8 Crucial Parts of Your Perfect Pitch for VC Funding of Your Business

Posted on November 20, 2012 by admin

As you’ve already learned, VC funding for your business doesn’t come easy…or quickly. Even once you think you have the right VC and you’ve made your approach to get their attention, the next step can get painstakingly long. I’m now talking about preparing to make “The Perfect Pitch”.

Take note that it can take some time just to get on a Venture Capitalist’s schedule…sometimes up to a couple months. You need to understand that just because you’re in a hurry, it doesn’t necessarily mean they are.

First things first: Unless your VC requests it, don’t send a full business plan; they won’t have time to read it. Also, at this stage, most Venture Capitalists are not going to have anyone sign a non-disclosure agreement. Therefore, you need to just give them enough information to pique their interest and have a good understanding of what you’re about.

The next thing your potential investor will want to see is your Executive Summary. This needs to be a “Killer”, while at the same time trying to get it down to a one-page document. Depending on the industry, this summary could be as long as three pages.

From this initial look at your Executive Summary, they will decide if they want to be pitched in person or possibly over the internet. You should be prepared for that possibility. Along with your Executive Summary goes your Pitch Deck…generally a PowerPoint presentation, which will aid them in their decision.

As you’re preparing your Pitch Deck, keep in mind that you want to try and keep your pitch to approximately 30 minutes, even 20, if possible. Try to stay within a range of 12 slides, only going longer if you have elements of your pitch that warrant more detailed information, such as prototypes. In this case, you could go as high as 30 slides.

There are eight touch points that need to be a part of your presentation. The first six are as follows:

Intro – This slide should define your company, your product/service, and your Value Proposition; ultimately, tell them what it is you’re trying to do.
Opportunity – What is the problem you are trying to solve and why should the VC pay attention to YOU; who are your customers going to be…primarily…and how big are the market segments (subsets)?
Solution – Display and/or demonstrate your solution, why someone would want to use you, and explain why you are different. As mentioned above, this is when slides can go into more detail and get a little lengthier, if you have prototypes to show and explain.
Business Model – This point is of utmost importance! How are you going to make money? What have you already invested to date and what have you accomplished? Provide a road map for where things are headed and what your growth strategies are once you’ve received funding.
Team – This is where you identify your main team players and the strength of your management team; describe your team’s experience in the industry where you are “playing”. This will also help the VC know what it is they need to bring to the table.
Competition – Who is your competition? Although you may not think you have competition, there undoubtedly is someone, whether a direct competitor or some perceived competition. In what way are you defensible?

I know…I promised eight parts to your Perfect Pitch, but have only given you six! In my next blog post, I will provide the last two components, outlining the MOST important part of your Pitch Deck. I’ll also discuss what due diligence on your part is necessary before all is said and done. Venture Capitalist funding for your business should now be coming into focus with this part of the process almost complete.

Four Important Points About Targeting Your Approach to a Venture Capitalist Who Could Fund Your Business

Posted on November 8, 2012 by admin

Once you have narrowed down your choice of a Venture Capitalist or Venture Capitalist Fund and found the right one to “court” as a means of funding your business, the next step in this process is to plan a Targeted Approach.

You need to do your research on your Venture Capitalist options and plan your pitches. Keep in mind that there are approximately 934 VC firms. These firms, at any given time, may consider 10 deals a day, knowing very well that they can only fund four a year. With this in mind, your motivation should be high for doing your due diligence beforehand.

Your due diligence should include consideration of the following:

Industry Focus – who has invested in your industry before
In Network – who are investors/funds that may be in your network
Fit Their Portfolio – does your business fit their portfolio or is it totally outside their realm of expertise, to the point where they may not feel they can bring managerial experience to the table
$$ to Invest – you definitely don’t want to spend time courting a funder whose monies have been depleted for the year
Match of Size and Stage – is it the right size fund or investor that you need and is it geographically located to be of benefit
Track Record – be sure to talk to other people who may have been funded by this person or group before

It’s also very important to keep these four points in mind:

