Cash is King! How to get the King’s attention!
You are an entrepreneur. You have a dream, maybe even a prototype or a real finished product! You are technically sound or are a true hunter/killer & can sell ice cubes to eskimos. You have been in business for years, probably working for someone else. Now it is your turn! You believe that you are willing to take that leap. This takes an incredible amount of courage! Many people ‘decide’ that they are going to take the leap, yet they continue to stand there, with one foot in the water & one foot securely on dry land. ‘Deciding’ is not the same as ‘Doing’. You can decide to go sky diving. Take the class, learn the risks & safety procedures, then get in the plane, fly high up in the air, but until you actually jump, you are just really going for a plane ride. Are you ready to dive in, head first with both feet?
As much as you think you know about your idea, product or service… As great as you truly believe it is… most ‘Start Ups’ need money to get off the ground. Unless you are ‘well off’ or have a wealthy relative or friend that truly believes in ‘You’… you are going to need funding, investment, money! While there are numerous places to get funding, such as loans from your hometown bank, private equity, venture capital, investment bankers, or asset based lending, PO or inventory financing, factoring houses, etc… You need to be ready before asking for needed funds. A solid Business Plan is definitely needed. Even better is a 2-3 page Executive Summary.
You usually only get 1 chance to make a great impression when granted an audience with the ‘King’, (Cash is King!) The king has many, many people requesting an audience. He does not have time to review a complete Business Plan. In fact, only about 2-5% of such entrepreneurs get through all the gatekeepers, meet with the King & his court, then get funding! There are admittedly many Kings (lots of cash) out there, but some of them talk to each other. Getting an audience is never easy. So, if I may be so bold, I have some recommendations… call it food for thought.
These are a few critical factors needed to successfully get funding. Have you addressed all these in your Executive Summary?
• Compelling idea – You have the passion, can you communicate that passion along with the resourcefulness and necessity of the idea/product / service you are bringing to market!
• Team – Investors don’t just invest in product/idea but the team making it a reality! The biggest flaw so many entrepreneurs miss the boat on is waiting to hire a CFO. Just because you can balance your check book, are technically superior & know how to close a sale, all these skills do not make you the smartest person in the room. You are talking to the King, folks that have cash & only plan to give it to you if they can make a strong return. You better be able to talk their language. Smart is good, Wise is better! Surround yourself with experts.
• Market Opportunity – You need to do your homework. You may like the idea, but will everyone/anyone else? How big is the market? The industry? What is your niche? Is it a quick hit? Rapid growth? Sustainable? Who/what is the target market, the distribution channel? Be careful here, you may want to monopolize the market but you need some level of conservatism in your plan. How do you plan to market your idea?
• Technology – Some entrepreneurs get too hyped about this. State your case, the benefits, and differentiators versus competitors or other products on the market. Are there patents? Exclusive marketing rights? IP is very, very important, but depending on the type of patent, where it is beimg manufactured, ease to copy & burn rate to ‘prove product’, all need to be weighed into the decision & ready to answer.
• Competitive Advantage – What about competitors, and how long will you have this advantage. Hopefully you see how these items are all coming together!
• Financial Projections – Investors love numbers! A 5-6 line financial income statement for 3 years helps! You need to back this up with proforma financial statements that you can make available later if they are truly interested in you/your idea. Remember Cash is King! You better have a detailed income statement, as well as monthly cash flow projections, and burn rates.
• Validation – You gotta hook’em! Are there any Beta customers or hard evidence of this idea/product/ service working? Do you have a “Referenced Client/Customer?” Investors want to limit their risk. You can hardly blame them… So do you have any Sales? Any profits?
• Funding Sought – State exactly what you want/need. It is important to know that depending on the source of capital, if you are asking for $200k or $3million… go for the full boat. What can they say – No! Hopefully they will counter with a lesser amount. But asking for anything less than $5m from VC’s & PE funds is a different world. That is small potatoes for these folks. Are you thinking small? They want high returns! Does all the funding you need have to come from Equity? Maybe some convertible debt to stock? Be flexible. Grab the audience, peak their interest & hear what they think.
• Use of Proceeds – Never ask for money without expressly telling them exactly how you will spend it. R&D? Inventory? Marketing? At least give percentages. Steer clear of O/H salaries. You & your team better be thinking long term. There needs to be sweat equity. You should draw a minimal, very small salary, if any … until you turn a profit. Investors do not want their funds going in your pocket.
• Exit Strategy – You may want to stay with you company forever. Investors generally want out some point in the future… Their expected return can be 5-10x for what they invest depending on how long a period of time it is… The norm for 3 -5 year period.
• NDA, (Non-Disclosure Agreement) – This is normally a separate page that both parties will sign that retains/ assure confidentially is maintained.
So you may be thinking…. “How am I ever going to get all this in 2-3 pages of my executive summary?!” It sounds like quite a bit, but you can incorporate all the above in 5-6 headings or questions answered…
• The problem your company solves
• The business opportunity
• Why your company?
• Who we are, (the team) 2 sentence bios. 4-5 top players.
• Financial Projections (& basic assumptions)
• Funding Sought & Use of Proceeds
• Exit Strategy, (returns for investors)
• The final one is “the Valuation” … & that is the tough one, especially if you don’t have sales or profits yet. You admittedly lose leverage here, but push your tangible differences, be passionate & flexible. Hey, this is ultimately a negotiation. The golden rule applies. “He who has the gold makes the rules!” You need to literally implant your vision in their head! … Not many folks are making any money by sitting on it. Your ultimate competition is the team that is going to make the next ‘pitch’ for their idea/product behind you.
Don’t repeat yourself in the Executive Summary. Eliminate unneeded ‘showy or fluffy’ adjectives. Get to the point! Know your material. Once granted an audience, give a very brief overview & then shut up! Ask your audience what questions they have. When you answer their questions, refer to where it can be found in the Executive Summary. Ask for the order! (the cash!), Be prepared to give them a full business plan with financials. Don’t be lucky, be good & be prepared!
President & ‘Your CFO’