Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Three Things to Focus on Before You Get in Front of Investors

Entrepreneurs have a lot of things to focus on when developing their business concept into a fundable business plan.  Assuming you have a solid business proposition and long term competitive advantage in the market, there are three things you need to focus on before you get in front of your first angel group or venture capitalist. By focusing on these three things, you will be able to provide investors with an initial level of assurance that you can help drive your start-up company to success in the market. If you do not do so, this will eliminate any chance of receiving venture funding from angel groups or venture capitalists.

Bring Your “A” Team to Play

Investors want to know that your executive management team is a seasoned team that has the experience, background, and knowledge to successfully execute your business plan.  In fact, they insist on this. This is so important that investors would rather invest in an “A” team and a “B” product than a “B” team and an “A” product.  As such, the first thing they focus on, after they determine they “like” the proposed investment opportunity, is the executive management team.  Here, you must have a seasoned team that has the appropriate level of experience in the targeted market(s) of interest.  This is very important, as investors believe that it is the team and not the product that will make your start-up company successful in the market.  Therefore, if you do not have a seasoned team, go out and identify and then secure the appropriate executive team members that can lead your start-up company to success.  Here, you need to make a critical assessment of not only your personal skills and capabilities, but the skills and capabilities of your other team members.  If you do take the time to secure the appropriate team members, your investors will either pass on the investment, or decide to invest and then clean out the existing executive team members, only to put in their own seasoned management team.  This is not a threat, but the reality of how investors work. Remember, they have the money and money writes the rules.  So, take the time to put together your best “A” team.  This will serve you will in front of your investors.

Focus on Developing Defendable Financial Projections

It should be remembered that venture capitalists are really “glorified” financial managers.  This means that they only make money if you make money.  So, generally, they are experts at analyzing financial statements to identify the holes within your start-up company’s financial projections.  Therefore, as an entrepreneur, that will be presenting your business proposition to “financial-focused” investors, you need to make sure your financial projections are defendable.  That is, you have to properly rationalize your development costs and the ramp up of your revenue projections.  In addition, your start-up company’s financial pro forma statements need to follow standard, generally accepted accounting rules, and at the same time present financial pro forma statements that are similar in structure to other competitors within the same market space.  If you do not do so, investors again will either pass on your investment or require you develop appropriate financial projections that represent acceptable norms within your targeted industry.  Remember, venture capitalists only get paid if your start-up company is financially successful. Therefore, their initial focus will be on your financial projections. So, take the time to develop defendable financial projections, this will provide you with a much smoother road in front of investors.

Determine Your Plan to Secure Near Term Market Traction

Your start-up company may have a great technology, product or service offering, but if you cannot convince investors that you can get near term traction in the market, these same investors will pass.  Let’s be clear, investors focus on “time-to-money”, as this provides them with the highest return for their investment.  Hence, these same investors want to see that your plan to secure near term market traction is not only logical, but provides the best path forward for your start-up company.   Therefore, before you get in front of investors, you need to determine a near term, go to market plan that will provide you with traction in the market. That is, you need to secure customers as soon as possible, as investors want to know how you are planning on doing this. So, before you get in front of your investors you need to not only identify your target customers, go market strategy and tactics, and sales channels, you have to have mapped out a plan that provides your start-up company with the ability to execute appropriately.  Anything less will not impress your potential investors.  Remember you are in business to secure customers and having developed a plan to secure this near term market traction is a key increasing investors’ interest.

Assuming you have a solid business proposition and long term competitive advantage in the market, there are three things you need to focus on before you get in front of any investors. This includes, bringing your “A” team to play, developing defendable financials and determining your plan to secure near term traction in the market.  Anything less will fail to impress your investors and at the same time will provide them with an excuse to pass on your start-up company and the investment opportunity it offers.  So, take the time to focus on these three things, by doing so you will substantially improve your chances of securing funding.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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January 25, 2010 Posted by | Venture Capital | , , , , , , , , | 1 Comment

Entrepreneurs, Rationalizing Your Financial Projections is an Important Step to Completing Your Business Plan

Most entrepreneurs focus on developing their financial projections at the same time they are trying to finalize their business plan.  This is done for many reasons, most likely of which is that they do not know much about financial statements and push off developing their financial projections until the last possible moment before they compete their business plan. Often in a rush to get in front of potential investors, these same entrepreneurs do not spend the necessary time to really understand and logically rationalize their financial projections.  Therefore, when they present to investors they may have a great technology, product or service offering that secures the initial attention of these same investors, but they have not spent the necessary time to properly rationalize their financial projections and as such will often immediately lose this same investor interest.  To keep your investors’ interest, you must rationalize your financial projections so that they are logically defendable in front of these same investors.  If you do not do so, this will eliminate any chance of receiving venture funding from seasoned angels or venture capitalists.