Venture Capitalist Firms like to invest in their area, industry of expertise or in a mission- related project
Find connections anyway you can and make contact with them (who works for them; who is on the board, etc.) This is so important.
Remember the Magic of 3 and Make it Personal – Before making your pitch, there should be three points of contact…all personal to the person with whom you want to work. This does not mean just email, a text or letters. Think out of the box on how to make a great first impression (i.e. a gift basket of product samples sent to the executive team). After you do your pitch, remember to do the same…another three touches or contacts to follow up. This is very much like grant funding; you need to do the work to earn attention.
A Venture Capitalist website drop box or out-of-the-blue emails DO NOT WORK!! – You need to try and make contact before going through their portal; if they are asking for a full business plan, I would want to know more about them first.

You need to make sure the Venture Capitalist you’ve chosen knows you are out there and what you are about. This can include:

Networking like crazy
Using social media and blogs – create a buzz around who you are; let them know where they can find information on you; if you have a media or marketing plan, make sure the VC and your pitch to them is a part of it.
Attending industry-related events and conferences
Again…Create a Buzz!!

Now that you have taken time to Prepare, you’ve determined the Right VC or VC Fund for funding your business, and you have the steps for creating a Targeted Approach, it is time to begin working on The Perfect Pitch!

In the meantime, I’d like to hear about what you may have done as one of your “Magic 3” contacts or “touches” when approaching the Venture Capitalist you chose.

How to Know Which Venture Capitalist or VC Fund is the Right One for Your Business

Posted on November 6, 2012 by admin

In the five-step process for going after Venture Capitalist funding, the logical first step is to Prepare, which I covered in my previous article.

Today’s blog post is going to cover step two of the five steps, and that is: Find the Right VC.

FIND THE RIGHT VC –

As you’ve been thinking about pursuing Venture Capitalist funds, you may have been spending a lot of time ruminating on how to make sure you are attractive to them. But you should also be looking at whether the VC or VC Fund is the right fit for you and your business.

You need to know that all Venture Capitalists are not created equal. The quality Venture Capitalists should not only be ready to provide you monetary support, but also support of a “non-monetary” kind. You want to find investors who are looking to collaborate with you and give you support on a whole new level. Ideally, they will fill in the gaps in your foundation so that the potential that your company has is maximized, helping to lift your profitability levels to where they need to be.

This “non-monetary” support can come in the form of:

Operational Experience
Hiring Contacts
Service Provider Contracts (i.e. a team to help with your website)
Profiles and Public Relations
Exit Optimization – preparing for a buy-out situation right from the start; you should know your exit strategy (are you looking for an IPO, overall buy-out, to leave a legacy for your family?)
Experience Throughout the Process (as I’ve said…collaboration)

Once you feel as though you’ve homed in on the Venture Capitalist (Fund) that is the best fit for you and your company, it’s time to move on to Step 3 in the process, which is to create a Targeted Approach. Funding your business can’t be left to chance at any point in the process, so my next blog post will address how to work through this next step.

8 Vital Steps to Prepare You for Going After Venture Capitalist Funding

Posted on October 25, 2012 by admin

Now that you know the five steps involved in the Venture Capitalist “process”, we can look more closely at each.

So let’s start at the beginning of the process…Prepare…and the steps involved:

Must establish a C-Corp entity structure
Must create a GREAT Executive Summary
Must write a detailed Business Plan
Must prepare a Venture Capital Term Sheet
Must have an attorney prepare a Stock Purchase Agreement
Must amend your Bylaws (or a “Certificate of Designation”)
Right of First Refusal/Voting Agreement for VC
VC Consulting Agreement (if Applicable)

Let me address each of these steps briefly.

First, to obtain VC funding, you can’t be operating as an LLC or sole proprietor; you must be a C-Corp and deal with compliance for that designation.

The Executive Summary is what will open doors to Venture Capitalist companies; and for that reason alone, it must be GREAT!

The Business Plan you will need to prepare at this stage is not your one- to three-page document, but a very well researched, detailed document that you should consider getting proper help to prepare.

The VC Term Sheet is typically a non-binding document that outlines the terms of the deal. It’s an important investor packet item that says, “Here is what we’re all about and what we’re going to give back in return.”

