The value of an advisor

Lets face it, if finding capital for your venture was easy, then there would be no such thing as corporate advisers out there selling you the value of advice.

As I sat with another prospect today, who incidentally became a client at the end of the meeting, seeing what I see time and time again, I thought I would make a record of it formally and talk to you about it.

Lets assume that there is limited capital out there.

Lets also assume that not every capital provider is excited by your sector, you or your style – so matter how exciting this opportunity is to you or another person, there are just some investors who are not interested.

Lets also assume that some investors who might be interested, are busy on something else at the time you are looking, or are fully invested, or are overseas – just not contactable.

The long and short of it, as your pool of investors shrinks the more we think about it, it is no wonder that it is considered a difficult to find venture capital.

SO – if you pitch up to a potential investors office, or send them an email with a poorly laid out information memorandum, business plan, or your numbers don’t add up, or even if you under sold, god forbid, your idea or business as an investment, you will have reduced your chances of getting this investor on board, and your overall pool by 1. Who knows, they could have been the one. When you are dealing with such a scarce resource WHY would you take the chance.

Here’s the crux of it. If you have a great business, a great idea and you want to position yourself for a win every time, then you need to test out your idea, test our how you are presenting it, how it is likely to be perceived, what an investor will think about it, how they will react …. All BEFORE you actually communicate to one!

Someone said to me don’t pitch your services on your blog – people will run a mile – so I won’t then. I will do this for free. With this client above, I spoke with him for an hour on the phone, read through his IM and business plan, and gave feedback over several emails over the course of 2 days, and then had 2 hours in a meeting discussing what needed to be done to position his offer more effectively, …… all for free.

You cant lose!

The value of an advisor in your capital raising process is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

Often you hear people compare a new venture to the opportunity that has passed us by … just as if we had been offered an opportunity to invest in Google (or Microsoft, or eBay, or amazon.com), and passed it up. By not investing in Google, or eBay, or amazon.com …just imagine your loss. If you had that chance now, of course you’d take it. Or so the logic goes. (The recent marketing by Dubli heads down this path…)

But here’s the funny thing … the start of Google had Sergey Brin and Larry Page wearing out shoe leather around Silicon Valley trying to get capital … endlessly pitching … and with lots of smiles. But no cash.
(Source: The Search, John Batelle)

It wasn’t until 1998 that Andy Bechtolsheim put in some cash, and the real success story starts from there and other funds coming in after that – including Jeff Bezos of Amazon fame. At the door knocking stage it didn’t even have a revenue model or a company structure (it did have a name, having just changed from being BackRub)

So, what did all those venture capitalists not see, that in retrospect seems like such an amazing opportunity.

Whatever it was… here’s the lesson: venture capitalists miss opportunities daily. And they don’t mind.

And this also presents your challenge. Even when you (think that you) have a sure thing, that the market needs what you have and that anyone would be mad to not want it… remember that you are competing with so many other opportunities put before them, that the chance of them passing on your opportunity is high.

If smart people can pass on Google, then they can pass on you.

There are some valid reasons for this. In the early days, Google had fantastic technology but a poor revenue model. In fact, it is possible that if it were not for the hype around dot coms, a plan as skinny on detail as Google’s would not get off the ground even now.

Your job as an entrepreneur, is to make sure you have a strong business model and can convey to a potential investor how you will commercialise your technology, and what their risks are. And of course what the upside will be.

For a great read on the steps that lead Google to where it is now, check out The Search. . Or here.

Just a note – the Google founders had a real life “start in a garage story” – much as Microsoft did. Their frugality extended to their celebrations on receiving their first investment: Burger King.

“Imagine investing in Google at the start…” is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

Guy Kawasaki is the Managing Director of Garage Technology Ventures, and has two separate stints at Apple under his belt. He is highly regarded in the Venture Capital and entrepreneurial communities.

Here are his ten (and a bonus) points for creating a successful company. This is not (specifically) about how to raise capital. It IS about how to create a great company which is all part of the journey. No punches are pulled.

