Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Leveraging Connections for Business Funding

You’re smart. You know that, according to the U.S. Small Business Administration, 64% of net new jobs in the past 15 years have come from small businesses. You know that small businesses are booming. You also know that there are plenty of business solutions out there offered by companies so that you can easily get your business off the ground without having to worry about every small detail. What you don’t know, however, is where to get funding for that business idea rolling around in your head. But you know what? You know people. Here are the top three ways to gain business funding by leveraging your connections:

1. Family and friends
Why not try the most obvious place? Go ahead and see if you have any close acquaintances that are either interested in loaning you money or even becoming a partner. You already get along well with them, so you know that they’ll be nicer to talk to about this stuff than an employee at the nearest bank. Just make sure you write up a contract so that, when everything is over, you’re still friends.

2. Networking for angel investors
Angel investing has been booming in the past few years. According to Travis Kalanick, CEO and founder of UBER, this change is caused by the ever growing importance of social networking. He claims that “how you get angel funding has substantially changed because we know who to go after. It’s very clear because they’re all blogging and tweeting out their interests on angel investing and their thoughts on it … Now, it’s much, much quicker to get these deals done.” So start looking around your existing social networks or jump in by looking at the people you know who are already there. There are plenty of people out there who would love to hear about your idea!

3. Connecting to venture capital
The research firm CB Insights notes that “venture capital investments rose 19 percent, to $21.8 billion in 2010 — the first annual increase since the downturn.” There’s more venture capital money out there than ever before, meaning there’s a better chance for you to be able to get a piece of the pie. However, venture capital isn’t as easy to get as angel investment. You’ll have to work through the people that you know to find an “in” to pitch your idea and have the chance at funding.

When it comes to funding your new business idea, don’t think that you have to go on an arduous quest. Instead, look around you at the connections you already have and see if you can rustle up some money that way. It’s not always easy, but it’s easier than having to start from scratch!

James Kim is a writer for Choosewhat.com. ChooseWhat is a company that provides product reviews and test data for business services and products. Their goal is to help small companies make informed buying decisions on business solutions that help their business.

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June 5, 2011 Posted by | Venture Capital | , , , , | Leave a comment

Being a Successful “David” in a World of “Goliaths”

Entrepreneurs need to fight the good fight every day.  Often the situation you find yourself in is much like the story of David versus Goliath.  As in this story, you are going up against insurmountable odds.  Accordingly, you are taking on a challenge that most individuals would not attempt.  As with David, the odds are long and the probability of success is small. In addition, you do not necessarily have all of the tools your competition has to be successful in the upcoming battle. This will make your road to success that much harder. But you take on the task anyway, because something inside of you tells you that you can be successful and create a product offering that is substantially better than that of the Goliath competition and at the same time be a success in the market.  In what follows is a short discussion on how to be a successful entrepreneur as a “David” in the world of “Goliaths”.

Believe in Yourself

As with any entrepreneur, the first thing you need to do to be a successful “David” in a world of “Goliaths” is to believe in yourself and your vision. Hoping that others will believe in you and see your vision of the future is not something that will happen. More often than not people will tell you that you cannot accomplish your goal of competing in a market of players that are much larger than you.  In addition, they will try to convince you to give up your plans and follow the road more traveled.  This, they will tell you, is a much easier road and much more reliable.  In this situation you need to ignore your critics.  They do not understand your will and desire to build a successful company, and more often not are telling you what they are comfortable doing.  So, ignore your critics and believe in yourself.  More often than not, in your journey as an entrepreneur, you will be the only one that believes in your vision and you ability to accomplish your task of building a successful product offering to compete in the market against your much larger “Goliath” competitors.  Many times, during this journey, colleagues will fall by the wayside, customers will tell you they are not interested, and vendors will not take the risk of working with a small start-up company.  Ignore them all and keep moving forward, it is your belief in you and your vision that will make your start-up company successful. 

