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WHAT DOES BEING PREPARED ACTUALLY MEAN?

Being prepared means you’ve done what you need to do to be successful. It’s as simple as that. The amount and type of preparation you’ll exert probably depends greatly on what stage your business is at. If you’re a start-up with one person in the business, you will need to be accurate in preparing the things you may not be familiar with: for example, preparing your company’s financial disclosures. These things need to be spotless of error and exaggeration, or an investor won’t take more than an instant to reject your offer in his mind.

Getting investor ready is almost always challenging the first time around. It’s just like the old adage that goes, “Making your first million is always the hardest” – raising capital for the first time is most definitely the hardest challenge for any entrepreneur. But just like anything else, it only takes preparation, practice, understanding and commitment to succeed.

Once you get your project or business investor ready, you simply have to maintain that preparation level and be flexible enough to scale in all directions. For example, should you come across an opportunity to buy out one of your competitors in a year, you will be ready to raise the capital to fund the acquisition either through existing investors who are satisfied, or new investors.

First time entrepreneurs and experienced business owners alike make the mistake of thinking that you only have to prepare to raise capital when they need it. That’s like getting a vaccination after a plague has broken out.

Getting investor ready requires your business to undergo both an internal and external transformation so that it has been primed to take on the significant added responsibility of investors. Furthermore, if you are raising capital for a particular goal or event, say to buy a competitor, the business has to have an integration plan to make the acquisition a smooth process. Generally speaking, there are more acquisitions that fail to reach their long-term objectives or potential than there are that do, and precisely because of reason for integration.

THE BENEFITS OF GETTING READY 

There are plenty. First, it gives your business a good reason to objectively evaluate the plan, the business mode, and your company’s goals. You’ll likely find some problems and challenges in your business that you weren’t even aware of.

Investors, even if they pass on your offer for one reason or another, will applaud your efforts of going through the process of getting yourself and your company investor ready. That’s because investors are approached everyday by business owners who aren’t even remotely ready for a capital raise.

The better you understand your business and the market around it, the more confident you will feel at the presentation. Remember, planning a business on paper is only the beginning of a long, complex process towards generating revenue with a real business.

OTHER BENEFITS OF GETTING INVESTOR READY

Fast track your capital – Getting investor ready does not happen overnight, especially if you already have a running business. Subsequently, if you are one of those business owners that are constantly busy, you may not even have the time to get all your documentation ready. 

Compliance – Investors prefer to invest in companies that are compliant within their respective legal and operational boundaries. When you initiate the investor ready process, part of your due diligence is to ensure that your business complies with all local and federal legislation as it applies. Investors want certainty to offset their risk, and proof of compliance via documentation is one way to do that. 

Opportunities – In this modern age, businesses are opening up and closing every day. Whether you’re starting up or established, you just never know when an opportunity to launch your company to the next level will come along, and having sufficient capital in place to back your pursuit of that opportunity is key.

If you’re not ready by the time that opportunity knocks on your company’s front door, it will pass right on by.

Stand out – Projects and companies that are already investor ready will always attract the most expressions of interest from investors. It’s like having a great resume while job hunting – if you place all the right information in the right place, your documents will climb to the top of the pile. Don’t make the mistake of thinking that your project is only one of a few that get scrutinized by investors. You’re in competition with thousands of other entrepreneurs who are vying for the same limited capital resources.

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Ultimate Investor Ready Guide

Studies have shown when small entrepreneurs seek their first investors, 95% of the time they fail. Most of the 5% who succeed will get the funds on terms that are more beneficial to the investor than to the business. Part of the reason for these statistics is that entrepreneurs aren’t preparing for the challenges they face in the business world. All too often, they believe their good idea will excite investors who will fight for the opportunity to invest in the idea.

Unfortunately for entrepreneurs, that’s not how it works. Getting investor ready means preparing to raise your first round, generating and garnering attention and putting yourself in the best position to negotiate fair terms by overcoming some standard cultural industry challenges. It’s important to remember that investors are buying into your business, not necessarily your ideas.

ISSUE #1: NOT KNOWING YOUR WHERE IN THE CHAIN YOU ARE

There are five major stages that a business goes through before reaching early maturity. By knowing which stage your company is in at all times, you are in a much better position to raise capital from the right investor at the right time.

Seed Stage: At the seed stage, the business won’t be much more than a well-defined idea, and maybe still in the process of developing its first business plan. This happens when the entrepreneur has decided to take their idea and vision to the next level, having conducted proper feasibility and market analysis prior to entering this initial stage.

Although the business itself in the seed stage is premature or even non-existent, investors will still want to invest in seed stage companies as long as they feel that the management team can deliver on their objectives.

Start-Up Stage: After the entrepreneur turns their idea into fully-defined business objectives, missions, goals, and real products, the start-up stage begins. This is where the first steps towards commercialization begins. In many cases, patents and any initial prototypes are finalized and secured at this stage.

Early Growth: Businesses at this stage have demonstrated that their product or service is marketable and they offer investors a strong potential for reaching early maturity. That’s why investors love businesses at this stage, especially after the business begins to develop a record for sales growth. These businesses are also sometimes referred to as Up-Starts.

Sustained Growth: When all the objectives that were defined in the business plan at the Start-Up Stage are being accomplished, the business is enjoying sustained growth. This is where the management team focuses on automating business processes by ensuring the daily operating activities are delivering consistent results. The more automated your business is, whether the result of well-designed processes, delivery, manufacturing or technology, the more attractive it will be to potential equity investors.

Remember, investors are buying into a business, so they want to be sure their investment is safe even if you leave the company. Automated processes ensure that your business can survive you.

Early Maturity: For a new company that is entering the early maturity stage, the product or service is a characteristically proven success. The next stage will usually be either expansion or decline. Businesses at this stage will often be looking to expand either organically (internal expansion) or via acquisitions (external expansion). Investors will almost always invest in businesses at this stage.

Without proper management and strategic expansion plans, a business is vulnerable to fall into decline. If this happens, your company will face a struggle to raise capital, since either the product or the market is not experiencing any sort of growth.

If you cannot prove your commitment to continued growth, then, investment returns will be uncertain and investors will look elsewhere for ways to use their limited capital. Businesses that are in decline will eventually be sold, most likely at a discount to the company’s market value.

Throughout all of these new business stages, you must constantly be focused on building a team and a product that is flexible enough to take advantage of changing market trends to avoid decline.

ISSUE #2: NOT IDENTIFYING YOUR COMPETITORS ACCURATELY

Competition is a reality in the business, and as an entrepreneur, you will face competition in all facets of your operations, from raising capital to introducing products to the market. But just as with the credit crisis of 2008 and other catastrophic market turmoil, this challenge presents you with an opportunity.

Your business plan offers you the chance to set yourself apart from your competitors. Highlight the differential and advantageous aspects of your market or product, and explain how you meet customer needs in ways that your competitors don’t.

And be specific in your business plan and investor presentation. Name your strongest competitors and address their business model and position in the market – investors will be pleased to see that you are being realistic and identifying possible obstacles well in advance. This kind of in-depth analysis will help them become more comfortable with an investment in your company.

ISSUE #3: INADEQUATE RESOURCES 

Raising capital requires an enormous collection of vastly differing resources, not limited to your time, money, and persistence. Time spent preparing for an investor’s review is time you can’t dedicate to sales and operations. There’s no way around it; your business plan needs to consider the reality that you will be an expense rather than an asset during rounds of fundraising.

Barriers to capital stand in your way. Find a way to address each challenge, and document how your company will overcome each one in your business plan and investor presentation.

The business plan itself will be an expense in and of itself. It must be professional! That means you’re going to be expected to hire a graphic designer and a professional writer. An experienced business consultant can help you ensure your business plan tells the story of your company, past and future, in a way that excites and reverberates with investors.

Another major expense while fundraising could be the help a financial advisor, investment banker or broker to either oversee or conduct your raise with or for you. Having a broker or consultant in even a small role adds a valuable and gallant sense of professionalism and trust for your potential investors to enjoy.