1. Make Meaning. Change people’s lives. Apparently it’s not all about money. Meaning makes money.
2. Make a mantra. Have a mission statement that people understand, not one that Dilbert would create.
3. Get into action. An average plan acted on outperforms a great plan on the shelf. Don’t put up with incremental improvements. Jump the curve. Don’t try to appeal to everyone. Polarise. Find people to help on your journey.
4. Define your business model. Be specific about where dollars come from. Keep it simple.
5. Know your milestones. Know your assumptions. Know your tasks.
6. Get niched.
7. 10/20/30. 10 slides in your pitch. 20 minutes. 30 point font. Keep it simple. Don’t read your slides. These stop Guy getting ringing in his ears from BS presentations.
8. Hire infected people. They must love your product. Ignore the other stuff. Hire people better than you.
9. Lower barriers to adoption. Make it easy to do business with you. Flatten the learning curve. Don’t ask customers to do more than you would do. Embrace the evangelists.
10. Take the money. If the wrong people buy your product, let them. Allow a test drive. Find influencers, even if this is the soccer mums.
11. Don’t let the bozos grind you down. Especially the smart ones because you might believe them.

Enjoy the video and let it inspire you to create an incredible business.

If you enjoyed this, check out his VC Aptitude Test for a slightly tongue in cheek look at what makes you successful in business.

And more wisdom here…

Guy Kawasaki – The Art of the Start is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

From ” Ready, Fire, Aim. $0 to $100 million in no time flat”.

Summary : Part One of Four+

Michael Masterton is a serial entrepreuner and advisor to many business owners.

His philosophy is one of choosing action over perfection. He breaks the life cycle of a business into 4 stages – Infancy, Childhood, Adolescence, Adulthood.

In Infancy, Masterton’s advice is highly practical. Focus on sales, sales and sales.

Your business is a train, sitting on the tracks. ” You want to get it going, not spend time polishing it. You should put coal in the furnace and get the boiler hot. Steam runs the pistons, polish doesn’t”.

Why it matters: This is a book for entrepreneurs. Hopefully that is you.

Here are his observations on businesses in their infancy.

* Don’t waste your time on corporate marketing.
Don’t do marketing that is based on building a brand. Do marketing that is focused on sales, getting leads, and growing a customer base.

* Don’t waste money on invisible business extras like office space, furniture, equipment and the like.

* Don’t be misled by phony business experts.
Be careful who you listen to. Have they succeeded in the field they are advising in?

* Be proud of your business acumen, but don’t be arrogant about your business ideas.
Have the confidence to back yourself, but don’t let your ego get in the way if your ideas are wrong.

* Ask for advice from smart people.
However successful you become, reach out to others for advice.

* Don’t ever believe you know more than your market.
You may know a lot about your product or service, but don’t commit yourself to a major idea until you have tested the market.

* Make sales your company’s top priority.
Don’t delegate responsibility for this role. Hire and manage well, but you need to be in the driver’s seat of this process.

* Learn everything you can about sales and marketing.
Read and listen to everything, and everyone you can. This will help you with your business, and allow you to start a 2nd and 3rd business.

* Discover your optimum selling strategy  (OSS)- the combination of media, pricing and positioning that brings you the most qualified leads.
Working out the best channel and message for your company is your main job. Once you have that, you can leverage your activities.

* Understand pricing. Learn the balance between winning orders, and making profit. All other things being equal, go for more customers and growing your client base.

* Understand Allowable Acquisition Cost (AAC).
Understand two sides of marketing – allowable acuisition cost and lifetime value. Know what you can afford to spend to win a customer.

* Make your marketing goal to bring in a number of qualified customers.

* If possible use direct mail or email to discover your optimum selling strategy.
This gives you a low cost mechanism with fast feedback.

* Don’t invest a lot in inventory until you have figured out your OSS.
There’s cheap ways to test such as selling, then making or fulfilling the orders.