Invest In Yourse

With the changes in the investment community, you need to do a lot more work to get investors’ attention and ultimately secure funding for your start-up company. The old “back of the envelope” investment scenario is all but non-existent in today’s funding environment.  If fact, having a strong plan, a differentiated product offering, and a first class team will not necessarily get you funding in today’s investor environment.  In addition, investors want to see that you have “skin in the game”.  This will not only include non-monetary time and effort, but they will also expect you to have invested “hard money” into your company.  Today’s investors do not what to be the only ones putting money into your company.  They will expect that you and your team will have invested not only time and effort, but hard money into your start-up company to move it forward.  Like “David”, you have very little funding resources at your disposal compared to your “Goliath” competitors. Therefore, you need to be prudent and “capital efficient” with your monies in order to get to a prototype early on, the general expectation of today’s angel and venture capital investors.  So, take the time, to come up with a plan and the necessary funding resources to move your start-up company to the next level. If you do not invest in yourself and your start-up company, more often than not, your potential investors will pass, as there are many other entrepreneurs that have invested their own monies to get them to the point of having a working prototype in today’s environment.

Take Your Product to Your “Goliath” Competitors

Often entrepreneurs do not put in the effort to contact their customers early on.  As a “David” in the world of “Goliaths”, this is something you necessarily need to do.  You are not walking in the door with “Intel” on your back, and as such setting up meetings with potential customers will be a much more difficult task than that of your “Goliath” competitors.  But, as the entrepreneur and “chief evangelist” of your “David” start-up company, you need to contact your customers and find a way to get you and your product offering in front of them. In addition, you need to remember to differentiate your product from your “Goliath” competitors. This is very important, as being the small player in a market dominated by large “Goliaths”; you need to convince these same skeptical customers to purchase your product offering.  So, take the time and effort to introduce your product offering to your customers and at the same time create a differentiated position yourself against “Goliath” competitors.  This will provide you with confidence in front of your investors and provide you with much more insight as to what will make your “David” start-up company successful in a world of “Goliath” competitors. 

As an entrepreneur, you need to fight everyday to move your start-up company forward. Being a “David” in the world of “Goliaths” you will often find yourself being the only one that sees your vision.  In order to be successful in this situation, you need to necessarily believe in yourself, invest in yourself, and take your product to the competition. Only by taking this approach will you be able to create a path forward to success in the market.  Remember the business world is full of “Goliaths”, but it only takes one “David” to slay the giant and change the world.

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.

July 26, 2010 Posted by | Venture Capital | , , , , , , , | Leave a comment

Entrepreneurs, Your Funding Strategy will Change When You Start to Engage with Potential Investors

All entrepreneurs believe or at least want to believe that they are fundable.  As such, they work hard to develop their business plans, executive summaries and investor pitches so that they can engage with potential investors. With their funding scenarios, product development plans and rollout schedules clearly defined, they are sure investors will see their vision, like their product offering, get behind their go-to-market strategy, and after a given amount of due diligence, invest in their start-up company, putting them on the path to potential success in the market. What nobody tells these same entrepreneurs — life if not that easy and even if you start-up company is “fundable.” The road to funding is a rough one, often mired with many bumps, and pot holes.  Often, today, what was a “fundable” start-up company 10 to 15 years ago will not even be looked at today by potential investors, be it individual angels, angel groups or venture capital firms.  As such, once entrepreneurs begin to engage with potential investors they often will need to be ready to change their funding strategy as the original anticipated road to funding will not be the ultimate road they take to get there. In what follows is a short discussion regarding what issues need to be continually addressed as you work to secure funding for your start-up company in today’s funding environment.

It’s Not the 1990’s Anymore

Back in the 1990’s the entrepreneur’s road to funding seemed so much easier.  Why, because it was much easier!  This was a time when venture capitalists and angel investors alike were willing to invest in pre-revenue, early stage companies with a great concept and a first class team.  Life was easier. The concept of requiring a working product and generating revenue was not considered venture investing.  In fact, it was considered later stage investing and investment groups or individual that invested in these types of companies were not “real” venture or angel investors.  But, toward the end to the 1990’s venture capitalist and angel investors alike caught the dot com (.com) early-stage company investing fever, and invested in anything and everything related to the Internet.  Brick and mortar companies were the past, and with a hyper investment mentality, no longer did traditional revenue models matter.  Everything and anything was fundable and if you did not get in you either had cold feet or you did not see the vision of the future, the Internet. 

In 2000, the market crashed and everything changed. No longer were investors willing to invest in any Internet-based business concept that came across their table.  In fact, venture capitalist had consciously moved up stream.  No longer were they willing to invest in pre-revenue, early stage companies, but armed with large funds ($500K to $1.0B) they decided to move their focus to later-stage investing. This move substantially reduced their investment risk and at the same time often required them to invest larger sums of monies, right in line with their large investment portfolios.  Accordingly, angel investors, especially angel groups, began to follow suit and again moved up stream to primarily entertain lower risk investments.  So, today entrepreneurs armed with a pre-2000 mentality, need realign their expectations, if they do not, once they engage with potential investors they will learn the hard way — early stage investing is all but dead.   As such, as an entrepreneur, you need to change your funding strategy to move your start-up to the next level.

