Investors Perception Of Your Management Team When Raising Money

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Hosted by Ken Honeyman, The Capital MatchPoint, 770.433.8250, http://capitalmatchpoint.com

...We've been talking about entrepreneurs so far and what their needs and realities are, and what I'd like to do is talk a little bit about the other side: investors and what their perception is, particularly when it relates to management teams, and how important is the management team? And that's a great question. And if you think investors only invest in great deals and leave everything else on the sidelines, well, think again. The management team is probably one of the most important components of the deal. The team is gonna configure very prominently in any investors decision to fund the company especially if the track record is thin. The history of the management team may be the only solid, understandable piece of information available to the potential investor.

You know, businesses must be able to succeed in the face of a lot of different challenges and rapidly changing conditions. Experience gives the potential investor comfort that the management team can spot issues and challenges and are flexible and skilled enough to deal with those as things develop.

Integrity and commitment are also a part of that. Investors want to see a high level of work ethic on the part of management and certainly to see that they have enough skin in the game.

Charisma in a management team is great, but too much can get in the way. Our investors want key players to have egos that are big enough to get the job done but not so big that the individual can't be a team player and can't accept advise, and this is a real sticky point with a lot of smaller companies. If our investors suspect that management is too arrogant or egocentric to accept advice, prospects of the investment being made are going to be very minimal.

In a nutshell, potential investors want to know that they can trust the management team with their money. They want to feel secure with the upcoming success and that their interest will be protected.

We welcome questions from entrepreneurs when they're preparing to pitch our investors. If you need assistance to find investors, raise money, angel investors, or with your business plan, call or visit us on the web.

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Raise Money-The Winning Pitch When Seeking Capital Funding

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Hosted by Ken Honeyman, The Capital MatchPoint, 770.433.8250, http://capitalmatchpoint.com

...You've asked me about the best way to pitch a potential investor, and that's a great question. At the Capital Match Point, we've distilled our best advice in what we call the winning pitch. There are ten components to this, and I'll go through each one of them. Pay attention!

Target the pitch, number one. Capital Match Point actually takes the guess work out of that equation because the person who has interest is the person who talks to the capital seeker.

Number two. This is simple: be on time. Or better yet, be early. Capital sources usually have a hard stop. They only have so much time for anybody.

Number three, don't overwhelm the money provider. The goal at the first meeting is not to get all the money at the first time. Don't try to cram six or seven meetings into one meeting. Peak their curiosity but don't abuse their attention span.

Number four, I have to say to know your audience. Try and find out in advance who is going to be at the meeting and spend some time learning about them at their site and find out who's actually going to be in that room when you're there.

Number five, get to the point fast, and I mean really fast. Funding sources sit through presentation after presentation. That's their livelihood. So, it's easy for them to lose interest if a presentation doesn't get to that point quickly. Here's a little bit secret sauce. To get their attention, answer this: what problem is my company solving? Tell them up front. They'll listen. Trust me, they'll listen.

Six, use analogies. Use bold ideas to present new concepts. Draw an analogy from an unrelated product. For instance, TIVO for the Web, podcasting for cell phones, or eBay meets CNN.

Number seven, power points. Power points: over kill or over fill? How many slides to get the message out? My answer is the baker's dozen. You know, five minutes per slide makes the case. By the way, don't read it to them. They can read it for themselves. Tell them your story.

Number eight, know what you don't know and admit it. This is very critical. Our investors don't expect entrepreneurs to know everything. So, be upfront about it if you make a mistake. If you don't know the answer, do three things. One, admit it. Two, make a note of that question and after the meeting, follow up, find out, and get back to that person. Do not, and I repeat, do not fake it with an evasive, oblique, or indirect attempt at an answer. Our investors want to know that they can trust the entrepreneur.

Number nine, competition. Know who they are and what not to tell the capital provider. What not to tell them. Don't ever say the dreaded words, "We have no competition." That's a death warrant. Capital providers know that it's rare for any company to have no competition whatsoever. They'll know that you haven't done enough homework on your deal, and the company is going to be sort of lacking, and it's probably not worth backing either.

