary is 10 to 12 font. Anything smaller is not readable and will generally deter your target audience from reading your executive summary.
  • Sub-heading and bullets – The use sub-headings and bullet points to enhance the story is recommended in the development and presentation of your executive summary. This does two things: 1) It provides the reader with a format that is easy to read; and 2) It allows the venture investor to identify the “key” elements of interest in an executive summary at a simple glance.

Therefore, having a succinctly written, executive summary, based on the tenants outlined above, and at the same time providing the appropriate content and message is a big step toward receiving a call back from potential venture investors.

Does Your Executive Summary Contain Financial Pro Forma Statements?

Many times I receive executive summaries from start-up companies that do not contain any financial pro forma information. This is like buying a car without a steering wheel and an engine.  Without providing the appropriate financial pro forma statements in your start-up company’s executive summary, investors will not know where you are going or how fast you will get there.  Since your potential venture investors are financial managers, they are primarily reviewing your start-up company based on the potential return on investment it can provide them in a reasonable time frame.  They are not really concerned on how “cool” your technology is or by how “neat” of a product offering you are developing for your target customers. Potential investors, first and foremost, review your start-up company based upon its projected financial performance.  Therefore, you must spend a considerable amount of time putting together financial projections that are:

  • Defendable,
  • Have the appropriate back up details, and
  • Reflect industry standard financial statements.

 By not providing financial pro forma projections or by providing financial statements (e.g., income statements, balance sheet cash flow statements) that are inaccurate, un-defendable, or do not reflect typical industry financial standards, your executive summary is by definition an incomplete document.  Therefore, it is very important to include financial projections in your executive summary to ensure that you receive a call back from potential venture investors.

Have Your Executive Summary Reviewed By Third Parties.

All start-up companies should have their executive summaries reviewed by independent third parties that have experience securing funding from the venture funding community.  This review process will ensure you do not miss something and will provide the appropriate type of critique that will add value and quality to your executive summary.  You should have several colleagues review your executive summary. This will allow you to consider multiple input sources and at the same time provide you with many difference perspectives on this summary document.  Remember having originally generated your executive summary, you are too “close” to it and need an unemotional third party to review your document from an objective point of view.  This will enhance the quality of your start-up company’s executive summary and often, at the same time, improve the end product.

 Have You Done Your Due Diligence On Your Investors?

Many entrepreneurs do not spend the any time doing due diligence on their potential venture investors.  This is important, as you want to target only those investors that will have an interest in your start-up company and its technology, product or service offering. Therefore, doing the appropriate level of due diligence will ensure that you are targeting the appropriate investors for your start-up company and its technology product or service.  Several items to consider when doing your due diligence on your potential venture investors include the following:

  • Geographic focus,
  • Stage of development focus,
  •  Capital required,
  • Industry specialization, and
  • Deal leadership.

All of these items will affect whether a given venture investor will consider your start-up company as a potential investment opportunity. So, before you approach any venture investor, you should research their background, their past investments, as well as their strengths and weaknesses. This will more likely insure a positive experience with your target venture investors.

 Developing your executive summary is the important first step in securing a meeting with potential venture investors. The quality of your executive summary sets the tone with your potential venture investors and can be the difference between securing your first investor meeting or not receiving a call back.  It is important as an entrepreneur to understand the importance of your executive summary and create an “investor quality” document with the appropriate flow, content, and message to get your potential venture investor’s attention. By spending the appropriate amount of time an effort creating your start-up company’s executive summary you can ensure that you will get the attention of the venture funding community.

June 15, 2009 Posted by | angel investors, Executive Summary, Venture Capital, venture finance | , , , , , , | 4 Comments

Just Because You Completed Your Road Show Materials Does Not Mean You Are Ready For Prime Time

The development and completion of your start-up company’s road show materials, the deck of PowerPoint slides that are used to present your company to potential third party venture investors, is just one step toward engaging in the venture funding of your company.   Many entrepreneurs having completed this task believe that they are ready to present their start-up company and their business plan to potential venture funding investors (e.g., individual angels, angel groups, and venture capitalists).  This is often far from the truth.  Just because you have completed your road show materials, does not mean you are ready for “prime time”.  This article outlines some of the things that entrepreneurs need to address before they go on the road to present their start-up company and their business plan to their potential venture investors.

Does Your Road Show Materials Have the Appropriate Content?

Many entrepreneurs believe they know what venture investors want to see in an investor pitch, but have never developed a road show pitch for venture investors.  This can be fatal, as venture investors have very little tolerance for start-up company road show pitches that do not contain the appropriate content for these same venture investors to determine if your start-up company is of interest to them.  As a minimum requirement, a road show presentation provides a 12- to 15-page overview of the company’s business plan. These materials are to include an overview of the company, its technology, product, or service offering, as well as its management team, and the financial requirements and expected return on investment. The road show presentation materials must be a well-written and organized document that describes all the essential points that are of interest to the private equity community. Content to be included in the road show materials are as follows:

  • Company Overview
  • Background and Milestones
  • The Problem/Value Proposition
  • The Technology, Product, or Service Offering
  • Target Customers
  • Market Size
  • Market Strategy, Tactics, and Execution
  • Competition Summary
  • Financial Projections
  • Management Overview
  • Funds Requirements and Use of Funds
  • Exit Strategy

It should be noted that “investor-quality” road show materials are very difficult to develop and take many hours of work. Often, the road show materials are rewritten many times to get the message right for your targeted investors.