In Today’s Venture Funding Market Revenue is King

Today, in the venture and angel investment community, revenue is king.  Therefore, as an entrepreneur you often need to figure out how to self-fund your technology, product, or service offering, at least to a point where you have a working product such that you can engage with customers and generate near term revenue.  This does not have to be a complete product offering, but something that you can use to generate early revenue into the company. In fact, you might want to consider an alternative early product offering, just to engage with customers immediately so that you can prove to investors that you have the ability to create early revenue.  Often, entrepreneurs secure consulting deals in their targeted “space” not only to generate early revenue, but to gain company exposure in the market and sell services related to the end product offering.  This road to early revenue does two things for potential investors. First, it shows them that you are creative in your ability to generate early revenue. Secondly, it provides a source of revenue from potential customers that may be willing to buy your product offering once it becomes available in the market. So, in a market where the rules to early stage investing has changed, today you need to focus on securing early revenue with an early product offering or related services in your targeted market of interest. This will allow you to secure the attention of today’s venture and angel investors. If you do not, you most likely will be passed up to another company that is generating early revenue.  

Those with the Money Write the Rules

Today’s rules to early-stage, company investing may seem a little weird to an entrepreneur that is trying to raise capital for the first time.  Well, if the truth were told, they are! But, you have to remember one thing, “Those with the money write the rules.” Fair or unfair, that is the nature of the today’s early-stage company funding game.  Therefore, as an entrepreneur you need to be aware and prepared for this.  Yes, it is frustrating and not often fair.  But, from an investor’s point of view they are just trying to protect their investment by doing everything and anything they can do to mitigate potential risk.  Yes, you have a great plan, a first class team and differentiated and demonstrable product offering with multiple revenue streams that are highly scalable.  But, that may not be enough.  The next question will be, “Where is your revenue?”  This again may not seem like venture capital or early stage company investing.  But in the current state of venture investing this is what is expected from potential investors. So, as an entrepreneur you can fight it or do everything and anything to prepare you and your start-up company for this scenario.  As once you begin to engage with potential investors, it will come and it is better to be prepared than not to be prepared for the new rules of the funding game.

Historically venture capital funding has changed considerably over the last 10 to 15 years. What used to be considered the “sweet spot” for early-stage venture investing has moved up stream considerably. As such, the angel investment community has followed suit. With the desire to mitigate investment risk, an existing product offering with the ability to generate revenue is now considered to be the bar to pass in which to be considered to be a “fundable” start-up company. There are exceptions to the rule, but entrepreneurs need to be aware that it is not the 1990’s anymore and armed with a pre-millennium funding strategy, you most likely will not get too far in today’s funding environment.  So, as an entrepreneur looking to raise funding, you will learn fast to change your funding strategy according to the desires of your potential investors, or you will passed over to by these same investors for other, what are considered more mainstream investment opportunities.

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.

June 21, 2010 Posted by | Venture Capital | , , , , , , , , , | Leave a comment

Entrepreneurs, Legacy Costs Can Hurt Your Start-up Company’s Fund Raising Efforts

Start-up companies, by definition, need to be nimble and have the ability to change direction as the market changes.  Often with the development and maturation of a start-up company, things can change significantly from the original direction, mission and focus of the company.  This is especially true, if this same start-up company has been through multiple incarnations to develop a differentiated and long-term sustainable competitive position in the market.  These changes in direction do not come without costs to the start-up company itself.  And, often these costs can hurt your start-up company’s fund raising efforts.  Therefore, as you move forward and your start-up company changes direction, strategy, and its market entry tactics, you need to step back and understand what legacy costs need to be let go or changed to successfully move your start-up company forward in your fund raising efforts.  This can include replacing old executive team members, restructuring the company’s capitalization, and shedding old, irrelevant contracts, as all of these things if not appropriately addressed will hurt your start-up company’s fund raising efforts. 

