Ten Tips for Raising Money in Today’s Market
FOR PROFIT TIPS
- Today's Times
- Angel Investors
- The Elevator Pitch
- Investor Presentation
- Business Plan
- Challenging Times
- Competitive Barriers
- Measuring Performance
- Strategic Alliances
- Strategic Planning
- Sustainable Growth
Sales & Marketing
- Better Branding
- Developing E-newsletters
- Online Feedback
- Market Analysis
- The Plan
The Human Element
- Advisory Boards
- Corporate Board
- Selling Your Business
Day after day, companies are cutting jobs or warning investors to expect lower earnings. Venture capitalists are overly cautious and angel investors are folding their wings.
Things might seem bad right now, but market uncertainty does have some positive effects. In fact, this is a good time to look for funding. That may sound counterintuitive, but a more conservative approach from the investment community simply means they’re looking more closely for that "relatively rare" company that can succeed – your company. Remember: Investors are always looking for the next BIG idea – your idea.
Solid companies have a better chance of standing out now. With the hype gone, current market conditions force entrepreneurs to know their customers, curb expenses and develop businesses that make money. Here are 10 tips to make your company shine in today’s market.
||Put Together a Strong Management Team: In today's market, the scales have tipped toward experience in the proven fundamentals of business. The more you have, the more likely you will be able to succeed.
What makes a good team? For starters, members should have a track record in the industry you’re targeting or have started and run other companies. Ideally, teams should have industry connections, sales and marketing experience, technology expertise and financial skills. Investors will also be looking at the team’s commitment in terms of cash investment, as well as its “sweat” equity.
Corporate and advisory board members can help enhance the expertise and experience of a start-up’s managers. Choosing well-respected professional resources such as accountants and lawyers will not only expand your network, but also increase your credibility.
||Have the Best Tools: You need an elevator pitch; a 1-3 page executive summary; a 12-15 slide presentation; and a 20-30 page business plan. Along with these, credible financials have taken on paramount importance. Make sure your materials cover:
• the management team;
• the idea and how it fills a “must-have” need;
• the market opportunity (which must be big);
• the competitive landscape;
• and the clear competitive advantage your product has over others.
Investors will also want to know what barriers to entry will keep competitors from being in the exact same business. Examples might include patents, trade secrets and proprietary processes.
||Focus on the Fundamentals: Investors are interested in seeing early indicators of success, such as lead customers or a prototype that is being beta-tested. But be warned: They’ll want to know whether customers are paying for the service or just enjoying a free trial. They’ll ask whether your customers will buy at the end of the trial or buy more of what they’re already paying for. In other words, if you can show revenue growth and a list of blue-chip customers, so much the better.
In today’s market, what matters isn’t whether you’re a B2C or B2B. What counts is whether your P2P (path-to-profitability) is clear. For example, just building a concept or a brand is unlikely to prove attractive, whereas developing a tangible product with a clear revenue stream and a convincing route to a successful exit will prove compelling.
||Bootstrap it: No matter how much money is raised, keep cash balances high and your burn rate low. Forget big-budget tactics such as network TV ad campaigns. Use cost-efficient tools such as PR and viral marketing.
||Adapt Quickly: Thoughtfully and Strategically: Investors understand that early-stage businesses may well fail to hit their numbers in the first year. Problems arise for a variety of reasons, usually due to overly optimistic sales projections.
So, they'll want to know what strategies you have in place to cope with this slippage. You may have to think about strategic alliances, different marketing strategies or slashing costs. It is also recognized that even the most promising start-up may need more investment to reach cash break-even.
||Make Connections: To get an angel's attention, get a referral. While some investors read plans that come over the transom, those referred to them by a trusted source – a business associate, lawyer, accountant or banker – get far more attention. These professionals can open the most doors, because they’re usually the best connected. Other ways to meet people with deep pockets are to present at or attend a venture capital conference or angel club meeting. Network to find out about these opportunities.
||Choose Investors Carefully: Entrepreneurs should be choosy about from whom they take money. Knowledgeable investors with good connections can jump-start a company and keep it thriving. Well-connected investors can even make it easier to get additional rounds of financing. Keep in touch with investors, and let them know how the company is doing by sending out a monthly summary and/or calling periodically. An informed investor is more likely to be a happy investor.
||Never Stop Looking for Money: Raise more money than you think you need and get it while you can. Until all checks have cleared, keep looking. Deals do fall through.
||Don't Haggle Over Terms: Greed is not good. Don't worry about dilution. Efforts to hoard stock and inflate valuations will make the company less attractive to suitors.
Valuation is clearly very important, but don't be penny-wise and pound-foolish. The entrepreneur must give credit to the value-add of the angel or professional investor. By understanding this, everyone can get a piece of a much larger pie than would otherwise be the case. Let experienced professionals such as lawyers and accountants handle terms and valuations. Heed their advice.
||Be Passionate, Persistent and Patient: Be prepared for a lengthy process. Last year it typically took three to six months to find funding. It is now more likely to take nine. In this post-purge economy, new business leaders must be committed, passionate and thick-skinned. The process can be grueling.
Geri Stengel, president of Stengel Solutions, a strategic planning and marketing firm. If you like these tips, you may also like the small business advise in my blog, Vistas.