Check out the book…

Three Great Ideas You Can Use:

1. Developing a sales strategy is absolutely essential to any business venture. Developing an “Optimum Selling Strategy” can be the difference between success and failure.

2. Understanding the difference between marketing and sales is also critical. Learning this and putting it to work can be the difference between success and failure. Development of the Unique Selling Proposition for our business is crucial as well.

3. Every start up business needs four personality types to make it work: a seller, an improver, an organizer and a pusher. Identifying those business types in your business will make success much more likely.

+ Still to come: Childhood, Adolescence, Adulthood.

Ready, Fire, Aim : Stage One (of Four): Infancy is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

Ryan Allis, the author of entrepreneurship book bestseller ‘Zero to One Million’ shares how he raised $5.35 million in venture capital for iContact at age 22 and provides tips on how other entrepreneurs can raise capital. He provides tips for knowing when it’s right to raise venture capital, getting introductions to investors, negotiating a term sheet, increasing valuation by getting multiple term sheets and playing multiple firms’ offers of one another, and how to select the best venture partner.

Ryan Allis, the author of entrepreneurship book bestseller ‘Zero to One Million’ shares how he raised $5.35 million in venture capital for i…all » Ryan Allis, the author of entrepreneurship book bestseller ‘Zero to One Million’ shares how he raised $5.35 million in venture capital for iContact at age 22 and provides tips on how other entrepreneurs can raise capital. He provides tips for knowing when it’s right to raise venture capital, getting introductions to investors, negotiating a term sheet, increasing valuation by getting multiple term sheets and playing multiple firms’ offers of one another, and how to select the best venture partner.«

How Ryan Allis raised $5.35 in Venture Capital for iContact is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

Don’t rely on a strong environmental benefit, or any “green” factors to help you get investors, unless those factors help drive the market for the product.

Don’t get me wrong, I am all for being green. What I am saying is that being green is not a reason in itself to attract an investor. Nor, for that matter, is it a reason to attract customers.

Even venture capital funds that have a green philosophy still aim for target ROI, and the same criteria as other investors (management strength, market, marketing, exit strategy). In these, green is just the price of entry.

In marketing and sales, all things being equal, customers may choose a green product over a “standard” product. Hopefully, all things being slightly unequal (ie a higher price), they will also choose a green product. But reality is that as soon as the price differential grows too large between self interest and world-interest, people will choose self interest. Of course everyone has a different profile, and some will be prepared to go to extreme lengths to protect the environment, and as such may be willing to pay a higher premium.

Investors are the same – they may choose a green investment over something else, but rarely at a premium.

The exception is that if “green” is the reason for driving consumers, and is part of the overall competitive advantage of the company and its offering, then this will have a positive benefit. Keep in mind that in this case, it is a strength not because of the investors concern for the environment, but because of how they see that influencing the market.

So, in creating your pitch for investors, remember their driving motives. And, if your customers are driven by environmental concerns, and this helps the investor get what he wants, then it is an appropriate strategy. Keep in mind that a decision to invest is driven by commercial aims, not environmental concerns.

(Coming soon – blogs on businesses which are in essence propped up by or dependent upon government subsidies for environmental and economic stimulus. Eg the recently (Feb 2010) cancelled insulation scheme, and the impact this types of artificial demand can have).

Being Green – and its impact on raising venture capital? is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

Many business owners are satisfied with making a good living, and creating a profitable business. And while many businesses are profitable, this is not really the stuff which will excite an investor.

Donald Trump once said, “if you’re going to think, you might as well think Big”, and it is big thinking that will create a vision grand enough that others will want to join you (staff and management for example). Running a successful and growing company is an exercise in leadership. Part of leadership is having and sharing an exciting vision.

Michael Schrage argues that those willing to invest in and test new ideas based on their hunches will often find their noses bloodied yet this is a risk which is necessary in order to create something which is truly massive. The Economist descibed that from 20 investments:
- 4 would go broke
- 6 would lose money
- 6 would do OK
- 3 would do well
- 1 would hit the jackpot.