  Have You Practiced Your Pitch?

Entrepreneurs need to practice their pitch.  This is invaluable, as presenting your company to venture investors is never a smooth experience.  Typically, for a presentation in front of potential private equity investors, you will have approximately one hour of time. Therefore, you must allot your time wisely. It should be noted that during this same time period, the investors also would like time for a question and answer session. Therefore, as a rule of thumb, for this one hour period of time, you should allow approximately 20 minutes for “the pitch” and 40 minutes for questions and answers. Therefore, you should practice your road show pitch.  That is you need to know what your important key points are for each slide of your road show presentation.  As you most likely will not be given an uninterrupted 20 minute time slot to just pitch your company and its technology product or service offering.  More often than not, investors will interrupt you in the middle of a sentence or thought.  Therefore, by practicing your pitch and knowing the one to two key points you are trying to get across on each slide you will be able to quickly and succinctly regroup your thoughts and then highlight these important key points, even after investor interruptions.  By practicing your pitch, this will make your overall presentation go much smoother and ensure that you get your important key points across to your potential venture investors, even under difficult circumstances.

 Does Your Message Come Across to Your Investors?

As an entrepreneur, you know your start-up company and its technology, product or service offering better than anybody else.  At the same time, and more often than not, the investors have not read your executive summary and/or business plan and this is your first real chance to get your message across to your investors.  Therefore, you need to ensure that during the road show presentation, that your message, on each slide, comes across loud and clear.  Knowing that investors always are reading ahead of you and your verbal presentation, you should make sure that each slide clearly states “your intended conclusion” somewhere on the slide.  This typically can be a subtitle or a conclusion statement at end of the slide. By doing this, you ensure that your potential investors come to your intended conclusion and not to a non-related conclusion on their own.  This is a key to your success as you want the venture investors to clearly get the message you want them to hear on each slide of your road show materials. So remember, to carefully prepare your individual road show slides with your conclusion in mind and clearly state this conclusion on each individual slide.

 Are You Prepared for Questions?

Road show presentations are by definition an interactive venue between the start-up company, its team and the potential venture investors.  As previously stated, for a one hour road show presentation you can expect a minimum of 40 minutes of questions from your potential venture investors. Some questions will be easy. Some questions will be hard.  Some questions will come with an agenda and some questions will be solely intended to trip you up.  Therefore, you need to be prepared.  As the single person representing your start-up company, you need to be the expert on all aspects of your business. You should not defer questions to other team members or third party consultants.  If you are the CEO of the company, the buck stops with you, and the venture investors will expect you to answer all of their questions, quickly and succinctly.  So as an entrepreneur you can also expect some venture investors to appear a bit confrontational.  This may just be their demeanor. But, you need to address every question with clear and truthful answers. If you do not know an answer, it is better to say, “I don’t know and I will get back to you”, as venture investors are typically smart enough to see through answers that are untruthful or do not make sense.  So, as the sole person representing your start-up company during your road show presentation, you can expect many questions and you need to be prepared for all of them.

 Do Several Trial Runs to Prepare For Investors

Before you get in front of your venture investors, it is important to go through several trial runs of your road show presentation.  These initial dry runs can be internal presentations with your management team. This will typically be your first opportunity to get feedback on your road show materials and its content, your presentation style, and the overall effectiveness of your road show presentation.  In addition to an internal trial presentation, it is important to get third party input from either investors or other individuals with experience presenting to third party venture capital investors to provide you real time feedback on your presentation. Although not the real thing, this will provide you with more insight to effectiveness of your road show materials and the actual presentation itself. This will also allow you to identify any key issues with your road show presentation before you get in front of your real investors.  It will also provide you with a level of comfort that is only achieved by presenting your road show pitch to independent, third party individuals.

Developing your road show materials is only one part of preparing to present your company and its business plan to their party equity investors. To be sure your road show presentation is effective you must be sure that your road show materials contain the proper content, that you know your road show presentation materials inside and out, that the message of your presentation comes across, that you are prepared for questions, and that you have had several trial runs with various third parties.  All of this will help you prepare for your actual road show presentation, in front of actual venture investors, and at the same time increase your confidence with your actual road show pitch.  So, be sure that you properly prepare and you can ensure a more enjoyable investor road show presentation with their party equity investors.  Remember, you never get a second chance to make a first impression.

June 8, 2009 Posted by | Venture Capital | 1 Comment

When Seeking Venture Funding Don’t Forget to Focus on Your Business

The process of securing venture capital or any other type of private equity funding is very time consuming.  With all of the preparation, travel, presentations and required follow-up, entrepreneurs often forget to focus on their business.  This article reminds entrepreneurs that while focusing on their venture fund raising activities is important to move their start-up company forward, they need to remember to focus on their business and to move it forward, as this is just as important of an activity as is venture funding is for their start-up company.