Rationalize Your Revenue Projections from the Bottom Up

Revenue projections need to reflect reality.  Often, entrepreneurs have very unrealistic revenue projections that cannot be rationalized by any logical means.  To develop revenue projections that are rational, it is important to start from the bottom up to build out these same revenue projections. This bottom up approach will allow you to logically estimate the necessary time it takes to engage customers and then secure revenue from these same customers. It will also allow you to build up reasonable product volume projections that are realistic and rational. In addition, as an entrepreneur you need to understand the basic fundamentals of your financial projections including, revenue sources, gross margins, operating costs, and net margins.  If you have not spent the time to understand the fundamentals of your start-up company’s business model and the rationalized your financial projections based on these fundamentals, your financial statements will not hold up to the scrutiny of seasoned investors.  Therefore, take the time to rationalize your revenue projections from the bottom up. By doing so, you have then developed a logical approach to building up your financial statements that will serve you well in front of your potential investors.

Rationalize Your Development Costs

Another step in developing defendable financial statements is to present development costs that also reflect reality.  Investors are always worried that it will take twice as long and cost twice as much money for an entrepreneur to develop and then introduce their technology, product or service offerings to the market.  As such, they are wary of overly optimistic development cost projections. Therefore, again, it is important to start from the bottom up and build out your development cost projections and staffing requirements.  Here, you need to take into consideration when your initial technology, product or service offering is to be introduced into the market and how many individuals will be required for this effort. You also need to take into consideration necessary ramp of staffing requirements. Too steep of a ramp, can delay development, and at the same time may leave many of these same individuals with nothing to do once their initial tasks are completed. Therefore, you need to add development staff at a rational and reasonable pace and level that not only reflects your near term development needs, but also reflects your long term staffing requirements as you introduce follow-on products into the market.   So, you need to be prudent and hire only the necessary development staff that fits your start-up company’s near term development needs and at the same time also reflects your long term product roadmap and its development staffing requirements.  Therefore, take the necessary time to rationalize you and development staff the costs associated with it.  Again, this will serve you well in front of your potential investors.

Identify and Delineate Significant Delivery Milestones

One of the biggest mistakes entrepreneurs make is to not identify their significant development and delivery milestones to potential investors.  That is, they do not delineate those significant milestones that will be delivered for the targeted amount of funding they are requesting.  Once you rationalize your revenue projections and development costs, as an entrepreneur, you need to identify and then delineate, in a rational manner, what the significant milestone deliverables are for this investment.  Accordingly, most start-up companies require multiple rounds of funding, so investors need to know what significant milestones will be delivered for each round of funding.  Do you have a beta product at the end of your first round of funding?  When can you begin to secure revenue from your customers?  In essence, you need to delineate to investors what you are delivering in terms of significant milestones to get your start-up company to the next level of funding or into the market.  Anything less is not acceptable.  Finally, by delineating your milestone deliverables, investors have something to measure you by to determine if you are performing according to your original pre-funding plan. So, as an entrepreneur take the time to properly identify and delineate the appropriate significant milestones as this will allow investors understand what they will be receiving for their investment. 

Before you get in front of any investors, you need to properly rationalize your financial projections.  To do this, you need to delineate your revenue projections, determine your development costs, and identify significant milestones.  By doing so, you will be developing a logical representation of your business model and its financial projections.  In addition, you will be determining the necessary staffing requirements that reflect your start-up company’s near term and long term development requirements. Finally, you will be delineating to your investors the necessary delivery milestones that will not only add value to your start-up company, but provide measureable tasks in which investors can determine your performance.  So, take the time to rationalize your financial projections as it will serve you well in front of your potential investors.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

January 18, 2010 Posted by | Venture Capital | , , , , , , , , | Leave a comment

Entrepreneurs, Trade Shows Can Be Useful Events to Move Your Start-up Company Forward

As the entrepreneur of a start-up company you need to take advantage of anything that will help move your company forward.  Trade shows are focused events that often only take place once a year.  Generally, these events bring together a broad set of senior management and other individuals with a common interest in technologies, products or services for a specific industry.  As a start-up company looking to get your name out there, you need leverage these trade show events to your advantage. To do this, as a start-up company with limited funds, it is most cost effective to just attend these events as a “registered attendee”. This does not cost much money and will provide your start-up company with the maximum amount of exposure for a limited amount of money. This article focuses on some of the things to consider and do when attending a trade show.  If done properly trade shows can be useful events to move your start-up company forward.