And number ten, control the meeting. Don't spend too much time on a particular point or line of questioning. Politely but firmly move on, follow up, and set a meeting to satisfy their concerns.

So, we welcome questions from entrepreneur when they're preparing to pitch our investors. They can us at call The Capital Match Point because ultimately we want to have your deal funded, and have success with our investors. If you need assistance to find investors, raise money, angel investors, or with your business plan, call or visit us on the web.

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Negotiation With Investors When Seeking to Raise Money

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Hosted by Ken Honeyman, The Capital MatchPoint, 770.433.8250, http://capitalmatchpoint.com

...So, you found an investor. Let's talk about actually structuring and negotiating the deal. The fun really is just starting. Now comes the negotiating and the harrowing process of really doing the deal and making everyone happy. The need to strike a balance between investment and investment acceptance is critical. Keep a few things in mind as we go down this path. There's the company's concerns and the investor's concerns that really need to be pointed out here.

As far as the company is concerned there's going to be loss of management control, dilution of personal stock, repurchase of personal stock in the event of employment termination. How about adequate financing? Security interests being taken, key assets of the company. Future capital requirements and dilution of the founder's ownership. Intangible and tangible indirect benefits of our investor's participation, such as access to key industry contacts and future rounds of capital.

Our investors' main concerns. Let's talk about some of theirs. Well, the company's current and projected evaluation is a concern of theirs. Their level of risk. Projected levels on return of investment. Liquidity. Protection of the firm's ability to participate in future rounds of funding. Influence and control over management strategy and decision making. Registration rights in the event of a public offering and rights to first refusal to provide future financing.

And for both parties, how about retention of key members of the management team. A resolution of conflicts, financial strength of the company post investment, and certainly tax ramifications of the proposed investment.

Negotiations have to have ample time to be studied. Legal advice is first and foremost, and I beg you to get great quality securities attorney's working for you. Don't be foolish and try to negotiate this alone. Legal fees are meant to be spent here where it counts for the future of the company. If you need assistance to find investors, raise money, angel investors, or with your business plan, call or visit us on the web.

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Raise Money-What Not To Do When Seeking to Raise Capital

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Hosted by Ken Honeyman, The Capital MatchPoint, 770.433.8250, http://capitalmatchpoint.com

...What a fantastic question: how to get your deal in front of the investor and what not to do. Everybody always talks to you about what to do and so forth. But I'm going to talk to you about what not to do from an investor's standpoint.

There are nine items I'd like to take care of at this point.

Number one, an inadequate team. I believe a quality team is probably the single most important factor in looking at a young company. So, surround yourself with people smarter than you.

Number two, is the company crowded or in a noisy market space? Markets have a lot of players are difficult even if the innovation is head and shoulders above the rest. If it's a consumer market, you'll have trouble getting your message to stand out in this economic environment.

Entrepreneur naivete. This ranges from plans that had no real plan from going to market. Their thoughts were just announced, and the customers will come. Unrealistic expectations with no real through put.

Four, plans with no concise explanation. It drives us crazy. A plan gets about 30 seconds to catch my attention or the investors attention. If the first few sentences aren't compelling for me to keep reading, I won't.

Five, plans that require too much total money. Angeles typically don't want to be the first quarter million dollars into a deal that's gonna take $10- or $20-million to achieve a profit.

Evaluation. We've covered a lot about evaluation before, but what we often ignore is absurd evaluations. Early in our discussion of a company, a plan will fail if it's ten times what it ought to be.

Seven, lack of barriers to entry to intellectual property. A star team can sell a plan that's really based on execution. But ordinary mortals like us have to show that they can keep others out of that space.

Eight, problematic deals. Plans that don't fit the angels/VC mold of plans with unusual deal structures, the investors will tell you how they want to invest, typically.

And finally, don't use a broker. Investors don't like paying brokers. They'd rather have the money going into the company, and too many of the brokers and companies at this stage are not properly licensed which casts a real pall on the whole transaction.

