Time to get serious about raising capital! - PART 1
Picture this (does this sound familiar): you have the greatest idea or company the world has never seen, one that could change the world for generations to come and prosper anyone involved. We’re talking the sky’s open, money flows and the world benefits… Ahh, but your short on capital. You have raided the coffers and they are dry. You’ve hit up friends and family, high net worth people you know, even landed a few pitches but came up empty handed. Nothing is working. What do you do now? You feel it is your duty to bring this idea to fruition and you can’t sleep at night knowing that the world is missing out on it. Where do you go from here?
1. So, you think your special? Start by asking yourself if you really have what it is you think you have. What feedback did you receive from your friends and family that you pitched to? Is the TAM (total addressable market) big enough, is your IP as exclusive and game changing as you believe it to be? What is your differentiating factor?
Bring someone in who is an independent third party to evaluate and analyze your idea and ask them where they think it can go. This should be someone who has built companies from the ground up before, someone who has invested in companies themselves and knows what it takes to bring an idea to life, developing it through each stage.
2. Who is your target investor? Is it an Angel investor, a VC, a family office, corporation? Who is your ideal investor and how can you provide them the value they are looking for? Do you know how much capital you need?
Each one of the above investors is looking for their own value add. A corporation might consider investing in a company that benefits their existing business model, a VC might look for a concept that provides synergy with their portfolio. You must find the way to add the most value possible to whoever your target is. Do your homework and find out what they currently or previously have invested in, what companies they have turned away and for what reasons, or what gets them excited about an opportunity.
3. Why should they care about you? What will make the investor see the opportunity you are presenting? How do you convey your company or idea in a way that will best resonate with them and get them to want to be part of its development? How do you get them to accept your call?
This is where your due diligence and research of prospects comes in. You MUST find their why; why do they invest and more specifically why should they invest in you? Find the why and show them how your idea will exponentially grow their cause and they will be fighting over you for the deal.
4. Preparation is essential. Now come the details. No need to worry though because you did your homework (right)? What should you put in the deck, executive summary, pitch, and financials? You know how to stage your company to fit the need of the investor, that’s how you landed the meeting for the pitch after all. Next step is KIS: Keep It Simple. Only give the highlight real like what your company does, why they should trust you with their money, what makes you different? To get started, list it out in the chain of events, emphasizing the companies wins as well as your own. Then detail the company’s proprietary information, reiterating with every point how this company or idea is the solution to all the investor’s needs. Make sure they see why you are the best for them.
Once you have the outline, it’s time to make the deck (there are dozens of places you can find a template for this, so I won’t go into detail). Next the Executive Summary gives the highlights of everyone involved with your company and/or the opportunity you are presenting, and the differentiating factor (another one that is easy to find templates on). The financials are where it gets tricky… most people create them using wishes, hopes and dreams of possible outcomes IF all the stars align and seas part. Remember the investor is sitting in front of you because he has done this before and knows exactly what sort of obstacles you may come across. You need to account for those and give a detailed and conservative road map, of how you will get to the end goal whether it be a M&A, IPO, ect. Put it in a way that is believable, measurable, containing information about breakeven points, profitability metrics, acquisition costs, employee numbers with salaries, along with all projected costs for the company from now until exit or at least 5 years. Take your time to ensure that everything is correct and that it shows the financial chain of events and aligns with valuation you are touting. Finally, you are ready to pitch.
5. Time to engage. How do you get all this pertinent information to your investor? If you talk numbers and details the whole time you will lose your audience in about 10 minutes. This must be shared in short order using buzz words that are specific to your audience. Investors are in front of you because they have a need and so far, you have convinced them that you can satisfy that need. Be sure that you address that need with every point of your pitch. And don’t forget to realize your value, independently from theirs. Keep in mind Jeff Bezos had to endure 60 meetings to raise his first million for Amazon and he got it from 22 different people! I bet those other 38 are kicking themselves now, first question they asked was “What is the internet?” this was in 1995.
At this point you have put in your blood, sweat and tears into this project, don’t be shy, pick up the phone (no texting), ask for the meeting, send them the deck, do what other’s won’t.
This is just a brief overview of the earliest stages for securing an investment. Of course, there are other ways, and even if you do all the steps correctly there is no guarantee of securing an investor. Without it though your chances evaporate. The good news, however, is there’s no shortage of capital out there, in amounts that most will never be able to comprehend. These first few steps are for earlier companies raising a seed up to a series A round. In the subsequent articles I will go into steps for the actual raise and getting the deal. Applicable for all stages up to IPO or exit.
About the Author:
Shane Boudreau - 5 high multiple exits, raised well over $100mm in private equity and created several billion in market value. Worked in public and private markets, specializing in M&A, IPO and strategic buyouts. Currently the CEO of VestIn Capital Group a boutique investment banking firm specializing in private equity matters. VCG a top tier firm for capital raises, working with companies with $2mm EBITA or $10mm revenue or larger securing up to $250mm in funding, along with M&A and corporate strategy.