Obviously, the Stock Purchase Agreement is the document that sets the terms for the VC investment, inclusive of the purchase price, closing date, and conditions regarding the issuance of the stock. Needless to say, this is a very important document that an attorney should handle and/or review to be sure you dot your “i’s” and cross your “t’s”.

Your Bylaws will need an Amendment (or create a Certificate of Designation) that creates the new preferred stock class and addresses anti-dilution provisions, as well as dividend, liquidation, and conversion rights. This is an item that you can find great templates for online.

The Right of First Refusal document is important if you will be offering more stock later. Your Venture Capitalist will want the right to fund it first. As for the Voting Agreement, Venture Capitalists want board positions and, with that, voting rights. My position is that the borrower should try and limit this as much as possible. In fact, try to leave it out if they don’t bring it up.

Finally, the VC Consulting Agreement will address any resources and/or management teams that will be brought to the table, the fees involved, how long they will be involved with the company and when they will step aside.

As you can see, just this first step in the Venture Capitalist Funding Process is involved. You need to be prepared to dig in and focus. In upcoming blog posts, I’ll address subsequent steps in the process. In the meantime, if you are now going through it or have been through this preparation process, I’d love to get your insights from the experience.

5 Questions to Ask Yourself If You Want to Pursue Venture Capitalist Funding

Posted on October 24, 2012 by admin

In my blog post last week, which outlined the features of Venture Capitalists and VC Funds, I wrote about how they work with businesses to fund them through their growth phases. Today I want to help shed some light on the actual process of gaining Venture Capitalist funds and determining whether your business is a viable candidate for them.

Let’s consider first whether your business is one that will deliver the kind of returns enticing enough for Venture Capitalists. As the business owner, you need to contemplate:

Are you going to have the profit margin necessary to be giving someone else 28-35% of it?
Once your business starts to grow, is it scalable; in other words, will your increasing revenues cost less to deliver?
Is your industry one where it is common for buyouts to occur?
Are you growing fast enough?

Last, but not least, are your business and its future growth defensible? If you can’t explain it and what you have, how is a Venture Capitalist or VC Fund going to believe it.

Whether you’re going to pursue a Series A or Series B level of funding is determined by where your company is in its growth and this whole journey. Series A is for those seeking their first round of funding; you’re ready to go and make your mark. It is a milestone-based investment. Whereas, Series B investing occurs after you’ve had your initial round of monies and the business is prime for moving to another level of expansion. At this point, the risk has perhaps diminished some.

Now that we’ve given you food for thought in regards to having what it takes to attract Venture Capitalists, let’s review what comes next…the Funding Process. The process is a long, resource-intensive one that is not for the faint of heart. I’m going to break it down for you into five stages:

Prepare
Find the right VC
Targeted Approach
The Perfect Pitch
Due Diligence

In my upcoming articles, I will dissect these stages into bite-size pieces so you can more appreciate what I mean when I tell you that the process is not an easy one, albeit in the end it can be an extremely beneficial one. In the meantime, take some time to ask yourself the questions at the beginning of this post, and try to determine if your company is poised for the kind of growth that could warrant Venture Capitalist funding.

“It’s Not Personal; It’s Just Business.”… REALLY?!?

Posted on October 19, 2012 by admin

Although my intention today was to write more surrounding the topic of VC funding, I instead felt moved to write regarding a subject about which I have very strong feelings!

“It’s not personal; it’s just business.”

Would you agree that when anyone has ever said this to you, it felt incredibly personal? After all…would any business even exist or succeed without the people who build it, run it and are served by it? I honestly don’t know how you can get more personal than that.

Now, I have great faith in people; but I, too, have grown tired of this remark being thrown around by those who basically have no intention of honoring a commitment they have made. When someone uses that phrase, doesn’t it feel as though what he or she is really saying is:

“Thanks for trusting in me and my integrity when things were going great; but how dare you count on me when things didn’t go according to plan…even if it’s the result of my misguided efforts.”

Please understand that in no way am I suggesting most things go according to plan, because that, in fact, is rare. However, I believe people who make commitments of any kind need to walk their talk in integrity. When things go wrong, they need to put their best efforts forward to find the best alternative outcomes for all those involved, rather than taking the easy way out of…

“Hey, it’s just business, so don’t take it personally.”