Fund Raising is a Time Consuming Activity.

Ask any entrepreneur that has secured venture funding, and they will tell you that it is a very time consuming activity.  First, there is the materials preparation, including the development of your start-up company’s:

  • Executive Summary,
  • Business Plan, and
  • Road Show Materials.

Each of these documents, individually, can take substantial development time, working and then re-working to get them to the level of being investor-quality documentation.  As such, it usually takes several months of research, due diligence, creation, writing and then re-writing to develop the appropriate investor documentation.  Also, getting the attention venture funding investors (e.g., venture capitalists), just to schedule a meeting, can be very laborious and challenging for entrepreneurs.  This is especially true if you do not have a lawyer or some other person to provide your start-up company with the appropriate “soft” introduction to the investor community. Then, there is the required travel, presentations and follow-up with each of the individual venture investment groups, just to get to the next level of potential investor interest.  So, as can be described by seasoned entrepreneurs, venture fund raising is a very time consuming and difficult task that can take all of your available time, if you let it. This leaves little time to focus on your start-up company’s day-to-day business related activities.  This is not a recipe for a successful start-up business as there a multitude of issues that need to be addressed daily to ensure your start-up company in moving in the right direction and at the same time creating value for your company.

 Fund Raising Takes Time.

Many entrepreneurs assume that they can secure venture funding in two months or less.  This is not realistic.  Even in a good economy, it takes a typical start-up company 6 to 12 months to secure venture funding for the development of their technology, product or service offering.  This time table assumes that you have contacts in the funding community, and can set up your initial meetings with investors fairly early in the funding process.  If this is not the case, then you can add on a few months to just schedule your initial meetings with targeted investors.  Also, in today’s economy, this funding time table is even longer, given the fact that in slow economic times, investors tend to stick with their current investments, making it just that much more difficult for entrepreneurs to secure funding, from these same investors, than it would be in a strong economy.  Therefore, as an entrepreneur, you need to look at a realistic time table for securing venture funds, and often the resulting time table is much longer than originally anticipated.  This can make the funding process and the associated time frame can be even more detrimental to the overall development of your start-up company.

You are in Business to Create Value for Your Company.

As an entrepreneur, you are in business to create value for your company.  This means that in addition to securing venture funding, you must work diligently to move your company forward, with or without funding, such that you are creating value for your company every day.  This should be your personal expectation and it surely is the expectation of your investors.  They have to believe that even without funding that you and your executive team can continue to use creative ways to move your company forward and at the same time creating underlying value for your company in the market.  This can include:

  • Securing customers,
  • Aligning with strategic partners,
  • Developing your sales channels,
  • Continue to market your company to target customers,
  • Working with early “beta” test customers,
  • Moving product development forward to the next level, and
  • Other.

All of these activities and many others can create inherent value for your start-up company, both in the market and to your potential investors.  So remember, that securing venture funding is only one vehicle that can be used to move your company to the next significant value level. There are many other things you can do on your own through securing customers, the development of a strategic partnership, or bootstrapping that can also create near term value for your start-up company, and at the same time prove to your investors that you have the ability to move your start-up company’s business forward, even in non-ideal financial circumstances.

Continuing to Focus on Your Company’s Business is Often Beneficial.

During the venture funding process, focusing on your company’s business can take you away from the everyday hassles associated with venture funding.  This can be a good thing. By continuing to simultaneously focusing on your company’s day-to-day business activities, you can move your company forward to the next level and accomplish significant milestones that will be beneficial to your company.  This business focus can also create new opportunities that were not originally available to you and your company at the beginning of the venture funding process.  Remember, the venture funding road is a long one, and continuing to knock down significant development milestones, securing customers, or developing strategic partnerships, etc. can be just the ticket to get the attention of your investors.  Also, often, significant business opportunities often take time to develop and by continuing to focus on your business, while your are raising funding, can often provide the required time period for such opportunities to develop and take hold for your start-up company. 

Focusing on Your Business Can Facilitate Funding.

In the end, by focusing on your business while working to secure venture funding may be the vehicle that facilities the funding for your company.  No company can go for 6 to 12 months, without focusing on their business.  In addition, by developing new business opportunities during the funding process, you continue to create value for your company and its potential investors.  One or all of these business activities together, may be just the ticket that gives your potential investors the proof that your company is the one they are willing to risk their monies on to provide the types of returns they require.  Therefore, continue to focus on your company’s business and your investors will recognize the value you are creating during for your start-up company, even before you secure funding from third party investors.

Focusing on venture funding is just one phase of your start-up company’s development.  But, your company’s business is the real item that needs to be developed to create value for your company.  Therefore, while you are trying to secure funding for your start-up company do not forget to focus on your business.  By doing so, you can create significant value along the way and at the same time help facilitate the venture funding of your start-up company.

June 1, 2009 Posted by | Business Planning, Finance, Venture Capital, venture finance, Venture Funding | , , , | 1 Comment