So, prepare yourself to navigate the capital or raising minefield with some common sense and the help of professionals you'll find at The Capital Match Point. If you need assistance to find investors, raise money, angel investors, or with your business plan, call or visit us on the web.

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Find Investors-What does a Typical Funding Deal Look Like?

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Hosted by Dave Dambro, The Capital MatchPoint, 941-433-8250, http://capitalmatchpoint.com

...A lot of entrepreneurs ask me what to expect. More or less, what is a typical deal like? My answer is there is no real recipe for deal soup. There is no blue print, no clear definition of it. But, in general, most deals have five really distinct categories that you can look at to evaluate and see if you have a good deal.

The first thing you want to do as a capital seeker, is be sure that you can define your market. I mean in clear terms, know your market. Know where you belong and where you fit in.

Two, you clarify your competitive advantage. That is, what gives you the one-up on the rest of the guys.

Three, be well organized. This is really important. A company is only as good as the machinery that it is running on.

Four, have a clear exit strategy already defined and keep that in mind, work towards that end.

Five, great companies that are seeking capital and get it know how to monetize their business. In other words how do we convert our business service, whatever it may be, into dollars.

Now, capital seekers who can answer these questions have a pretty good chance of getting funded.

If you've got questions, or any capital seekers out there, wish to go over some of these points, feel free to give us a call at the Capital Match Point anytime. This is what we do and this is what we are here for.

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Business Plan-Why a Complete Set of Financial Statements is Important

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Hosted by Mark Bass, MBA, The Capital MatchPoint, 941-462-2728, http://capitalmatchpoint.com

...By virtue of what we set at the Capital Match Point, we get the opportunity to work with entrepreneurs seeking capital at the very early stages of that process . And one of the first things we do, almost as a vetting process, is to make sure that the business seeking capital has a coherent set of financial statements because, let's face it, at the end of the day, that is a prerequisite for getting funded.

Let us take a minute to talk about one of the important components of those statements, the statement of cash flows. The statements of cash flows is a summary of the receipts of cash for a company during a given period of time less the disbursements of cash that that company has during a given period of time. It gives our investors some real insight, especially for early-stager start-up companies, as to the level of cash coming into the company and the company's ability to support itself in the early stages of growth.

The statement of cash flows is broken into three areas: the cash generated or consumed by operations, the cash generated or consumed by investing activities, and the cash generated or consumed by financing activities. Let us take the cash generated or consumed by operating activities portion. What this does is this takes the net income number that your company generates and converts that to a cash number. For instance, if your company sells on credit, it sold a product to a customer on 30 days terms. While you recorded that as revenue on the income statement, you did not actually receive or probably did not receive that cash into the company during the period for which you are compiling the statement of cash flows. So, you would take that away. Also on the income statement, there are non-cash charges such as amortization or depreciation. Because those do not represent actual cash flows out of the company, you add those back to the income statement and make other adjustments like this to arrive at a cash generated or consumed by operating activities figure for your company.

Then you have the cash used for investing. This is like if you use cash to buy something like equipment or if you use cash to take an equity position in a subsidiary or something like that. This would be the case of cash used for investing activities. On the other hand, if you sold some equipment or sold some securities in a subsidiary, this would be an example of cash generated by investing activities.

Then you have cash consumed or generated by financing activities. This might be payment of dividends. That would be a dispersant of cash for financing activities. Buying back some stock would be a dispersant of cash for financing activities. Sale of some treasury stock would be a receipt of cash for financing activities. So, the way the investors are going to use this is to get a complete picture of the cash you have coming into or going out of the company. They are going to see how much operations you are generating, they are going to see how much cash you are really using to invest, and they are going to see how much cash you are using to finance your company.

What I always tell an entrepreneur is if they have some questions regarding the statements of cash flow, is to give us a call because, ultimately, what we want to do is make sure they have accurate financials so that they can maximize their opportunity of getting funded.

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What Not To Do When Seeking to Raise Money

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Hosted by Ken Honeyman, The Capital MatchPoint, 770.462.2728 http://capitalmatchpoint.com...