Is it not our challenges and obstacles in life that shape who we are, as well as what we give and take from the people who make up the world in which we live? Is it not our response to those challenges that tells those around us who we really are and what we stand for as individuals?

I believe this to be true; because all we really have of genuine value in this world is our relationships … how we honor them, protect them, and cherish them… especially when things don’t go according to plan. This is when PERSONAL commitment and responsibility take precedence over accepting failure as an option. This is when you are given the opportunity to PERSONALLY work with others in finding a new path that keeps you in integrity and walking your talk.

So when you find yourself at a crossroad with challenges in your business and are about to utter these simple words to someone you’ve made a commitment to… “I’m sorry things didn’t go as expected; but it’s not personal, it’s just business.” … please stop and remember this:

Everything in life is PERSONAL and should be treated and protected as such.

Do this and I can guarantee you that, despite challenges or perceived failures you face in business, they will never outweigh your successes in life.

Mary Kay Sheets – Rethinking Business and Making Sure it’s Personal!

5 Common Features of Venture Capitalist Funds Who Can Help Fund Your Business Growth

Posted on October 16, 2012 by admin

EARLY GROWTH FUNDING – VC FUNDING

Seed funding for your business and start-up costs are, obviously, vital for getting your dream off the ground. Getting these foundational expenses covered by family and friends, crowd funding and/or angel funding is a great way to go. Once you have gotten established, however, and need more substantial dollar amounts to support your business’s early growth, it’s now time to consider VC (Venture Capitalist) funding.

Now that you have a bit of a track record with your business and the risk for investors starts to diminish, your investor options begin to increase even more.

I touched on Venture Capitalists in an earlier blog post. Venture Capitalists and VC Funds are individuals or investment companies that use their money (capital), expertise (managerial and technical), and other resources in an effort to continue growing your new business endeavor. Venture Capitalists are generally compensated via:

2% management fee, plus…
Up to 20% interest carried on profits or…
Interest on their investment of 25-30%

When referring to a VC FUND, I’m talking about third-party investors who pool their monies (frequently in an LLC or LP) and manage them for the purpose of investing in businesses that may be high risk for normal bank loans. In general, these funds have a “fixed life” of about 10 years, which includes 3-5 years of an investment cycle, followed by more focus on management and perhaps making follow-up investments in the existing portfolio.

VENTURE CAPITALIST FIRMS –

In the early growth phase, VC funds can typically maintain $20-50 million per fund (Series A) compared to VC funds used for mid- to late-growth investments (Series B and C), which can hold $2-14 billion.

Common features of Venture Capitalist Funds include the following:

Investors have a legal right to receive interest and repayment of their capital whether the business succeeds or fails.
Venture Capitalists invest in exchange for equity stakes in the businesses they help.
ROI depends on the profitability of the venture and its growth.
In general, a Venture Capitalist/Fund will receive its return on investment by selling its shares in the business when it is eventually sold to a new owner after several years.
Due to the fact that their investment is not liquid, VC/Funds will do their due diligence before investing and will want to take part in the growth plan of the business.

A few more points of interest in regard to Venture Capitalist Funds:

In 2011 there were approximately 934 active VC firms
Through the 4^th quarter of 2011, VC funds invested $29.1 billion in 3,752 deals in the U.S.
Two-thirds of the 934 invested in three deals or less; 41% did only one deal
250 (27%) of the 934 firms did no new deals, which may indicate they are running short of capital.

In my upcoming articles, I will begin to address the actual process of going after Venture Capitalist funds for your business. Have you considered whether or not your business would warrant or be of interest to a VC Fund?

6 Tips on Angel/Crowd Funding and 10 Ways to Unearth Funders

Posted on October 5, 2012 by admin

For a few weeks I’ve discussed numerous methods for funding your start-up business. The most recent articles have included information on angel and crowd funding. In today’s blog post, I’m passing along several tips in regard to the abovementioned types of funding and also methods you can use to find funders.