A Change in Direction May Require a New Executive Team

Significant changes in direction for a start-up company may result in requiring new executive team members to move your start-up company forward.  Often these changes in direction come with a new CEO.  As such, the executive team members that were relevant for the old company and its original focus are not appropriate for the new company and therefore this often requires the new CEO to clean house and secure a completely new executive team.  This significant level of change within the executive management team of a start-up company can be very traumatic and should not be made over night. If there are some team members that have relevant capabilities and skills that add significant value to the new direction of your start-up company, then they should be given a chance to move forward with new direction of the company. On the other hand, if there are executive team members that lack the proper motivation and appropriate skill sets to add any value moving forward, then they will need to be let go and replaced with new executive team members that have the skill sets, motivation, and ability to move your start-up company forward.  Nothing is worse for a start-up company than to have legacy executive team members hanging around that add no value to your start-up company and its current direction. So, make the decision to bring on new executive team members and let go the legacy executive team members that do not any value regarding the new direction of your start-up company.  This will clean the slate and provide for a better path forward for securing funding.   

A Legacy Capitalization Structure Often Needs to be Changed

One thing that will immediately diminish the interest of potential investors is a legacy capitalization structure that does not support your required funding efforts. This legacy capitalization structure can take many forms and can include the following:

  • Too many small investors with tiny equity positions,
  •  Too much debt,
  • Too much equity for legacy team members,
  • Too much of a “hangover” in the stock option pool,
  • Not enough equity for multiple investor rounds,
  • Other.

These legacy capitalization structure issues need to be addressed before you talk with investors.  If you do not do this, you may risk losing potential investors.  So, take a look at your legacy capitalization structure before you engage with your investors.  If you do not know what makes an attractive capitalization structure which will facilitate the venture funding of your start-up company, find a financial consultant that has worked with venture capitalists. They will be able to provide you with the appropriate advice regarding recapitalization of your start-up company to make it more attractive to investors. 

Old Contracts May be Inappropriate or Irrelevant

Often with significant changes in direction, start-up companies should take the time to review old contracts and strategic relationships.  Contracts that were once important to your start-up company may be inappropriate or irrelevant to your start-up at its current point in time.  So, make sure that you clean up old contracts and relationships before you engage with your investors. This can include:

  • Discontinuing certain strategic relationships,
  • Cancelling old irrelevant contracts,
  • Reviewing and modifying existing contracts,
  • Other.

As an entrepreneur of a start-up company you must take the necessary steps to eliminate any risks moving forward. This includes reviewing all of your outstanding contracts and strategic relationships.  By doing so, you will facilitate third party angel or venture capital funding.

Often start-up companies go through multiple incarnations to develop a differentiated and long-term sustainable competitive position in the market.  These changes in direction do not come without costs to the start-up company itself and often require this same start-up company to shed some of its legacy costs to move forward in its fund raising efforts. To do this, an entrepreneur must often secure a new executive team, change its capitalization structure and cancel old, irrelevant contracts.  This is often necessary, as in doing so, you will be putting your start-up company in a much better position to secure venture funding from angel investors or venture capitalists.

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.

March 29, 2010 Posted by | Venture Capital | , , , , , , , | 1 Comment

Entrepreneurs, Heart, Brains and Courage Do Not Come from Your Investors and the “Land of Oz”

Many entrepreneurs expect investors to solve their problems. They firmly believe that investors with their investment funds will provide them with the necessary heart, brains and courage to develop a successful start-up company.  In addition, more often than not, these same entrepreneurs believe that securing funding from investors is like the “Land of Oz” – anything is fundable and all you need to take the journey and in the end, the investors (or the “Wizard”), will solve all of your problems by providing your start-up company with the necessary funding that you require to be successful.  Nothing can be further from the truth.  In fact, once you receive funding that can be your worst day as an entrepreneur of a start-up company, as third party funding money comes with demands, rules, and expectations. So, don’t approach investors expecting that their investment monies will provide you with the necessary heart, brains and courage to develop a successful start-up company.  If you did not have these characteristics before you approach investors, any amount of funding in the world will not provide you with these same characteristics.  Therefore, before you approach investors, you need to step out of the “Land of Oz” and first convince yourself that you have the necessary characteristics to be a successful entrepreneur. This includes having the “heart” to follow your vision, the “brains” to properly develop the investment opportunity, and the “courage” to cold call your customers and execute your plan. If you do, you will ultimately be a successful entrepreneur, and that securing funding from third party investors is just a bonus on the road to creating a successful start-up company.

