Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Creating Confidence will Carry the Day with Potential Investors

Many times entrepreneurs are ill prepared when presenting their technology, product or service offering to potential investors.  Even if you have created a business proposition that is unique, provides a long term sustainable competitive advantage in the market, and at the same time supports a scalable business model that provides superior returns on invested capital, you still need to convince your potential investors that you can execute and secure near term revenue with your target customer base.  In addition, you also have to prove to them that you can do this in an expedited time frame.  To accomplish this, you need to know your financials, have customer references and develop a strong go to market strategy.  By doing so, you will create a level of confidence that will carry the day with your potential investors and allow you to move to the next level of due diligence discussions.

Know Your Financials

Many entrepreneurs are not financial experts and often rely on third parties to help them develop their financial models.  This is fine, but even so, you need to spend the time to learn the details of your start-up company’s financials.  This is important, as most potential investors are financial experts that will immediately go to your financial statements to identify holes in your financial model. So, you need to “know your financials” to the level of detail that will gain the confidence of your potential investors.  Telling them “I don’t know” or “I need to ask my CFO” will not provide your potential investors with the level of confidence that they require to understand that you know your business.  On the other hand, if you are able to answer all initial financial and business model questions with ease and confidence you will impress your investor and more than likely get them to move to the next level of due diligence. 

Have Customer References

Potential investors need to know that your business plan is solid and has been vetted with potential customers.  One of the best things to do when presenting to investors is to mention the customers you have talked and/or met with that have expressed an interest in you technology, product or service offering.  Provide them with real customer feedback on your technology, product or service offering.  More often than not, many entrepreneurs have not talked with their target customers and do not have any reference discussions or customers they can introduce their potential investors to, so that they can call them and ask about their potential interest in your technology, product or service offering.  Having customer references that are interested in your technology will not only tell your investors that you have the motivation to get in front of customers and determine their interest and desires, but you have developed a base of interested customers that are willing to be potential beta customers once your technology, product or service offering is available. In addition, the fact that you have vetted you business proposition with your potential customer base is always a strong confidence builder with potential investors.  Now, they know that you have customers that are interested in your technology, product or services offering. This will again help create confidence with your potential investors.

Develop a Strong Go to Market Plan

Having developed a strong go to market plan is one of the best recipes for building investor confidence.  This is often “the differentiator” that will carry the day for investors.  One of the most nagging questions a potential investor’s mind is a concern regarding the ability for a start-up company to create initial traction in the market.  If there is not clear path for attacking the market and securing early customers and revenue, potential investors will more often than not walk away.  These same potential investors need to be assured that once they invest, there will be near term revenue and that it can scale appropriately.  This increases their potential return on investment and at the same time provides them with confidence that they need to make that “jump-of-faith” to invest.  Therefore, as an entrepreneur you need to develop a strong go to market plan the will instill confidence with your potential investors. This will provide you with the necessary basis for investors to move forward to the next level in their due diligence process.

Entrepreneurs that are ill prepared to present in front of their potential investors will not carry the day with these same investors.  On the other hand, those entrepreneurs that have created a business proposition that is unique and provides a long term sustainable competitive advantage in the market, and at the same time are prepared to create confidence in their investors will. To do this, these same entrepreneurs need to know their financial statements, have customer references and develop a strong go to market plan.  This will provide the entrepreneur with confidence and at the same time instill this same confidence with their potential investors. By doing so, these entrepreneurs will more often than not move to the next level of due diligence with these same 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.

Advertisements

March 1, 2010 - Posted by | Venture Capital | , , , , , , , ,

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: