That market collapse was quite scary. We’re now seeing some recovery but the overall downward trend continues. So how does this impact on raising equity investment?

Venture capital companies raise parcels of money from the pension/superannuation funds. So those VCs who have a fund in place will continue to invest in the entrepreneurial market. Those who are trying to raise capital may find it more difficult to do so. That may mean some tightening on investment funds available.

Any rise in interest rates will also impact on your capital raising capacity. And with the threat of inflation there may well be an increase in interest rates. Investors are looking for 5 - 6 X Bond Rate in terms of return. If the Bond Rate goes up then you will need to demonstrate how investors will get the return they want. However,this is not an exact science and provides a guideline only.

But it stands to reason that if investors can get a high return on more secure investments then they may well leave the entrepreneur market and take the secure investments as a short term strategy until the market settles a little.

If you’re talking to investors ask them about funds availability and what they are doing in a general sense. Keep on track and continue your capital raising activities but be aware of what’s happening in the big market.

Cheers
Gail

Wow, what a great holiday break. Lots of good company, good food and that lovely red stuff to drink. I hope that you are as refreshed as I am.

How many of you have a strong value proposition?

I don’t see many in all the plans I read. It’s as if most entrepreneurs have not heard of a value proposition!

If you want the money then you’ll need to have this one nailed.

First, read this book, ‘Smartups’ written by Rob Ryan, a serial entrepreneur. Great section on value propositions. www.entrepreneur-america.com

So, why have a value proposition?

A good value proposition will clearly spell out why people will buy your product or service. It tells us why you are different from your competitors. It should be short and sweet. That’s an art in itself. No matter how complex the technology, if you can’t tell me the value proposition in a minute then you’re not trying hard enough.

The 4 key elements of good value propositions:

-well defined business opportunity

-a benefit or value that’s measurable in dollars

-a favourable price/benefit ratio

-a short payback period.

You will need to dig to get some of this and that’s often the reason it’s not done. But investors love it. They ‘ll know how much work you put into your value proposition. That will give you brownie points.

Talk about how much the customer will save every month/year with your product. Find a way to turn the benefits into a $$$$ value. It may not be easy, you may need to make assumptions but just do it.

Your value proposition then becomes part of your marketing message. It is what customers want to hear. It gives them the reasons to buy your product and not the competition.

It’s the start of a new year. Have a go at your value proposition.

Till next time.

Cheers

On Tuesday I received a business plan for a startup entrepreneur with a fantastic product. I could see that this product had lots of potential. In was in the ‘green’ space and in demand.

He wanted me to help him raise the money.

The entrepreneur, Joe, wants to raise about $4.5 million to get moving. He had a plan, very detailed financials, brochures and product samples. Lots of work had been done and it was all very professional and well packaged. Created a powerful first impression. Lots of ticks for Joe - looking good.

My first reaction was to look at the financials. Here’s my reaction:

Argh, lots of very complicated spreadsheets that did not follow a standard set of accounts. So I had to work out what it all meant. That takes valuable time. But after a short time I could see revenue and profit forecasts. These were way too optimistic - generating 7 figures in the first 8 months. So now I’m a bit nervous.

I then look at the marketing plan to see how Joe planned to get sales. After reading the plan I had no idea. He had lots of comments about talking to major distributors but no detail - just motherhood stuff.

Then I decided to call Joe and give him feedback.

Before I tell you what happened think about what my situation - I’m very busy, minutes matter, it’s nearly Christmas, I’m giving free advice at this stage and I’ve already spent 20 minutes on the plan.

I called Joe. I mentioned to him that I had only a short time but was more than happy to give him feedback. I started with the financials. With every point I raised Joe went into an very detailed explanation of what he did and why he did it. I can understand that. Joe had spent a lot of time and had done a very detailed analysis of all the financial aspects.

What I was saying to Joe was that, at this stage, I didn’t need to know all that information. I just wanted to get the big picture - growth in sales, where he was selling, profit, ROI and cash flow. I had serious concerns about the optimistic projections and I wanted to understand how he was going to reach those targets. What marketing was he going to do?

But Joe was determined to make sure that I understood the detail. He didn’t understand that the more he talked the less feedback I was able to give him.

The best thing Joe could have done was to ask me questions about my review and to keep his responses really short. That way he could pick my brain, get lots of free advice and then decide what he’d do with that advice.

In the end I was only to pass on about half of what I wanted to before my next appointment arrived.

Unfortunately I could not pass on Joe’s plan to any investors because my concerns were not fully addressed. That was a pity because Joe has a great product and he also had put together a very professional plan and done lots of work on the financials.

It’s always a good idea to put yourself in the shoes of the prson you’re talking to - how busy are they, what concerns them, how do you get what you need from the conversation.

Have a great Christmas. I’ll be back blogging on 7 January 2008.

Cheers

I’ve been talking to Bill Reichert from Garage Technology Ventures in Silicon Valley. He and Guy Kawasaki invest in technology based businesses.

He made a very interesting point about what you need to do when pitching to investors and I quote:
“The reality is that raising venture capital is about getting investors to fall in love with your vision. As with any other pitch in your life, getting investors to do something for you is first about emotion, and then about logic. Investors are driven by their hearts and their guts, as well as their heads. First you have to appeal to their emotional and intuitive sides, and stimulate their enthusiasm, then you can work on their logical/analytic sides. Model your early communications with investors more along the lines of a movie trailer than an academic abstract.”

Bill Reichert, Managing Director, Garage Technology Ventures

It’s interesting that Bill stresses the need to capture their emotions, in other words, ENGAGE. There have been endless studies on how we human beings make decisions and a common theme that keeps emerging in that we make decisions based on our emotions and we then back up that decision with logic.