You Must Have the Heart to Follow Your Vision

Most opportunities do not create themselves, as they are often a result of an entrepreneur having a “vision” based on experience and a set of market truths.  More often than not, at the beginning this vision is not very clear, but with time and effort, an entrepreneur can develop their “concept” or “idea” into a clear vision that addresses an underlying strategic opportunistic need in the market.  Hence, as an entrepreneur, you need to follow this vision with all of your heart.  And often along the road you will have many “naysayers” telling you that you cannot accomplish your goals or that you that there is not use in trying as other, larger competitors will crush your start-up company.  This is exactly the time when you need to believe in yourself and have the heart to follow your vision, as more often than not this is what will drive you to success. And often as things evolve your vision will allow you to create a technology, product or service offering that is truly differentiated from your competitors and provides your start-up company with a long-term, sustainable competitive advantage in the market.  So, as an entrepreneur you need to have the heart to follow your vision, as no investor with all the money in the world can provide you with this.    

You Must have the Brains to Develop the Proper Investment Opportunity

One thing is for sure, most investors are generally “smart guys”.  Whether they have been through the school of hard knocks or are Ivy League educated MBAs, they often have the necessary insight to properly evaluate and quickly discern an appropriate investment.  So, as an entrepreneur, you need to have the “brains” to put together a “cogent” plan that creates a necessarily attractive investment opportunity for these same investors.  This means that you need to do the hard work and use your brains to do the research to develop a well thought out plan that makes both logical and financial sense from an investors’ point of view.  In the “Land of Oz” too often, entrepreneurs believe that anything is fundable and that their investors will not only provide the money, but the “brains” to help them create a successful start-up company. Nothing can be further from the truth. With only three percent of all start-up companies receiving outside investor funding on an annual basis, it does take a fair amount of “intellectual” savvy to develop a well thought through plan that is fundable form and investors’ point of view. So, take the time and use your brains to develop a well develop business investment opportunity.  Investors will not help you with this.  You need to develop this investor appropriate investment opportunity on your own.

You Must have the Courage to Cold Call Your Customers

Many entrepreneurs have all both the “heart” and “brains” to develop attractive investment opportunity, but lack the “courage” to cold call their customers and as such, they will not be successful in the market or have the ability to execute their plan. Cold calling customers is often the hardest thing to do for entrepreneurs. Why, because this is where thinking and planning hits the pavement and there is the always the potential for rejection.  Hence, cold calling often paralyzes these same entrepreneurs.  Even if you have a great plan, you need to be able to execute this plan and in a definitive time frame.  So, as an entrepreneur you need to have the “courage” to cold all your customers and generally do what it takes to “press the flesh” to close the necessary number of deals to develop a successful start-up company. Remember, as an entrepreneur you are in business to secure customers and not to develop a cool technology, product or service offering.  So, buck up and have the courage cold call your customers and execute your plan. Nobody else will do it for you; especially your investors and all the money in the world will not help you with this task.

Many entrepreneurs expect investors to solve their problems.  They firmly believe that investors with their investment funds will provide them with the necessary heart, brains and courage to develop a successful start-up company.  This is not the case, as securing funding does not necessarily result in success in the market.  Therefore, as an entrepreneur you need to step out of the “Land of Oz” and decide that only you have control over the ultimate success of your start-up company, not investors and their funding sources.  To do this you need to have the “heart” to follow your vision, the “brains” to properly develop the investment opportunity, and the “courage” to cold call your customers and execute your plan.  If you take these steps you will go a long way toward ultimately securing funding and developing a successful a start-up company.

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.

March 22, 2010 Posted by | Venture Capital | , , , , , , , , , , | Leave a comment

Entrepreneurs, Get Your House in Order Before You Present to Investors

Many start-up companies go through one or more incarnations before they are ready to engage with potential investors.  As such, more often than not, a tremendous amount of history exists that may have detrimental effects on your start-up company and its ability to secure funding from these same investors. Often, with changes in corporate vision and strategy, redirection in product focus and new executive teams along the way, there exist significant amounts of baggage that can have an adverse affect on how potential investors view your start-up company.  In order to make sure you put your best foot forward, you need to make sure that you have your house in order before you engage with investors. To accomplish this, you should review all of your start-up company’s outstanding contracts, update your capitalization structure, and secure a committed team.   If you do this, you can avoid any potential missteps with your investors and at the same time increase your chances of receiving funding.