These brokers and consultants will also have access to hundreds of investors in their Rolodex that they’ve worked with before you would otherwise never meet. Don’t be surprise if a handful of them fund your project based purely on the fact that you’ve hired this particular broker, and they trust him. In the business of raising capital, many times the single greatest contributor to a successful round is the quality and breadth of the relationships and networks a broker has built over the length of his career.

You will want to engage a consultant for at least three to six months with the option to extend. It may cost you more money initially, but your capital raise is likely to be significantly less successful if you were to go through the whole process alone. Besides, you need to focus on managing and growing your business, so hire an expert who can get you funded faster and with more efficiency and capital than you could have raised yourself.

Share Certificates are standard procedure these days

Most SMB (Small to Medium Businesses) owners tend to hold onto too much equity because they worry that if they give equity away, they will lose control of their company. Some owners want to own 100% of their company because they want more cash when they sell their business, others are just not comfortable with the idea of it.

This is a myth. Sharing equity is a valuable method that when used correctly, can increase the value of your business marginally. Below are a few points as to why you WOULD want to share your equity with investors or third parties.

How much equity should I share?

When raising capital, investors usually require a share of equity in your business to lower the risk of them losing their funds. If things go down south and they have a minority interest in your business they will have some form of control as well the ability to sell their share of the business if needed. You have a much better chance of financing your business or acquisitions by offering a piece of your company. Usually investors will take between 10 – 50%+ of your business depending on how desperate you are for the cash or how the deal is structured. If you are a start-up business, expect to share anywhere from 30%-50% of the business to get things going. The more prepared you are, the less likely you are to give away “too” much equity.

You can also increase the value and credibility of your business by giving away free equity to a high caliber entrepreneur in return for their advice and/or services. Some high-level entrepreneurs may charge high costs to consult businesses, so why not try to offer them a piece of equity in return for their services. For example, let’s say you are looking to get into business, you ask the bank to fund your business idea…

The bank initially refuses to help because your idea is too “risky” and they don’t believe you have the necessary experience to run the company by yourself (most small business entrepreneurs will encounter this problem)…

Equity in exchange for services

So you approach an experienced entrepreneur in the same industry with a deal by researching online (www.LinkedIn.com is a great resource for this). You offer to give away a small piece of equity (say 10%) in return for the entrepreneur to jump on board with you and help you run the business a couple of days a month. They would have a set number of tasks that they would need to accomplish. You then take the same idea to the bank and tell them you have an experienced board member that is going to assist you to run the business and show them the business and consultancy plan – bank evaluates the risk factor and your chances of getting the cash increase substantially because the project has now become less risky.

You can also distribute equity in your company or idea between investors, suppliers, board of advisors etc. The point of doing this is to share the risk of the business, but most important of all, to lower the risk of your business or idea. You have a much better chance of finding finance, selling your business or even successfully running your business with a team of experienced personnel that are helping you complete your objectives. A word of caution when sharing business equity with suppliers, board of advisors etc, nothing is forever – always have a buy back clause in your written agreement that states after a certain period of time or revenue point, you will buy back the shares and recover the shares that were tied up initially.

Finally,

Before attempting any share dilution of your business, contact a business consultant or corporate advisor to get a third opinion. Every business is different and requires a different approach when sharing equity. Simply ensure that you’re not giving away too much of the business too quickly and that every agreement is in writing. You don’t want to end up having a dispute with your mentor/business advisor because of control issues or “vague” written agreements.

Soon as you get the funds, the clock starts

It is important to set a budget when you raise capital. There are all sorts of associated costs that come with the investor ready process. Never try to raise capital with $0 in your bank account because you’ve spent every last dollar setting up the business. (Yes, it happens). Always draw up a budget to cover costs for Advisors, Solicitors, Marketing campaigns etc…

A good rule of thumb is to have between 10 – 15% of what you want to raise up-front. This should cover most of your third party costs. Another thing you have to consider is the schedule for the capital that you want to raise. Don’t wait till you have 1 month to develop your prototype, then start looking for Investors. It may take 6 – 12 months for you to raise what you need, and that’s if you’re already Investor Ready. A business that has its capital raising schedule set, will always have a contingency plan to raise capital on its terms if urgently needed. Always add on an extra 20% on top of what you need to cover emergencies.