Fascinating, isn’t it?

And this applies to investors as well. I’ve seen it hundreds of times.

I was working with a group of 17 companies that were pitching over 2 days.

The investors and I were working through the plans submitted as part of the pitching process. The idea was to rank the companies. That way we came up with a ’short list’. There was one company in particular that was ranked in 14th place - not of much interest and not likely to get funded.

And then the team pitched!

It was just amazing. You should have seen it. What a performance. They brought a new perspective to the investment opportunity. And the investors loved it. They ENGAGED big time. At the end of the 2 days there were 3 investors who had set up meetings - all keen to get into due diligence.

The power of an engaging pitch should never be underestimated. You can reverse your fortunes and be meeting with investors even if your plan does not quite stack up. Mind you, these guys had a plan that got them into the boardroom so it was OK. Their plan just didn’t stack up well against the other companies pitching.

The pitch is the single most important activity in the capital raising process. Work hard at it. Make it great.

Cheers

Yet again I saw a company that was going for capital but, after some basic analysis, they didn’t need the money.

Anyone who invests in your business will charge top dollar. What I mean by that is that they will take a big chunk of your shares and they want a return of 25% +. Now that’s expensive. If you can make more money from their money, then the sums add up. Otherwise forget it.

The company in question had great profit margin and sales were going gangbusters. They could generate enough cash for their own expansion. So, why bring in an investor?

The irony is that they are doing so well that investors were definitely interested. But, in reality, the price of equity investment was too high and they have other sources of capital at a cheaper price.

Treat capital like any resource. How much does it cost and will your company get the benefit. Don’t get caught up in the buzz. Look carefully at your options.

Till next time.

Earlier in the week I was talking to an entrepreneur who wanted help to raise about $1.2 million. After a few qualifying questions about marketing and the financials he passed the first screening. He sounded credible on the phone. I asked him to send me his plan.

Then it all fell apart. His idea of solid financials and mine were a universe apart. And there were no marketing strategies at all. Just a series of comments about what could be done. Very superficial.

Then he was couldn’t understand why I wouldn’t give him access to any of my contacts. In his view it was just sending an email to a few people with his plan attached. How hard could that be?

This guy had no idea. He had totally missed the point. No adviser is going to pass on half baked plans to their trusted networks. We all work hard to maintain our contacts and they trust us to screen contacts so that their time is not wasted. Introductions are hard won.

And if you want to keep your networks in place and working for you then don’t send them anything that has not been rigorously researched and checked. It will cost you dearly. The world of equity investors is very small and word gets around quicker than you think.

Once something is out there you can’t take it back. The more you prepare the more successful you will be.

Yet too many entrepreneurs keep sticking their hands into the Black Mamba cage and they keep getting bitten - most don’t survive.

I made a presentation at the AusFirst Angel Conference last weekend. I spent quite a bit of time with 2 entrepreneurs They were in a contest against one another to see who could bombard me with the most detail about their respective products. My head was spinning. Did I remember any of it. No.

On Monday I went back to work and then promptly forgot about the entrepreneurs. So, what went wrong? How could they have made a bigger impact?

I’ll remember you if you tell me about…

- what problem in the market your product/service targets

- the markets (how big, where, basic marketing strategy)

- any big orders, special contacts, highlights

- why people will buy your products/services instead of your competitors

- why your team can be successful

- you can make money from this market.

Don’t give Black Mamba pitches. You won’t be remembered and you probably won’t survive.

I’ve just interviewed Bob Christiansen from Southern Cross Venture Partners. Bob and his partners have a fund of about $300million and they invest in early stage technology companies.

Bob has been in the game a long time. He’s heard thousands of pitches.

The biggest mistake according to Bob…

The biggest mistake is to talk too much about the technology. Bob made it very clear that he just wants a few minutes about your technology smarts. For the first meeting, he’ll assume that the technology works.

Of course he will test and carry out due diligence on the technology, but that comes later. It’s the kiss of death to focus on technology at the first meeting. He wants to hear about how the entrepreneur and the investor will make money together from the technology. Focus on how you will make money and Bob will be interested.

And don’t be afraid to talk about the blue sky. He and his partners want to know how big this can be. Is it scalable, can the team carry it off, etc, etc,etc.

You can see more of the interview with Bob here at pitchingtoinvestors.com. It will be loaded up in a few weeks.

Cheers

Gail Geronimos
Co-Founder

I worked with 11 companies to get their pitches just right. It was a bit of a mixed bag to start with. Over about 3 weeks before the big day we re-structured and revamped the presentations. Lots of work there!

It is hard to get all the meaty info into just 4 minutes - but that’s the deal. Our guys and gals did a great job. But there were a few tense moments.

A major point that the investors made was that they were looking for passion and enthusiasm. They wanted to see lots of life in the pitches. They’ll forgive a few little glitches and you don’t have to be perfect. But you do need to tell a good story. And investors want to know what they will get out of the deal. This was a key point hammered home by all investors. It is so easy to get off track.

One entrepreneur did really well during the 4 minute talk. He had samples, he was very passionate, a bit of a joker but it all fell apart during questions. No substance, he gave answers that were way off key and he had no idea of what the investors needed.

It’s make or break time. There is a lot to cover in these 4 minute pitches but the effort is really worth it.

Cheers

Gail Geronimos

Here are some great videos from the UK series of the Dragon’s Den. These are examples of pitches and presentations to investors which didn’t get the green light from the Dragons.

StoryCode.com - Arguing will get you nowhere fast!

Safari Boards - It’s all uphill for these guys!

RespiVest - Where winning isn’t winning…