What a fantastic question: how to get your deal in front of the investor and what not to do. Everybody always talks to you about what to do and so forth. But I'm going to talk to you about what not to do from an investor's standpoint.

There are nine items I'd like to take care of at this point.

Number one, an inadequate team. I believe a quality team is probably the single most important factor in looking at a young company. So, surround yourself with people smarter than you.

Number two, is the company crowded or in a noisy market space? Markets have a lot of players are difficult even if the innovation is head and shoulders above the rest. If it's a consumer market, you'll have trouble getting your message to stand out in this economic environment.

Entrepreneur naivete. This ranges from plans that had no real plan from going to market. Their thoughts were just announced, and the customers will come. Unrealistic expectations with no real through put.

Four, plans with no concise explanation. It drives us crazy. A plan gets about 30 seconds to catch my attention or the investors attention. If the first few sentences aren't compelling for me to keep reading, I won't.

Five, plans that require too much total money. Angeles typically don't want to be the first quarter million dollars into a deal that's gonna take $10- or $20-million to achieve a profit.

Evaluation. We've covered a lot about evaluation before, but what we often ignore is absurd evaluations. Early in our discussion of a company, a plan will fail if it's ten times what it ought to be.

Seven, lack of barriers to entry to intellectual property. A star team can sell a plan that's really based on execution. But ordinary mortals like us have to show that they can keep others out of that space.

Eight, problematic deals. Plans that don't fit the angels/VC mold of plans with unusual deal structures, the investors will tell you how they want to invest, typically.

And finally, don't use a broker. Investors don't like paying brokers. They'd rather have the money going into the company, and too many of the brokers and companies at this stage are not properly licensed which casts a real pall on the whole transaction.

So, prepare yourself to navigate the capital or raising minefield with some common sense and the help of professionals you'll find at The Capital Match Point. If you need assistance to find investors, raise money, angel investors, or with your business plan, call or visit us on the web.

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Business Plan-ROI from an Investor's Perspective

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Hosted by Mark Bass, MBA, The Capital MatchPoint, 941-462-2728, http://.capitalmatchpoint.com...

At the top of our investors' mind is ROI, or Return On Investment. ROI is a compound annual rate expressed as a percentage, and it measures the return an investor gets on the capital that they inject into an entrepreneur's business. The way an investor goes about determining the price for a company or the amount of equity that they're going to ask for in exchange for funding a company is by starting with what they require for an ROI. Then they'll take all kinds of growth, profitability, and valuation assumptions into consideration to determine that price. Generally speaking, it's hard to say what an investor expects in terms of ROI. But Clint Richardson, in his book Growth Company 4.0, says that good rules of thumb are greater than 35% for seed or start-up companies, 20% to 50% for first stage companies, and 15% to 30% for second stage or mezzanine companies.

Another thing to remember about ROI is that it is time sensitive in that the longer the investor has their money in a company, the lower the ROI becomes. Let's take an example. Three times an investment earned over a period of three years is a 44% return on investment. Whereas take that same three-time return and spread that out to five years, the return on investment goes down to 25%. So, if our investors think that they're going to have their money sitting in a company longer, they will raise their price for investment.

And for entrepreneurs that are thinking about ROI that aren't comfortable with the calculation, I recommend that they call us at the Capital Match Point. Because what we would like to do is walk you through how to determine an appropriate ROI for your company, because what we want to do at the end of the day is make sure that our investors have the most information possible for when they begin the negotiation process.

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What Does It Mean If You Are Turned Down When Seeking to Raise Money?

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Hosted by Ken Honeyman, The Capital MatchPoint, 770.433.8250,  http://capitalmatchpoint.com

 

When a capital source really says no, what does that mean? Let's learn something from this. I tell the entrepreneur, you've had a number of face to face meetings with funding sources, and they turned the deal down, and that's tough. Let's debrief a little bit about what's happened and what they probably told you. Let me give you an insider’s look and decipher what they've said to the entrepreneur when he gets turned down. Hey, we've all been turned down by financing before, and I think it's instructive to know, but more valuable as a learning tool when these standard push backs occur. They're telling you something, so let's be prepared. I think it's time to read the lines between the standard phrases they get back to you on.