Below are a few examples of associated costs that come with the capital raising process. There may be more than the ones listed here, but if you do have 20% extra funding available to you, the process will run a lot more smoother.

Business Advisors

Advisors assist you to reach your capital raising goals. They help compile the raw business data you have into a format that the Investor understands and values. Advisors are absolutely necessary for first time capital raisers. As the visionary of your business, you tend to focus on the operational part of the business such as inventories, product development etc… Simply hire an advisor to develop the necessary documents for the funding process.

Up-front fees and commissions

Nothing is for free these days, unless you get lucky. Always be aware that any third party service providers (Advisors, Accountants, Brokers etc…) will charge an up front fee for their services. Some will charge a success fee as well as a service fee. It depends what stage your project is in, generally the better prepared the project, the less funds will be invested into advisors.  You need to have at least 10- 15% of the capital you want to raise, to cover these costs. You can get the “seed” capital from a credit card or even a small personal loan.

Legals and Accounting

You may also have to consider the legal implications of raising capital, especially for businesses that need some sort of government or council approval to conduct its business. For example if you have a business that requires a drilling operation or clear up vegetation in a certain geographic location. Do your research on this matter, as you don’t want to turn up to the Investors meeting without this prior knowledge. If you are going to be involved in such an operation, contact you council and also your solicitor to get the appropriate advice.

Marketing and Distribution

It takes time to market your offer and distribute your Information Memorandum. Don’t expect every Investor in the country to jump onto your project immediately. Most Investors will look through 20 deals a week before making any decisions about investing in one of them. So don’t be too hard on yourself if you don’t get an investor calling you every hour.

Finally,

Ensure that you apply all of the above principles to your capital raising. The reality is that if you do have a budget and schedule for your business, you will increase your chances of raising capital. Investors like to look at projects that already have their schedule up and running as opposed to the small business owner that is waiting for an investor to draw up all their plans from now until next year.

]]> http://valentinreport.com/2012/09/set-your-budget-and-schedule-for-capital-raising/feed/ 0 http://valentinreport.com/2012/09/set-your-budget-and-schedule-for-capital-raising/ http://feedproxy.google.com/~r/ValentinReportLibrary/~3/9_fnwUBQIpk/ http://valentinreport.com/2012/09/different-types-of-funding-structures-you-can-use/#comments Tue, 11 Sep 2012 23:58:26 +0000 EddyValentin http://valentinreport.com/?p=4023

Ultimate Investor Ready Guide

Most great businesses start with an idea, and then the entrepreneur searches for the capital needed to turn the idea into a successful business – by first opening their wallet. Many of the world’s most successful businesses were started with personal resources, but every possible source of funding in the beginning should be considered. Here are some common sources of capital.

Personal investment capital: Many businesses are started with personal savings. The investment can take the form of an equity position or a loan, but in either case, it’s important to properly document the transaction between the owner and the business for tax purposes and to establish policies for a return of the capital in the future.

Many private equity investors like to see that you’re a holding financial stake in your own company. Consider an example of two companies that are competing for one firm’s investment. One of the founders has $27,950 invested in the startup of his business. The other entrepreneur had an opportunity to invest in his company (maybe he was successful in previous ventures) but didn’t. Instead, he took out a business line of credit (a liability that the corporation is responsible for, not the business owner). Who would you trust has a larger interest in the long-term success of their company?

Financing: Obtaining debt financing from a bank or a credit card can also be used to fund a business start-up. These loans may have high interest rates since they will be unsecured, so you should only consider taking on traditional business loans after you’ve determined that personal investment from yourself, family members or friends has been completely exhausted.

Business loans can be difficult for new companies to obtain, but they are available. The biggest advantage of applying for a business loan will be that the entrepreneur is forced to create a detailed business plan, which includes projected cash flows (discussed later in the course).

Even if the loan is not approved, this plan will focus the attention of the small business owner on the business itself, forcing him to confront realistic financial projections, for example.

A line of credit (LOC) can also be obtained through a bank. With this arrangement, you can borrow cash as needed up to a specified cap, as opposed to a loan that requires you to take one lump sum of cash. The LOC is designed to help you control your debt levels and spending.