Focus on the Correct Trade Show Events

As part of your business planning process and ultimately outlined in your business plan, you need to focus on attending a limited number of trade shows each year.  If you are an industry insider you will know which trade shows that are important to your targeted industry.  If you are not, talk to your customers and ask them which trade shows they regularly attend on an annual basis.  All trade shows, even within the same industry, have different focuses, and as such, some trade shows, although similar in theme, are much more important and effective to attend than others.  Unless you have attended a specific trade show, you will not really know which events are more valuable to your start-up company and its technology, product or service offering.  Therefore, it is very important to not waste your time and money on trade show events that will not bring significant value and result in a productive experience for you and your start-up company. 

As a minimum, you should plan on attending three to four trade shows a year.  This will provide you with a broad exposure to what is going on within your industry and will also allow you to consider which trade show you will need to exhibit at in the future.  So, as an entrepreneur, you need to focus on the correct trade shows that will bring the most value to your start-up company. Generally, these are trade shows that are focused on your end customer base and at the same time are closest to the end market application that you are targeting as a vendor.  Doing this, will allow you to focus only the necessary trade shows that will help move your start-up company forward.

Set up Your Important Meetings Ahead of Time

One of the keys to having a successful trade show is to set up your meetings with important current and potential customers and possible strategic partners a head of time.  This is very important, as with most industry focused trade shows, they are widely attended by the senior management of virtually all customers and vendors that are important to that particular industry.  Therefore, you have the ability to meet with all of your potential customers and many possible strategic partners, and show them your technology, product or service offering by only having to travel to a single event. Therefore, you need to necessarily take advantage of this opportunity.  So, several weeks to a month ahead of time you need to get on the phone with your current and potential customers and set up times to meet with their senior management at the trade show.  These meetings generally last an hour and are often where start-up companies can meet “face-to-face” with their key senior management of their customers for the first time.  These events and associated meetings are often very productive for both parties and can be the beginning of a long term relationship. 

The same is true for potential strategic partners.  If you are aware of a company that has a technology, product or service offering that can complement or supplement your start-up company’s product offering, it is important to set up a meeting with the appropriate individual within senior management from this company so that you can meet them and properly explain the potential value and synergies of your company’s working together.  Therefore, for each trade show you attend, it is very important to get on the phone and set up as many potential meetings as possible. This will provide for a productive event and allow you to move your start-up company forward.  

Prepare and Attack the Trade Show Floor

As a start-up company, attending a trade show, it is important to set aside the appropriate amount of time to walk the trade show floor.  This walking the floor of the trade show should not be a random event.  To take the most advantage of your limited time available at the event you need to first prepare and then attack the trade show floor.  To do this, after you register, you need to sit down and spend the appropriate amount of time to go over the trade show guide and exhibitor map and identify those exhibitor booths that you would like to visit as potential customers and strategic partners. In addition, you need to identify all of your competitors and visit their booths to better understand what they are showing, and to pick up as much G-2 that you can on their technology, products or service offerings.  By diligently mapping out your targeted customers, strategic partners and competitors, you can then put together an attack plan to make the best use of your time while you are on the trade show floor.  Also, remember, it is very important meet and talk with the appropriate senior management at your targeted companies of interest. This should also include your competitors.  If these individuals are not available, get their card and contact information.  This will be invaluable for follow-up to the trade show and will allow you to contact them as appropriate after the event.  Therefore, it is very important to make the best use of your time while you are on the trade show floor by first planning and then attacking the floor to the best advantage of your start-up company.    