So, one in 20 is brilliant, four in twenty do well (or better) and a full 50% go broke or lose money.

If you have run a business, you know that it can be hard work. If you are going to wear yourself out, you need to have a great reason for doing it. As a business owner your reasons might vary from noble, to mercenary, to altruistic. For an investor, it is far easier. It is about the money. If it doesn’t have a huge upside potential, why bother? *

Investors look for – and buy into this leadership and vision as well… for a couple of reasons.

The first reason is that the intended outcome needs to be substantial in order to be worth playing for. Almost no investor wants to play in the shallow end of the swimming pool and watch a million dollars turn into 1.5 million dollars over a few years (or see it shrink). If the predicted outcome was this minimal, then there are plenty of other investments that are more reliable – property for example which will give nice steady returns. There has to be the potential for the company to grow by a factor of ten or a hundred times in order to turn the seed capital into a massive return. This is not to say this will always happen… but the potential has to be there. It is estimated only around 3-5% of all businesses have the potential to achieve the type of growth that will attract a VC.

Venture capitalists expect some failures. In fact, they generally have a higher tolerance for failure than most (The very word “venture” implies some sort of adventure and rocky ride.). This is because they are looking for the big wins to make it all worthwhile. So if you expect to attract this kind of money, show off the potential. Guy Kawasaki makes the distinction between a business that is viable (and that there are many businesses which are viable) and those that are fundable (and very few viable businesses are fundable). Being attractive to fund is about scalability and vision. (Check out his videos also on this site).

The second part is about leadership. Investors are buying into a business idea, but they are also buying into a person, or a few key people who will make this vision a reality. Are you this person? And if so, how can you show an investor you have what it takes? Obviously having some runs on the board already will count – if you have previously built a business, grown a company, or lead a large team. If not, you need to show that you see how important this is, and what your tactics will be – maybe it is to hire a strong GM for example. There is no ‘right way’ – but you need to recognise that you need a plan. Just as an aside, quite often the skills needed to lead and the skills needed to manage, and the skills needed to oversee operations are different. Noone is expecting you to fill all these roles, but it is important to map out how you will deal with thesm. There’s many cases of business owners that are brilliant at inspiring, but know they are not the right person to get involved in day to day operations and therefore they make delegation a priority. Richard Branson springs to mind.

So, when you are writing your business plan, make sure you are conveying the potential of tapping into something significant and understand that your leadership will be as important – if not more important – than your business skills.

“The tragedy is not that we set our goals too high and fail, but that we set them too low and reach them”.

Here are some things that an investor will look at to decide if your goal (and potential) is big enough.

1. Market size
2. Growth rate
3. Market maturity
4. Fragmentation within market
5. Barriers to entry
6. Cost structure (% GP of sales)
7. Changes within market – dynamics of major players
8. Impact of product or service on people’s lives.
9. Nature of purchase (one time v ongoing)
10. Barriers to entry
11. Potential exit strategies
12. Strength of the leadership and management team.
13. Return
14. Differentiation of product or service.

* You may find investors that get involved for reasons other than monetary gain, but these are likely to be other categories of investors – not VCs.

Is your goal big enough? (to interest a venture capital investor) is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

Is your business ready to grow?

Some ideas just don’t scale. Some businesses, though profitable are just not suited to expanding.

This could be for several reasons, including:

• being dependent on a founder with a highly technical skill
• being dependent on a founder with personal connections
• having a small overall target market
• lacking a unique position in the market

Under these conditions you may have a business which is able to survive even thrive. But even though it may provide a good income for the owners of the business it may not excite an investor. You may see these conditions in a small business which has been started by its founder with or without a core team and has grown because of their skill, persistence, and tenacity. But with the addition of a few employees, it has stagnated. To clarify, this kind of business can be profitable but still not right for an outside investor.

Take as an example a builder who buys properties to renovate then sell. His business may be excellent, but unless he has the ability to systemise and leverage his skills, the profits are limited to what he is capable of doing himself. Thus, not scalable. So while this builder may make a good profit, an investor is unlikely to back this as a business.