The vast majority of companies that receive private equity financing are started with personal resources, including cash savings, loans from family members or friends, or credit cards. Investors want to see you have a personal stake in the company. 

Public investments: Offering your company’s shares publicly is a strategy that is generally reserved for strong businesses with several years of successful operating history. There are ongoing expenses associated with government and exchange regulation of public companies, which among much more, should be considered if and when it comes time to take your company public. 

Less well known than an IPO, a reverse merger can also be used to obtain listing on the stock market. Using this process, the owners of the private company purchase full control of a publicly traded shell company (the still legal, existing incorporation of a now defunct company) and then merge the two.

Shell companies can easily be found to accommodate this strategy. If the shell company is already an SEC-registered company, the private company bypasses the expensive and time-consuming registration process required of IPOs.

Reverse mergers have been used several times in the airline industry, and even by the New York Stock Exchange when it became a publicly traded company.

There are a number of advantages to a reverse merger. After completing the transaction, it will be relatively easy for the company to issue new stock, which can then be used for executive compensation or for meeting additional financing needs. The reverse merger also makes the company more attractive to other investors who now have a clear exit strategy in place since they can sell their shares at any time and at little cost.

Government grants and loans: Believe it or not, grants and loans by local, state and federal governments are often available to new businesses. This is especially true if the company is operating in a government-favored sector, such as clean energy.

To search for an available government program, it’s best to start with local community leaders who may be aware of special incentives for economic development. National government web sites often have a special section devoted to helping small businesses secure funding for growth.

Private equity and angel investors: Isn’t this what you came here for? Private equity groups and angel investors frequently fund start-ups in all sectors of the economy.

As we discussed earlier, private equity will usually involve an investment firm or individual providing capital in exchange for an ownership interest in your company. They make the investment usually because they are seeking an eventual profit.

But angel investors are often retired entrepreneurs or business executives who are interested in angel investing for reasons other than profits, and the ability to closely identify with the investor’s motivations while making a case for why your company is a good match could be the determinant that separates successful fundraising from efforts that aren’t.

They will want to make a profitable investment, sure, but angel investors may also want to stay involved in their industry or mentor the next generation of entrepreneurs. Like other private equity investors, in addition to money, angel investors often provide valuable management advice and important business contacts.

Truth about Angel Investing

The truth about getting investor ready

If you’re reading this you probably are looking to raise capital for your project, or perhaps you’ve tried looking and realized finally, that it is an incredibly challenging process. Unless you use your resources wisely or know some investors personally, you will soon realize that getting your vision of the ground is going to be tough from a capital raising perspective.

Investors are plentiful but ideas are even more abundant. An investor will go through dozens of business proposals every day, without going past the executive summary of most of them. This is because as an investor, choosing the right project to throw down their hard earned cash is just as intricate as the entrepreneur pitching it. Their tolerance level goes down every time they receive an unrealistic projection or ambitious goal from a first time entrepreneur. This happens everyday one business plan after the other, what one project gets right, it misses on something else that another project gets right.

Does your project have all the right factors?

What an angel investor wants to see is the complete package. A project that is realistic in terms of its team, financial goals, vision and credibility. (It also helps to get a bit of traction before you attempt presenting.) In all honesty, anything less and you’re not really helping your new partners out. Think about it, the more assumptions you make about your new start-up, the more of a fool you’re going to look like when you don’t deliver on your results. You lose and so do your investors.

A good route on the way to entrepreneurship is to start your business as if you actually DON’T need investors, try and bootstrap as much of the development side of your project and at the very least, have some proof that customers actually want your product/service. If you’re just starting up a regular business such as a hair-dressing salon, then you’re going to need an unbelievable niche to get it funded from scratch. If you approach an investor with a great business plan, a solid experienced team, financials backed with credibility and an attitude of a persistent entrepreneur, then you should see your project go up the list.

Here are some pointers that you should consider when sourcing funds:

• Risk is your enemy. Eradicate risk surrounding your project. (Check out our ‘Importance of Risk’ section)

• You need proof. Whether it is a letter of interest from a supplier/customer or better yet if you already have made some revenue, you shouldn’t have too many issues raising capital. It is far easier to raise funds to expand growth than to create it.