They say, "I liked your company, but my partners didn't." In other words, no. if this person truly believed in the project, he'd vouch for you and get this thing going.

If they say, "If you get funding or a lead investor, we'll follow." And what that really means is, once your first round of financing is completed by someone else, we'd be happy to give you more, but let someone else take the risk.

They say, "Show us some more traction, and we'll invest." What that really means is, I don't want to say no, because you may land a large customer in the interim. But right now, I just don't believe in it.

They say, "We'd love to co-invest with other VC's or other angels." What it really means is, if your deal was worthy of a VC, they'd want it all for themselves.

When they say, "We love early stage investing." What that probably means is a VC's dream is to put one to two million dollars in a pre-money company and winding up owning 33% of the next Google. VC's aren't that risky. They only want to invest in proven teams with proven technology in a proven market.

So, there you have it. We've heard it all before. These are typical responses when they say no. So, be prepared to hear any of these and take it with a grain of salt. There's always an investor to fund any deal. We just don't want a capital seeker to shut down after the first one or two turn downs. We can help re-purpose the deal and adjust it and turn that "no" into a "yes."

We welcome questions from entrepreneurs after they engage our investors. We're here to aid the entrepreneur and get the capital they deserve. So, let's make this as easy as possible. If you need assistance to find investors, raise money, angel investors, or with your business plan, call or visit us on the web.

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Find Investors-what are investors looking for-3 minute review

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Hosted by Dave Dambro, The Capital MatchPoint, http://capitalmatchpoint.com

 770.433.8250...I talked a little bit about the three-minute review that an investor would do. And having sat on both sides of the desk as an investor over the past 25 years and as a capital seeker as well, I could tell you, during that three-minute review I talk about, there’s some eye catchers that are going to pop out at you and really grab your attention. And Ill tell you what, those are the deals that are going to get in the to-do file. Here’s what generally pops out during that review.

First of all, I think patents. If you see a patent, you generally know you got something there that nobody else has. Its worth taking a look at.

Trademarks are pretty good, too.

Additionally, capital invested personally. Ken Honeyman likes to call it skin in the game. and you’ll here it called that quite a bit. We want to see management teams that have a personal stake in the business and believe enough in it to put their own money behind it before they come and ask the capital provider to add to that.

Management? This is a huge category for me. Executive summaries reveal gems and big names and experience. Companies that have pedigrees. Things like that. If you see a management team that’s well rounded, that’s great. Occasionally, you’ll see a gem. It hits you very quickly, goes in the to-do file.

Milestones achieved. Its good to look at a company and see, have they made it to their stated goals so far? That’s a good indication of how they’re going to handle the capital infusion you’re thinking about providing for the investor.

The value of the idea, or the product, or the service, as far as in a monetized basis. In other words, what’s the market for that idea, product, or service look like? Is it a multi-billion dollar market or is it just pocket? A couple million here and there? Big difference.

Growing market demand versus shrinking market demand. This ones pretty obvious. Everybody wants to get in on the ground floor. Ill give you an example. If you could have got in when the first guys were lugging the big cell phones around in a box, if you could have gotten in on that stage, you were in a growing market. Look where you would have ended up.

Now, another one you look for, and this pops out right away, revenue growth year over year. Always take a look back and see what they did last year or the same quarter and look for the trend. You’ll want to see that trend line steadily up. If you see it spiking up, its even better.

Strategic partnerships are also very, very important. Who is this company aligned with? Who is supporting the business model and enhancing it as well?

Lastly, intellectual property. Intellectual property is a little esoteric, but nonetheless it can be valuable. It can be booked as an asset, and it is something to take a second look at.

So, those are the things that really catch the eye of the investor. If you’ve got some of those things in your business plan, during the three-minute review, they’re going to be popping out. So, be aware of those. If you have any questions as a capital seeker about how to position and package those things and present them, feel free to give us a call at the Capital Match Point at any time. That’s what were here for.

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