Review Your Contracts

If your start-up has been through one or more incarnations, more often than not there exist old contracts that need to be reviewed and then determined if they are still applicable to your start-up company, its vision and product offerings.  Often, old contracts were based on completely different sets of assumptions and circumstances and must be voided or dissolved appropriately. If not disposed of properly, these outstanding contracts can have a detrimental effect on your company moving forward.  In some cases, these same contracts need to be renegotiated, since at the present time, your start-up company may have a completely new business model that significantly changes the role or importance of a contractor and their technology, product or service offerings.  Accordingly, many times, going back and renegotiating a contract can be a difficult and time consuming task.  So, before you open up a can of worms, you should spend the time to thoroughly review the contract to see if you can live with it as originally structured. If you can, keep the contract as is.  If you cannot, you need to go back and properly explain to the contracted party, that there have been significant changes in the direction of the company and you need to either renegotiate the contract.  If they are not willing to renegotiate, you need to find other sources for their technology, product or service offerings and immediately cancel the contract.  It should be noted that often when you try to renegotiate a contract, the contractor will have decided that the original contract was not fair to them and try to get a much better deal.  If this is the case, you need to understand if you can live with the updated demands.  If you cannot, then cancel the contract and move on.  Remember, you investors will want to review all of your contracts and old contracts that could have an adverse effect on your start-up company and have not been updated or voided will be an issue with your potential investors.

Update Your Capitalization Structure

Many times a start-up company that has been through several incarnations will need to be recapitalized to properly reflect the new debt and equity structure of the company and its present executive team.  Often old, executive team members and corporate structures will need to be modified, in order to move your start-up company forward. This is one of the most difficult tasks to accomplish, as old executive team members will want to retain their equity ownership and new executive team members will want their “fair” share of equity for their anticipated future contributions to the company.  So, you need to take a look at the whole picture, including previous contributions by old executive team members and their importance to your start-up company at the present point in time, and then come up with a new capitalization structure that works for all parties involved.  Many times, this includes changing the equity ownership of old team members.  In addition, you need to address any debt on the books and determine, if this debt is associated with any significant and present aspect(s) of your start-up company’s business moving forward.  If so, you will have to live with it, and if not you need to try to get this debt off the books through negotiations and/or voiding of any associated contracts. Remember, investors do not invest in your start-up company to pay off old debts.  So, if you can remove any old debt, do so, as it will help your start-up company moving forward.  Finally, in some instances, a start-up company with a long history, minor changes in the capitalization structure will not improve the situation.  In this case it is better to take your start-up company into bankruptcy and restart the company with a new capitalization structure.  Although not recommended, sometimes this is unavoidable. 

Secure a Committed Team

As often stated, investors invest in the “team” and not the “product”.  As such, for a start-up company with a history of several incarnations, often original team members, at the present time, do not add any significant value to your start-up company.  As such, these team members need to be removed and replace with new committed team members that will add significant value to the new direction of your start-up company. If you do not do this, you will end up with a bloated team and several non-contributing team members. This will de-motivate your contributing executive team members and bring the performance level of your start-up down.  Remember, it is better to clean up your start-up company’s executive team before you engage with investors. Many times these conversations are difficult, but necessary.  Accordingly, you need to have the best executive team you can possibly have and get their commitment to move your start-up company forward to success in the market before you talk to investors.  If you do not, you will not be successful in securing funding from potential investors.

A start-up company that goes through several incarnations often has a significant amount of history that can adversely affect the company moving forward.  To avoid this, and before you begin talking to potential investors, you much get your house in order. This includes reviewing your contracts, updating your capitalization structure and having a committed team.  If you do this before you engage with investors you will greatly improve your chances of securing funding from these same 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.

March 15, 2010 Posted by | Venture Capital | , , , , , , , , , , | Leave a comment

Investors Don’t Fund Your Start-up Only to Have You to Figure Out What to do Next

Most entrepreneurs come to investors with an “idea” or “concept”, looking to receive investor’s monies only to allow them to figure out what to do next.    This is a very misplaced approach and is guaranteed to turn investors off.  With this approach, more often than not, you will get an immediate rejection with no explanation. Why? Because, investors are very busy and only interested in only the most well developed and presented investment opportunities. Something that is not well thought through and or properly presented will not get their attention or their monies.  This should be understood by all entrepreneurs that approach angel investors or venture capitalists. As such, investors don’t fund start-up companies only to have you figure out what to do next.  They fund you to execute a well thought through plan.  To accomplish this, you need to do your planning, develop a business plan and be ready to execute.  If you do this, you will greatly improve your potential for not only getting potential investor’s attention, and you will also increase your chances of receiving funding from these same investors.