• Be a nice guy. This one depends on many factors, but if you’re a jerk, forget investors, you probably won’t go too far in your efforts as a business man. Investors aren’t only there to be your bank, invite them over to lunch, play some golf with them and generate a ‘real’ professional relationship with them.

• Step outside your mind. Just because you think you have a good idea, doesn’t mean that the world agrees. Before embarking on any entrepreneurial journey, ensure that you have found actual potential customers that you can do some testing on. Get some testimonials if you can or even better try and sell your product to show that there is a market for it. Try and work backwards from your final product that your customer buys right up to how you can create that product and then go for it.

Are you actively looking for investment into your project?

There are countless tips and suggestions that are available on how to raise capital. There are also many different strategies that you can try. You can use cold calling, approaching in person, cold emailing, angel investment networks or a combination of a everything. My philosophy is to use as many resources you can to improve your chances.

Here at ValentinReport we have created an easy to use online guide that if used correctly can greatly increase your chances of raising capital, it’s called the Ultimate Investor Ready Guide. Learn more about it here

This guide shouldn’t be used as your only means of raising capital, but when used with great networking and realistic business goals, you CAN successfully fund your project.

Steve earned $1 a year. However, he held on to 5 million Apple shares and 138 million shares in Disney.

You need to be thinking in terms of starting with the end in mind. That means, among other things, taking consideration in visualizing your business five, ten, or fifteen years from now. Ask yourself, “If this business meets every goal we set, what will it look like?” At first, you might be tempted to answer “It would be rich and make me lots of money!”, but there is much more to a successful business than profits.

How will your company be socially responsible? What will your company culture look and feel like? How about your company’s values, mission, and ethical codes?

Think even deeper. What would your business look like in five years from the perspective of everyone involved in the business? If your business was a success, what would it look like to your customers, suppliers and investors?

Thinking in terms of the future is the first step in preparing a presentation to make to investors. They will be most interested in what your business can do for them, and you will stand out from other entrepreneurs if you approach investors with a clear understanding and appreciation for their goals.

Better to have 50% of something, than 100% of nothing

You’ll also need to mentally prepare for giving up a big part of your business. To grow as large as possible, you will have to give up some, most, or in some cases, nearly all of the ownership in your business. Realize that the opportunity to bring others into your business is a true “win-win” scenario.

Without investors, you may own 100% of your (likely very) small business. With investors, you will own a much smaller relative percentage of a much larger business. To that end, your personal net worth could be much more inflated with the smaller percentage of the much larger business, grown with equity capital and investment, and your investors will also enjoy an increase in their net worth. You win and they win.

Despite the lure of a big payday, it can still be difficult for many entrepreneurs to give up ownership control. Giving up ownership control means letting go of control over the way the company runs in every facet, from how products are made and sold to how human resources are managed. You no longer have just yourself, you customers and your employees to please – you’ve now got investors to please, too, and your pool of stakeholders will have grown substantially.

That’s not easy for every owner, and indeed, giving up equity is not for everyone. The business most likely started as your idea and has been part of your dreams and plans for years before you decided to seek investors. In many ways, the business is like a child to you, a part of your family and something you can’t imagine letting go of.

However, children do grow up and they (usually!) leave your home. In time, they get families of their own, and in turn, your bigger family brings even more joy into your house. But it’s only by letting go of your child that your family grows, and businesses grow on the exact same principle.

Start with the end in mind

To prepare mentally for the success investors can help you achieve in growing your business and all the rewards that come with equity investments, you need to know where you want your business to be at the end. That means beginning with the end in mind. Write down your goals and your vision, and revisit what you’ve written regularly.

When your vision is clear, work backwards to see what steps you will have to take to get your business there. Generally speaking, your last goal should be your exit strategy – the process for how you are going to give your investors their money back.

Investors can help the exit strategy become a reality, because they bring with them a pool of other investors, bankers, and brokers that can take your company to an IPO or for sale on secondary markets, or they might be able to facilitate a buyout or merger.

