Posts Tagged ‘entrepreneur’

Top Four Reasons Investors Write Checks

In Angel / VC on November 14, 2011 at 9:30 am

1. Trust
2. Affinity (Connections to people and/or industry)
3. Comfort (Understanding of the business opportunity)
4. Potential Return

Yes, potential return is on the bottom of the list! Most people naturally want to disagree with this. Your instincts tell you that investors’ top concern is potential return. This is false. Their top concern is preservation of capital – even with start-ups. Investors’ main concern is mitigating risk. This risk mitigation is accomplished with early stage companies through trust in the principals, knowledge of people around the company and/or industry and their overall comfort level with the business opportunity. Investors are willing to take total loss risk, but they need to make a determination about the likelihood of failure. This likelihood of failure is balanced with an estimation on what their investment should return if the company is successful – this is the investor’s required rate of return. When the potential risk of a 100% loss is more than remote, investors require a huge return opportunity i.e. “homeruns” to balance their risk-reward ratio.

Investors care most about trust. Writing checks is always about trust. You put money in your bank because you trust the bank will be open the next day and worst case, you trust the FDIC to repay your funds if the back goes under. Think about when and why you write checks – while not a conscious level, your most likely decision point in your process is a conclusion about trust.

So, when you are raising capital, how are you and your company building trust?

How well are you equipped to quickly build trust with potential investors that you have never even met before?

Patrick E. Donohue, CFA


Raising Capital. Increase Your Probability of Success.

In Angel / VC, Uncategorized on November 10, 2011 at 1:33 pm

Most start-ups fail, and most people, especially investors, are well aware of this risk. There are many things you can do to make sure that your company gets the proper funding in place. The trouble is, to do it right, raising capital takes more time and effort than you can imagine. This is a real problem for most early-stage companies for the simple fact that the founding team is stretched thin trying to prepare product(s) for market.

So what can you to do increase your odds of success and make it less painful?

1) Education. Your team – all stakeholders – that will be raising capital need to take the time to learn where capital is sourced and the process that it takes to be successful. Read up on recent blogs from founders that have recently raised capital. We have come across a number of them that provide valuable insights on their experience. Finally, educate yourself on the basics of corporate finance. It is not that hard to understand the difference between common stock and preferred stock, “C” corporation and LLC, valuation and share price, and so on.

2) Document a Funding Map. Your team needs to visualize where, how and the timing of the capital raise. Do not assume people have a general idea. Put it on paper and make sure everyone weighs in. I have never met a team that raised capital quicker and easier than their original plans. Prepare the team to think about strategies for the long-haul including back-up plans B, C & D.

3) Talk. Talk. Talk. Tell others what you plan on doing. Build your external support network. These are not necessarily your funding prospects – these are mostly people that have “been there, done that”. You need mentors / advisors / “friends” to be a support mechanism and critical feedback loop. This critical support network will hold you accountable to your goals.

4) Prepare. At a minimum, you need an elevator pitch, investor presentation, business plan, executive summary, financial model, dealteam, due diligence items and a subscription agreement ready. Do not start pitching for investments until all of these are accounted for. “One bite of the apple.”

5) Execution tools. Be ready with a data room, project management suite, CRM dedicated to raising money, pitch video, product demo video and relationship management tools like an email newsletter service.

6) Develop a dedicated process. Focus on casting a wide net so many people become familiar with you and your company. Develop systematic ways to be in touch with these fans and followers like email campaigns, drip out news stories / industry highlights, send thank you notes after meetings, find ways to help someone before you ask them for help. The goal needs to be that you “touch” a prospect at least ten different times before ever asking for money. Digital media is a great way to achieve this.

7) Stick to your process. This sounds the easiest, but in reality it is the toughest step and the leading fatal flaw in raising capital. You need to establish internal and external support mechanisms to achieve this. Doing this in your head does not count. You need a weekly scorecard that tracks your critical goals that you must consistently achieve to get capital in the door.

8) Guerilla Marketing. Today, you need to be clever where and how you identify and approach potential investors. If you are relying on old school word-of-mouth fundraising via friends and family, you’re dead. You need to hustle and execute innovative ways to build your brand and interest in your company.

9) Guts. Patience. Persistence. As the Chairman of a former employer would tell me: “Patrick, if it were easy, we wouldn’t need you”. That was always a humble reminder to keep your nose to the grindstone! Raising capital is never easy. It takes guts, patience and extreme persistence!

Now go get ‘em!

Patrick E. Donohue, CFA

Seven Steps to a Successful Capital Raise

In Angel / VC on November 9, 2011 at 11:11 am

These steps assume that you and your business are prepared with why you need an investment and what you need! ☺

1) Know the investor “industry”

2) Learn what motivates different types of investors

3) Identify affinities – i.e. – the ties that your business may have with them

4) Track, list, follow, listen & learn. Use digital media as a tool.

5) Network – make yourself and your company known to potential investors and “fans”

6) Touch high value targets several times from several different angles

7) Do NOT ask for an investment until either: 1) you have touched a prospective investor at least five times and you are confident they know who you are and what your company does, or 2) they asked you first about an investment in your company.

And finally, use a trusted financial advisor or mentor to coach your team during the process.

Patrick E. Donohue, CFA