Tips for Crowd and Angel Funding –

Resist your desire to raise $1 from a million people. Think about the maximum number of people you can manage while still protecting your vision?

Don’t take money from just anybody. The funding you accept must be legal and should support your vision.

Stay in control of your company for as long as possible; be sure to only share that control with those funders who share your same vision.

Determine, in advance, how many shares you want to maintain control of before offering any equity to funders.

Map out an investor relations plan for term, communication and exits.

Investment terms should be communicated early on and in clearly outlined. These terms should spell out what the investor is getting right now, how you reached this price, how it may change in the future, and your rights are in the event that there are further rounds of financing. In particular, crowd investors must understand that an investment of $1,000 that represents 10 percent of the company at the time of investment, will no longer represent 10 percent of the company if the company grows and gets new rounds of investments.

With these tips in mind, here are ten ways you can locate the funders that you need:

Call your chamber of commerce
Call a Small Business Development Center
Ask your accountant or call a Big Four accounting firm.
Ask your attorney.
Call a professional venture capitalist and ask if he/she is aware of an angel investor group.
Contact a regional or state economic development agency.
Call the editor of a local business publication.
Look at the “Principle Shareholders” section of initial public offerings’ (IPO) prospectuses for companies in your area. This will tell you who cashed out big.
Call the executive director of a trade association you belong to. Ask if there are any investors who specialize in your industry.
If you use a large commercial bank, ask your lender.

Now that we’ve spent time delving into angel and crowd funding, in my upcoming blog posts, I’m going to help you do some do diligence regarding Venture Capitalists funding your business.

Rev Up Your Start-Up by Utilizing an Accelerator or Getting Under the Wings of Super Angels

Posted on October 2, 2012 by admin

As I have written about previously, incubators are a great way to help you set up and decrease the cost of funding your business, as well as learn the ropes of running a new business. In today’s blog post, I want to touch on what is these days being referred to as the “new incubators”… Accelerators.

Accelerators –

Basically, accelerators are business strategists who help start-ups by coaching them for a limited time frame, for which they are compensated with equity or deferred payments plus equity. Their value is in the advice they can provide from years of experience, their wealth of connections and other proven resources.

Depending upon levels of experience and what their track record has been, Accelerators’ fees vary greatly. Generally the going rate will be $100-$300 per hour, taking into consideration the equity offering agreed upon.

The advantage of utilizing an Accelerator is that it can compress the timeline between start-up and profitability. However, this comes with the price of sharing ownership in the company and possibly profits and voting rights.

Super Angels –

Earlier I discussed Angel Investors as a business funding option. Super Angels, in contrast, are groups of serial investors who participate in smaller, early-stage, individual Venture Capital funds of $20-50 million compared to traditional VC funds of $2-14 billion. These Super Angels tend to target technology and internet- based companies who have shorter ROIs.

Some Super Angels features include:

Creation of a professionally-managed investment fund
Serial investing (investing in numerous startup companies)
Investing at a seed round in startup companies
Funding rounds in the range of $50,000 to several million dollars
Taking an active role in portfolio companies
Raising money from general partners and other principals, without passive investors
Participation of fund principals who are experienced entrepreneurs

Accelerator and Super Angel examples…

Accelerator

Rethink, Inc.

Rethink Inc. is a personal, powerful business development firm specializing in CEO Mastery Mentoring, functional and foundational business development, and business funding education and preparation. All of these are elements necessary to create, protect, operate, and fund a profitable business model.

Fees: Rethink Inc. offers early stage entrepreneurs (earning under 250K in annual revenue) a discounted hourly rate of $175 or a monthly retainer. In addition, Rethink Inc. will allow half the rate to be deferred up to 3 years for 1-3% equity.

Super Angel Companies

K9 Ventures 500 Startups
August Capital Partners Felicis Ventures
Floodgate Founders Collective
Founders Co-op Greylock Partners
Harrison Metal IA Ventures
Lerer Media Ventures Lowercase Capital
Social Leverage SofTech VC
SV Angel The Founder Fund
Thrive Capital

Later this week, I’ll give you some tips regarding Angel and Crowd Funding, as well as several ways for finding the Funders who may be just the right fit for funding your business.