Do Your Planning

Doing planning is the most important and time consuming, arduous task an entrepreneur needs to take on.  This is something you need to do early, as waiting to do your appropriate planning will only send your start-up company in the wrong direction and require you start over, causing you to lose valuable time.  Planning is difficult for most entrepreneurs, as more often than not they want to start writing their business plan day one.  This is a huge mistake, because if you do not have the appropriate information, at your disposal, you will not come to the right conclusions regarding how, and in what direction to move your start-up company and its technology, product or service offering forward. Therefore, take up to two months to properly research and secure the appropriate information that will help you develop a well thought through business plan.  This includes:

  • Determining your proprietary technology, product or service offering,
  • Identifying the general trends and strategic opportunistic needs of the market,
  • Identifying a set of target markets and their growth projections,
  • Analyzing the competitors within your targeted markets,
  • Developing basic market entry strategy and tactics, and
  • Understanding the basic financial model of the targeted markets.

By spending the appropriate amount of time doing your planning up front, you will develop a vision, focus, and direction for your start-up company. On the other hand, if you expect potential investors to fund you to do this early planning work, you will be sadly disappointed.

Develop a Business Plan

After you have spent the time to appropriately plan the early stages of your start-up company, you need to put together a well thought through business plan that takes in all of this planning information. This plan will be much easier to write at this point because you have taken the time to secure the necessary information.  Now, you just need to take the necessary time to put it on paper.  This is also a very big task, and it again will take a significant amount of time and effort. But, if and until, you put your business plan on paper, your start-up company will remain “in the ether”.  As, it is only when you begin to put your business plan on paper do you have the ability to identify issues, holes and other items that need to be addressed to complete your business plan. So, take the necessary time to develop a will presented and thought through business plan, you will learn a lot in the process and many times provide yourself will essential insights on how and in which direction to move your start-up company forward.  Finally, ignore those individuals that tell you that today investors do not read business plans.  While, in some cases, this may be true, it should be remembered the writing and development of a well thought thorough business plan will again provide you with the necessary insights that will provide your start-up company with significant advantages when you finally go to market.  Remember, take the time to develop a well thought through business plan it will serve you well when you go to secure funding from potential investors.

Be Ready To Execute

By the time you begin to talk with investors, you should be ready to execute your business plan. To be ready for this, you need to have:

  • Identified and talked with your target customers,
  • Secured a well seasoned “A- level” executive team,
  • Secured relationships with any necessary strategic partners, and
  • Developed a well thought through and developed go to market strategy and associated tactics.

By doing this you will have identified many, if not most of the issues that could possibly cause your start-up company to stumble out of the gate.  You will also have put your start-up company in a strong competitive position which will allow you to execute and rapidly secure customers and revenue. This will impress your potential investors and get their attention.  Remember, investors do not fund you to figure things out, they fund you to execute.

Most entrepreneurs come to investors with an “idea” or “concept”, only looking to receive investor’s monies to allow them to figure out what to do next.    This is a very misplaced approach and is guaranteed to turn investors off.  By taking the time up front and putting the effort to do your planning, develop a business plan, and being ready to execute you will impress your investors and more than likely get their attention.  In addition, by doing so, you are not expecting investors to fund you to figure things out, but putting your start-up company in the best position to receive funding from potential investors.  So, get in there and do the necessary work up front, it will serve you well when you begin talking with 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.

March 8, 2010 Posted by | Venture Capital | , , , , , , , , | Leave a comment

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.

March 1, 2010 Posted by | Venture Capital | , , , , , , , , | Leave a comment

Assimilation of the Appropriate Research Data and Real World Input will Help Impress Potential Investors

Many times entrepreneurs believe that having a business “concept” or “idea” is enough to get their potential investors interested in investing in their start-up company.  Nothing can be further from the truth.  This may work for “friends and family” investors, but sophisticated investors often take three or more months to do their due diligence on potential investment opportunities to make sure that they are credible and have a good chance of being successful.  That is why smart entrepreneurs take their time to develop their business “concept” or “idea” in to a value-added business proposition that offers a long term sustainable competitive advantage in the market and the same time is scalable in an expedient time frame. To do this, entrepreneurs need to do their appropriate research, call real world customers, and talk to potential strategic partners.  Once this is complete, these same entrepreneurs need to assimilate this data and real world input into a value-added business proposition. By doing so, you will impress your investors and increase your chances of receiving funding.