Your clearly defined exit strategy will be one of the most important aspects of your offer to private equity investors. Investors will want to know when and precisely how they are going to realize a return on their investment. Don’t be fooled – investors are not bedazzled by your flashy product. They could care less about what you sell. They care about three things: that your business is scalable and marketable, that your business is valued favorably, and that you’ve got a plan for exit.

Most entrepreneurs will go into an investor presentation and have the mindset that the investor(s) are just as passionate as they are about what they’re saying. They may skip over the exit strategy hoping to impress them with the long-term investment value prospect, or they may simply think it’s not important, or that the market opportunity is important enough. Don’t be that guy.

*Article extracted from IReC. Our online program can get you investor ready. Start here!

Board of Advisors are ultimately important

Always go into a business partnership with someone that compliments your skill-sets. You don’t really need to have 2 creative people as business partners; they’ll just end up disagreeing all the time. You have to find people that will assist you in business areas that you either can’t afford to outsource or you simply don’t know what to do. So essentially  you want to work with your opposite in terms of skill-sets. The old saying may be cliche, but is very useful: Too many chefs spoil the broth.

Building an Advisory board gives your business/project credibility. Investors are funding your business and expect the person who’s running the business to know what they are doing. The simplest way to achieve business credibility is get some “gray hair” on your board, experienced and wise individuals that you can turn to for help during those major decisions. You can give them a piece of your company in return for their advice and their credibility.Finding a mentor is one of the most valuable assets you can have in your business. Find someone that knows your industry and knows your business.

Get networking online

Develop business relationships online using social and business networks. Get on sites such as www.linkedin.com, www.flyingsolo.com.au or any reputable online business network for that matter. These sites are gold nuggets for free information and all you have to do is ask for help with a “certain topic” and you will get multiple responses from high level entrepreneurs. Investors like entrepreneurs that ask for help instead of trying to be the hero and ultimately making a disastrous mistake.

Negotiating your deals can vary

Having an advisory board (regardless of how you set it up) can increase the desirability of your offer. Imagine you were an Investor and you came across a project that had a full team of partners that had versatile skill sets, for example a creative founder, a high level entrepreneur and a corporate advisor on the same team. These team members may not always own a part of your business, they can simply help your business for now in return for a small slice of future profits over a limited time. As stated before there are many ways you can negotiate deals with mentors and business partners.

Finally

Don’t be afraid to dilute your company a bit to increase your credibility. Would you rather have a business that you own 100% of, that struggles to raise capital and attract investors, or would you prefer to own say 30% of your business but access to capital and investors are a few phone calls away. So if you have to give a bit of equity away to attract a “grey haired” board member to help you, then start making a few calls or join a few networks. The advantages are plentiful.

]]> http://valentinreport.com/2012/06/build-your-advisory-board/feed/ 0 http://valentinreport.com/2012/06/build-your-advisory-board/ http://feedproxy.google.com/~r/ValentinReportLibrary/~3/v5D3_qbiMOU/ http://valentinreport.com/2012/05/meeting-investors-2-investors/#comments Sun, 06 May 2012 09:59:24 +0000 EddyValentin http://valentinreport.com/?p=749

Enter the Dragons Den!

Meetings with multiple Investors may be the most nerve racking experience that you will encounter in your business. Imagine having to prove yourself and your business to a room full of people that have already done what you are trying to accomplish. You have to convince them that you are the person that they should choose, to make them more money and that they should forget about the other deals that they are currently looking at. Good news is that it’s not as hard as you think. It is simply all about showcasing the right information that is important and relevant to them whilst painting a very vivid picture of a brighter future. There are of course a few house rules:

Compliance

Legal compliance is something that you have to look into before pitching in an investors meeting. Ensure that appropriate documents such as NDA’s are signed before the offer is pitched. Ensure that you have registered all the investors that attend the meeting and collate contact information from them. Ensure that your IM has the appropriate warnings about risk and investments and also communicate the risks to your attending parties. If you are pitching to high level active investors they may be already aware of the risks involved, all you have to do is ensure that they sign and review all the legal documents.

