Catching the interest of the
financing source is as much art as science. Whether approaching
a venture capitalist, an investment banker or an angel investor,
first impressions are critical. Unfortunately, all types of capital
providers are busier than ever in todays markets. With the
advent of the Internet, information travels faster and more efficiently.
Also, forming a new business is quicker and easier today than in
the past so there are more deals floating around the investment
universe. Consequently, there are vastly many more business plans
than there is funding capacity.
Two critical questions shape
the process: 1) what does it take to make my deal fundable? and
2) how can I present my opportunity in the most favorable light
to maximize my chance of actually receiving funding?
Making the Deal Fundable
To develop a business strategy
that will catch the interest of the financier, consider two significant
aspects. First, develop a viable, somewhat unique business model.
If you are totally unique, you may ultimately gain the "first mover
advantage" but you will have a much tougher sell. Its usually
better to be one of the first few out of the gate offering significant
improvements over the first guy. In that situation, you can point
to the industry leader as proving the business model and showing
that the core concept will actually work.
Second, create a carefully
thought out strategy to prove that your business plan is actually
an improvement upon the existing model. "Me too" deals are a dime
a dozen. Business strategies that actually improve upon an existing
model are really quite scarce. Henry Ford didnt invent the
automobile; he just figured out how to mass produce it economically.
Building the Management
Im always amused when
approached by someone who says, with a straight face, "We have a
great idea, all we need is management and money." I want to reply,
"And what, actually, do you bring to the table?" Success is 5% inspiration
and 95% execution. To execute you need strong management.
Looking at some of the Internet
deals today, I reflect back to the days of the computer whiz kids
of the late 1970s and early 1980s. Jobs, Wozniak and Gates were
all young, idealistic and ultimately successful. However, by the
mid-80s, venture capitalists began seeking a few gray hairs in the
deals they funded.
Once again, today we see young
and inexperienced entrepreneurs managing to create, in some cases,
hugely successful deals (only time will tell whether their core
businesses will also be successful). Companies have been founded,
financed and gone public at huge market capitalizations. Smart money
is beginning to bet, however, that such inexperience will not be
the model for the future.
search is for deals with a management team with a successful track
record in the core business, pre-Internet. If you are building an
auction site for a widget vertical, be sure someone on your team
is from the widget business and truly understands that industry.
Marketing the Deal
Once you have created a sound
strategy built upon a solid business model and staffed your initial
team with successful individuals from the core business, it comes
time to sell it to the money. And here, as in other areas of business
and finance, the world is changing. Whereas it used to be mandatory
to have an extensive Business Plan with supporting schedules and
projections, now clarity and conciseness are the order of the day.
If your Executive Summary is more than five pages long, it probably
wont get read. And you need that Summary to open the doors.
When putting together your
documentation, get input from everyone you trust. Make sure that
a non-industry person reads it. Find a bright young English major
to do a proofread. If he or she understands what you are trying
to do, you have made your point. On the other hand, if you ramble
on for pages about how wonderful your technology is without explaining
how you will implement it, you will never get funded. You must tell
And finally, be realistic and
persistent. You will hear a lot of "nos," many from self-confident
individuals who really dont understand what you are trying
to do. If they dont make an effort to understand your deal,
ask politely if they have any referrals to someone who may be interested
and thank them for their time. One of my old law partners from Washington,
DC is the brother of the fellow who put the Cabbage Patch Dolls
transaction together after all the smart money had passed on the
deal. Today, he is very rich from that deal and the smart money
missed an opportunity because they failed to understand the potential.