Way to Grow

Show Your Passion When You Need to Ask for Money

Few budding entrepreneurs have sufficient funds of their own to start a business. The more complex the business, the more money needs to be raised. Whether you go to friends and family, a banker, or an investor for startup money, you need to be able to explain clearly what your plan is and why you believe it will succeed. Martin Zwilling, founder of Startup Professionals, Inc., gives an excellent outline for an Executive Summary. Use it well and you're halfway there. His six-point outline for a killer executive summary:

1. The problem and your solution. These are your hooks, and they better be covered in the first paragraph. State your value proposition, and what specifically you are offering to whom. Skip the acronyms, history of the company, and the disruptive technology behind your solution.
2. Market size and growth opportunity. Investors are looking for a large and growing market. Spend a few sentences providing the basic market segmentation, size, growth and dynamics - how many people or companies, how many dollars, how fast the growth, and what is driving the segment. Skip the comment that you are conservatively estimating your penetration at 1%.
3. Your competitive advantage. Identify your sustainable competitive advantage, like unique benefits, cost savings, or industry ties. Don’t kill your credibility by saying you have no competition. At a minimum, you compete with the current way of doing business. Most likely, the investor has already seen multiple plans with similar solutions.
4. Business model. Who is your customer, what is the price, and how much does it cost you to build one? Do you now have real customers, are just starting development. Outline your sales and marketing strategy (direct marketing, sales channel, viral marketing, and lead generation). Identify key quantities, such as customers, licenses, units, and margin.
5. Executive team. Remember that investors fund people, more than ideas. Why is your team uniquely qualified to win, and what have they done before? Explain why the background of each team member fits, by naming roles and names of relevant companies. Include outside advisors if they have relevant experience.
6. Financial projections and funding. You need to show your summary revenue and expense projections for three to five years. Investors need to know the amount of funding you are asking for now, and what they get. This should generally be the minimum amount of equity you need to reach the next major milestone.

But you're not done yet. Zwilling goes on to remind the reader that, assuming you'll be sending your executive summary by email, what you say in that one-paragraph email is critical:  "Less is more here, so include the grabber, show your passion and commitment, and be sure and ask for something (like a follow-on meeting or specific feedback)."

Some Say Forget about Funding

Two posts on Thursday from respected business bloggers saying, in essence, "Forget about funding".

In response to a question Seth Godin received, "How can we get our company funded?", Seth answers, "Don't." Points from Godin:

• If you fund your company, even a little, you've just sold it.
• Most companies are not appropriate sites for VC money...because they're freelance ventures, not entrepreneurial ones. A freelance venture is one where you work to get paid. An entrepreneurial one is where you can make money while you sleep.

Anita Campbell cites a U.S. News and World Report article by Jim Pethokoukis that says, "Bootstrapping, i.e., funding a business from customer revenues and getting it to be self-sustaining as quickly as possible, is the right answer for the vast majority of businesses. Besides, it’s the only answer for most businesses. Only a tiny percentage of businesses will appeal to venture capitalists or angel investors.

Angel Investor Networks

Considering angel funding for your startup? See the list of angel investor networks that Smart Startup gleaned, complete with links, from Business 2.0.

VC Suggestions About Presentations

Whether you're going to be talking to VCs or to anybody else as a potential investor in your business, there are certain things they want to hear.  Plenty of pages have been written on the basic "Presenting to Investors" outline, but a post from JD at Drake Associates reports on a panel discussion at the 10th Annual VentureNet Conference. The panelists offered instructive suggestions about presentations.  There are 15 recommendations in the post, starting with "Know the Total Available Market and Total Addressable Market" down to "Look at each round of financing as a risk reduction step for the investor."  Read them all.

When You Don't Have All the Answers

Allen Morgan has posted his Ten Commandments for Entrepreneurs -- the 10 things you should know when approaching venture capitalists. He's in a position to know. He's a general partner and managing director with Mayfield, one of the top Silicon Valley VC firms. In Commandment #8 - Know What You Don't Know -- and Admit It, he says it's sometimes OK not to have an answer to a VC's question. Some questions aren't "answerable" at certain stages of the business. But if it is "answerable" and you don't know, whatever you do, don't fake it!  He says:

"DO: admit (with confidence) that you don’t know the answer

DO: make a note of the question

DO: quickly find out the answer to the question

DO: promptly follow up offline with the VC who asked the question

DO NOT, REPEAT, DO NOT: fake your way through an evasive, oblique, or indirect attempt at an answer."

Raising Startup Money

Ask Dave Taylor offers good advice on where to begin finding angel investors. Along the way he also helps you be sure you're ready to talk with them when you find them:

"So the real question to ask your team is: do you have a business or do they have a neat piece of software? A business has a marketing and sales organization, existing customers, a measurable market visibility, a long-term development plan, and so on. Most startups - even some that are funded, frankly - aren't full businesses. But if a company does have a strong, competitive product, some measurable cash flow, a few good customers, and some visibility in the marketplace, then it's well positioned to look for some capital to help it grow faster. Investors don't pay for that first step, though: startups have to get their act together first." [Italics are mine.]

Via Dane Carlson.

Get Experience with Your Funding

For first time entrepreneurs, landing funding without accompanying expertise is a mistake. Drakeview says, "The money is important, since without it the venture likely won't go forward or will evolve in a manner that limits its potential.  But accepting 'dumb money' early in a venture's life can be almost as harmful."  If you can, find funding from a resource that will help you succeed.

Via BizzBangBuzz.

Venture Capital Financing Issues Explained

Thanks to Anthony Cerminaro for posting a great resource for technology-based start-ups. It's an article from White & Lee, LLP that outlines in some detail the process and issues associated with venture capital financing.

Thinking Globally

Former Secretary of State, Colin Powell, has joined the prestigious VC firm, Kleiner Perkins Caulfield & Byers. His title will be that of partner, but he will serve primarily as an advisor on leadership and international affairs to some of Kleiner Perkin's portfolio companies. This notable appointment highlights the strategic importance of global business to venture funders.

Read more in the New York Times.

Part-Time Entrepreneur: Risk Divided by Two?

Still want to operate your own business but can't hack the risk?  cdorob's blog offers you both worlds: Build your company while still working at your regular job. He lists a number of pros and cons. #1 pro: the regular paycheck. #1 con: zero social life.