2 Top Hyper-Funding Sites and 4 Types of Peer-to-Peer Lending for Funding Your Business

Posted on September 28, 2012 by admin

Before writing today’s article, I needed to let you know I heard from the founders of Crowdtilt after a recent blog post I wrote regarding the Top 5 Crowd Funding sites. They wanted to correct a small detail regarding their site. They wanted you to know that they follow the All or Nothing (AoN) approach to crowd funding; in other words, unless the goal is met, credit cards are not charged. They wanted to be sure no one was surprised or disappointed if there was a misunderstanding. Thank you, Marek, for clarifying this for us.

Now that you have an alphabet soup of hyper-funding sites to check into for funding your business, I want to provide some specifics on two of the top sites, as well as some insights into one more type of crowd funding…Peer-to-Peer Lending.

GrowVC –

Grow VC (which stands for Grow Venture Community) is based in Hong Kong and has offices in the UK, the US, and Finland. Grow VC is a more complex site that allows startups to receive equity investments up to $1 million per year.

In addition to helping with monetary investments, the Grow VC site includes an “Experts” system. Through this system, those who are “experts” with special abilities or knowledge can offer their “work investment” (in lieu of money) to a startup. There are also beneficial tools on this site that can be used for assessing the value and reputation of a startup.

Another great perk on Grow VC is a “micro investment” model whereby investors can dedicate a monthly budget as low as $20; and Grow VC helps them by providing tools and profiles of startups, including their history.

The fee for Grow VC is 2.5 percent of raised capital, assessed only on successful projects.

CrowdFunder (Beta) –

With CrowdFunder, backers can choose to invest for more than just straight equity. Another option is they can buy a cut of the revenues based on time or a percentage of return. For instance, an investor could “buy” 5% of a company’s revenue for three years or get 10% of revenues earned, capped at a 200% return on investment.

Normally, in traditional, equity-based financing, investors aren’t guaranteed a return on their investment unless the company is sold or offers dividends. Crowd Funder’s differs in that, by buying a percentage of revenue, investors can get a guaranteed return and share in the incremental growth of a company.

Fees: TBD

Peer-to-Peer Lending –

Also known as Person-to-Person Investing, Peer-to-Peer lenders are companies that leverage already-existing communities in online aggregating lending clubs. They act as the middleman between the ‘Peers’ based on similarities in geographic locations, educational and professional backgrounds or social networks. These Peer-to-Peer lenders handle the lending terms without a traditional financial institution. This particular lending/funding option is targeted at for-profit activity.

The following are Peer-to-Peer Lending options:

Direct (one specific borrower) vs. indirect (pool) lending
Secured (collateral based) vs. unsecured (credit rating only) lending
Prior familiarity of lenders and borrowers (Family & Friends vs. Existing Community)
Services offered (Lending/Borrower Matching and/or Loan terms and documents)

The advantages of P2P Lending are:

Borrowers get better rates than at traditional banks (below10%)
Lenders gets better returns with a quicker turn around
Less requirements

The major disadvantage…there is more risk for lenders because of fewer borrower requirements.

LendingClub –

Lending Club, the first Peer-to-Peer Lender to register its offerings as securities with the Securities and Exchange Commission (SEC), was founded in 2006. The Lending Club also offers loan trading. As of April 2012, Lending Club has originated $600 million in loans and averages $1.5 million in daily loan originations.

Through Lending Club’s website, borrowers are able to create loan listings which supply details about themselves and their requested loans. All of the loans are unsecured and personal, between $1,000 – $35,000.

Approvals for loans are based on the borrower’s credit score, credit history, desired loan amount, and the borrower’s debt-to-income ratio. Loans are only available to U.S. residents in 42 states and can be prepaid any time without penalty. The standard loan period is three years; but five-year loan periods are available if a borrower is willing to pay a higher interest rate and additional fees.

In subsequent blog posts, “Accelerators” and “Super Angels” will be a topic of discussion; and I’ll be sharing some tips for crowd funding and also how to find funders. Finding a way to fund your business these days can be challenging…but exciting, too!

MK Blog

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