Do Your Research

Doing research takes time and is hard work.  That is why most entrepreneurs try to skip this step in developing their “concept” or “idea” into a real business proposition.  The thing that most entrepreneurs do not really understand about doing research (market, competitor, etc.), is that it provides you, as an entrepreneur, with much more value-added information than you realize.  As you take the time to work through the research process and learn more about your target market(s), competitors, general trends, price points, etc., there comes a point where all of this data starts to make sense and at the same time provide invaluable insight.  That is, at a given point in your research process you begin to assimilate all of this data and then are able to:

  • Determine the strategic opportunistic needs of the market, 
  • Develop a value-added proposition for your start-up company’s technology, product or service offering, and
  • Develop a long term defensible and sustainable growth position over your competitors.

This assimilation process does not happen overnight.  It takes a significant amount of research, time, and effort, but in the long run will put you in a strong position when talking with your potential investors. As you now have real data to back up your value-added business proposition and at the same time, you can also substantiate your ability to enter a given market or markets to create a long term, differentiated, competitive position.

Call your Real World Customers

Once you have completed your research and created a business proposition that you believe is of significant value to your customer base, the next important step is to focus on calling your real world customers.  All of the research in the world is of little value unless it is verified with actual, real world customers.  This is where most entrepreneurs fail and it is what differentiates a good investment opportunity with a great investment opportunity in the eyes of your potential investors.  More often than not, many entrepreneurs believe they are smart individuals and that their technology, product or service offering will be accepted with open arms by their targeted customer base.  Nothing is further from the truth.  Even if you have a product offering that offers substantial cost savings or other significant advantages, there are other issues that will affect potential customers’ decisions in using your start-up company’s product offering.  This can include:

  • Integration time and effort,
  • Customer product planning schedules for new product offerings,
  • Completeness of the product offering,
  • Product rollout schedule and future product roadmaps.
  • Availability of important product features, functions and capabilities, and
  • Other.

Therefore, as an entrepreneur of a new technology, product or service offering, the most important thing you can do to differentiate your investment opportunity from the other start-up companies looking to secure investment monies is to call your real world customers!  These same customers will inform you of the important aspects of your “proposed” product offering that make sense and what things that do not make sense.  In addition, they more often than not will provide you with invaluable input that will often change your initial product focus or require you to prioritize necessary features and functions for your product offering. All in all, valuable customer input, from various potential customers, will allow you to assimilate this data and then create a much more attractive product offering for both your initial product offering and follow-on products outlined in your start-up  company’s product roadmap.

Talk to Potential Strategic Partners

Generally start-up companies, require strategic partners to become successful in the market. These strategic partners can come in many forms including:

  • Complementary technology partners,
  • Manufacturing partners,
  • Channel partners,
  • Marketing partners,
  • Others.

All of these potential strategic partners are not only valuable to your start-up company with regard to what they bring to the table in terms of their products, capabilities, technologies, etc., but they more often than not bring invaluable input in terms of their insights to helping you bring a successful technology, product or service offering to market.  Often these same potential strategic partners can provide invaluable insight to help facilitate both your near and long-term success in the market. This can include:

  • Determining your go to market strategies and tactics,
  • Defining your initial product offering’s features functions and capabilities,
  • Developing your initial rollout schedule and securing early revenue,
  • Identifying new market opportunities and revenue sources,
  • Lowering costs,
  • Other.

The insight, products, technologies and capabilities of these real world strategic partners can create significant value for your start-up company and its technology, product or service offerings. They may even cause you, as an entrepreneur to change direction and focus on new opportunities with much greater potential investment returns. Therefore, by talking to potential strategic partners early on in your start-up company’s development you can assimilate this information to create significant long-term value for your start-up company.

Interesting business “concepts” or “ideas” do not generally get sophisticated investors excited to the point that they are willing to invest in your start-up company. These same investors more often than not have a defined due diligence process that they need to go through to determine if your start-up company offers a business opportunity worth investing in.  By doing your research, calling your real world customers, and talking to potential strategic partners, you have ability to absorb a significant amount of data that can be invaluable to the near and long term success of your start-up company. In addition, assimilating this data and developing a value-added business proposition that provides a long term sustainable competitive position in the market will not only impress your potential investors, but it will help your start-up company secure funding with these same individuals.

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.

February 22, 2010 Posted by | Venture Capital | , , , , , | Leave a comment

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.

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