Sell your business

Don’t walk into Investors meetings thinking about how to impress them with your product or new invention. Unless you have the cure for cancer, investors are going to be interested in more than just the product. They are ticking very different boxes when thinking about investing their hard earned cash. You need to sell yourself, your business and your management team to your investors. They want to sleep at night knowing that their cash is in the right hands. Spend the bulk of the pitch pitching the business, associated risks, future growth potential, management team and finally your ability to manage a big budget.

Keep it exciting

There is nothing worse for an investor to fall asleep during your presentation. Even if you’re selling the most boring product in the world like wine bottle caps, ensure that you keep the conversation energetic and specific. Don’t slow down to a snails pace when presenting as well as don’t rush through the presentation. A way to check your speed during the presentation is to keep it interactive by asking questions and allowing questions. Finally, don’t use props such as games or lengthy thought provoking jokes during your pitch.

Networking afterward

After you’ve impressed a room of investors with your flash presentation, don’t call it a night yet. Allocate a bit of time at the end for the investors to mingle over a coffee or a drink. You will find that it will give everyone an opportunity to discuss the project with you off the record. This will also give you the opportunity to get to know some of the important investors a bit better. If they don’t invest with you in this project, they might catch you on the next one. So ensure you have already prepared tea and coffee facilities ahead of the presentation.

Finally,

Have a good team with you that can handle all the other tedious tasks of managing an investors meeting. Try not to go at it on your own unless you can balance the presentation as well as the event in one hand. You can pay someone to greet your investors or even provide the coffee facilities. Bottom line – you want to focus on the meeting and the meeting only. If your attention is drawn else where, you will struggle to control the pace and connection with your audience. Remember, no distractions.

Loans are great sources of capital

Probability of raising capital these days only 5%

Research as shown that 95% of all attempted capital raisings in the small business sector by first time entrepreneurs, do not reach deal finalization. Of the ones that do actually get funded (cause the idea was too good to pass), the capital is usually raised on the investors terms. Believe me you don’t want to raise capital to fund your idea/business on the back foot.

This makes the capital raising process a nerve racking and unpopular process for would be successful entrepreneurs. Although there are many factors that need to be considered when raising capital, there are 3 major ones that stand out from the rest.

Entrepreneurs struggle with the following issues:

The capital raising system is too traditional and inefficient.

Imagine walking into a bank to try and get a loan, but instead of filling out the banks application form, you bring in your own. You tell the bank how much you want and how great your idea is. How many banks would give you the cash?

Most entrepreneurs go into the capital raising process in this way. They have the idea and the presentation, but they usually present information that is mostly important to them rather than the investor.

An amateur presentation will show a lot more detail about how good the product/service is and less about how the investor will effectively make their money back. The key is finding that balance.

You need to make sure you are ready to raise capital by having the right information displayed to the investor. Being Investor Ready is about developing a system that clearly shows how youplan to use professional investors’ money and when they expect to see that money again.

Entrepreneurs always wait till their desperate to raise capital.

Entrepreneurs have this aptitude of always looking for money when they are desperate for it. The problem with this methodology is that Investors can sense desperation. If you approach them and you seem desperate, they will start asking questions that you may not be ready to answer.

So know the difference between being “ready” to raise capital and the “need” to raise it. You want to show the investor that you are looking for finance based on readiness not by the fact that you need the capital.

A ready entrepreneur shows preparation, knowledge of the process and confidence in the business.

Entrepreneurs are misinformed

We’ve all seen the movies and the tv shows that showcase the ease and availability of capital. The message driven is that if you have a great idea, you can approach anyone and you will get funded. What these movies and tv shows don’t show you are the details that are involved in raising capital. You have to think about agreements, share structures, information memorandums, risk analysis etc..

Get the right advice if you are considering to fund your project. There is a ton of free advice on the Internet, as well as paid content that will give you a better perspective of the process. Don’t forget that depending on the availability of your resources, it can take anywhere from 3 months+ to raise what you need before you begin working on your business.

Finally,

The main reason most entrepreneurs fail to raise capital is they lack the knowledge of the process. If you believe that you own or have an idea/business that needs quick funding then ensure that you are prepared to negotiate your way into a great deal. Raising capital can be a very rewarding and refreshing experience if you are on the same page as the investors and your project is ready to take on new shareholders and funding.