Trade shows can be very useful events to help move your start-up company forward. By focusing on the correct trade shows, setting up your important meetings ahead of time, and properly planning and attacking the trade show floor, even with a limited budget, you can make the most of these events. This can include meeting and engaging the appropriate potential customers, strategic partners and competitors.  Therefore, as an entrepreneur, you need to identify and attend a limited number of targeted trade show events each year.  By doing so, you will have the opportunity to identify and then develop and nurture the necessary relationships to move your start-up company forward in the future.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

January 11, 2010 Posted by | Venture Capital | , , , | Leave a comment

Entrepreneurs, to Build a Successful Start-up Company You Must Create Value Everyday

Entrepreneurs need to necessarily focus on creating value for their start-up company.  From an initial “idea” or “concept”, entrepreneurs need to continually focus on moving their start-up company forward to the next step in its development. This is accomplished by creating value for your start-up company and focusing on those items that necessarily make a difference to both your targeted customers and to your investors.  As an entrepreneur, you are not in the business of developing technology for technology sake or the “cool” factor.  You are in business to acquire paying customers.  To do this, you must create attractive value that facilities customers’ desire to buy your technology, product or service offering.  From the initial concept, to identifying your business proposition, to developing and delivering your first prototype, to acquiring your first paying customers, entrepreneurs need to focus on value added activities that move their start-up company forward from inception, through funding, to a functional, cash flow positive functioning entity.  This article focuses on the necessity to create value everyday to facilitate both the short term and long term success of your start-up company.

Think About Your Start-up Company 24/7

As the entrepreneur of a start-up company you will have a lot of challenges along the way.  With both short term problems to address, as well as long term corporate objectives, you need to focus on your start-up company 24/7.  Why is this focus necessary?  Because as you try to successfully guide your start-up company through the maze of daily problems and opportunities, you are trying to identify the proper and best path forward that servers your near term objectives and at the same time does not necessarily cause issues that may hurt your start-up company in the long run.  Near term problems may turn out to be significant long term opportunities, and your initial long term objectives may not necessarily be right for your start-up company as it evolves and develops from instantiation to a functioning and profitable company. In addition, what was an obvious decision yesterday may be a total miss-step tomorrow.  Therefore, you need to constantly think about your start-up company from bottom to top, 24/7.  This type focus will allow you to mull over changes in the market and at the same time provide you with the necessary insight to continually create the value that moves your start-up company successfully forward not only addressing day-to-day activities, but over the long term.  So, as a budding entrepreneur, you need to think about your start-up company 24/7.  This will provide you with the necessary focus to guide your company through the trials of a successful start-up company.

Identify Your Start-up Company’s Value Proposition

One of the key items that differentiates a successful start-up company is the ability to succinctly define its underlying value proposition that targets the needs of its customer base.  By identifying a significant value added proposition for your target customer base, you are in essence solving an unmet need or problem in the market.  In addition, by identifying your value proposition early, this will allow your start-up company to create and develop a differentiated product offering in the market.  It will also allow you as an entrepreneur to succinctly define your start-up company and its technology, product or service offering to your potential investors.  This is necessary, as investors need to quickly discern how what problem or need you are solving in the market and how you are differentiated, long term from your competitors’ product offerings.  In addition, by identifying your value proposition early, you will necessarily provide a path forward for your start-up company.  This does not mean that your value proposition will not evolve or change as you engage with your customers and continue to define your technology, product or service offering.  It is okay to refine and enhance your value proposition as you engage your customers and the market. This will necessarily allow you to create additional value to your targeted customers and enhance your long-term success in the market.

Focus on Significant Value Added Activities

As an entrepreneur of a start-up company you need to focus on significant value added activities to constantly move your company forward.  This is very important, as it is often too easy to get caught up in insignificant day-to-day activities that do not add value to your start-up company.  Significant value added activities can include:

  • Calling your customers to validate the necessary features, functions and capabilities or your initial product offering and your long term product roadmap,
  • Focusing on securing the necessary strategic partners to complete your product offering,
  • Streamlining your business and financial models to ensure success in the market,
  • Minimizing time-to-money and focusing on early revenue sources, and
  • Securing initial customer commitments.

By focusing on significant value added activities, you are creating the necessary value that will get investors attention and at the same time raise your start-up company’s valuation.  It addition, you are creating a path to success in the market.  Therefore, as an entrepreneur, you need to focus on value added activities that are significant and will create long term success for your start-up company.  By doing so, you will help create a smooth path forward and at the same time enhance your probability of securing funding and success in the market. 

As an entrepreneur, to create a successful start-up company, you need to focus on creating value every day. This is necessary, as the road from inception to funding, and ultimately a successful functioning and profitable company is often difficult and treacherous.  Bad near term decisions, can often have significant consequences on the long-term success of your start-up company.  To continually add value every day, as an entrepreneur, you need to think about your start-up 24/7, identify your start-up company’s value added proposition, and continually focus on significant value added activities.   By doing so, you will enhance your ability to create and fund your start-up company and ultimately be successful in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

January 4, 2010 Posted by | Venture Capital, venture finance, Venture Funding | , , , | Leave a comment