An investor wants to see growth opportunities – by several multiples, not steady improvements. They want their money (and potentially their skill) to be the catalyst that propels the business, exponentially.

If your business is not one that fits the ideal profile for an investor, the options are to raising capital may be:

• seek it from friends and family, who have different criteria as an investor
• raise money through debt through a bank (usually secured against personal assets)
• grow organically

Another option is to isolate the constraint you have and design a strategy to minimise the effect on growth. For example if you, as the business owner, are the biggest asset and the biggest liability then the following may work:

• recognise that you are the bottleneck in the business, and due to which factors (sales ability, technical knowledge for example)
• hire/organise to duplicate these skills (not replace them) thus spreading the risk
• hire/organise to remove your non-core duties. If you are the best sales person for your product, and also do the accounts, cease to perform accounting duties yourself. It is unlikely you are the best at everything.

Every business has constraints. If the constraint is YOU, then it is unlikely that your business will attract an investor. If you rearrange your business in the right way you may still become an attractive investor target.

Scalability – can your business scale for massive growth? is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

In your search for venture capital don’t expect fairness.

If you’ve ever been looking for a job and eagerly sent your resume off (only to have it ignored), or if you’ve ever been an employer and looked at an in-tray of hopeful candidates (only to flip through them seeking the one that jumps out), you’ll know that evaluation methods are often less rigourous than they should be. It may be a scan for just twenty seconds that has your resume placed back on the desk, and another picked up.

Seeking investment capital is similar. As a business owner, you are often one of dozens, or even hundreds of proposals which are submitted to an investor. The future of your business it seems is dependent upon something as fickle as getting your business plan actually picked up and read.

The truth is that you will often be judged by factors that you don’t even know about. And if your business plan is passed over then you don’t even get to be judged on its merits.

So, what can you do?

1) work on presentation as much as content. If your proposal doesn’t get picked up, then it doesn’t matter how excellent your idea is.

2) acknowledge you will need to get it to a lot of people.

3) follow up. You are selling an idea. You’d follow up a sales call (I hope).

4) ask for feedback. If you get a “no” for your proposal, ask why. This can help you learn for the next one (and the one after that, and the one after that).

5)  forget about what YOU want, except to the extent that it helps an investor get what he wants.

6) consider how you are delivering it. Just as in job hunting, there is more than one way to find the ideal position. If you are sending your resume off in response to job ads, the best you can hope for is to considered equally with other candidates. As they say, the best jobs are never advertised. In raising capital, there are various ways of finding and contacting investors including referrals, networking, and recognised channels such as corporate advisors. Corporate advisors such as us (so yes, I am disclosing my interest!) have the ear of many investors and our opinion is valued.

And remember, there are many stages to your pitch. I am talking here about your initial written submission. When it comes to the next stages, there is even more to consider…more that can go right, and more that can go wrong.

Life’s a pitch: Getting your message across to an investor is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read

Is money the answer?

Every business could do with more funds it seems. The typical life of a business owner is one of juggling funds and prioritising who to pay.

This is true for business at almost any stage from startup to mature, and the issue tends to exist in times of growth as well as slumps.

It is often this need for cash that causes a business owner to see an investor as the answer to all their problems. However, cash may or may not be the answer. To be precise, additional cash will be the answer only when (lack of cash) is the cause of the problem, rather than a symptom.

In many cases, there are other underlying problems such as:

• wrong product
• wrong market
• wrong marketing
• wrong margins
• poor accounting and financial management

What will happen if you introduce cash into a company that has these problems is that the cash will simply accelerate whatever is happening. If the business is making money it will make more money. If the business is losing money, it will lose even more money. Cash simply becomes fuel on the fire. It can create fast growth, or it can create fast failure.

It is quite likely that if you seek capital, you will learn several things:

• The process of preparing your business for raising capital will highlight its flaws, and prompt you to fix them. For example if you lack KPIs in regards to your marketing you will be unlikely to present your offering succesfully to an investor.
• If you are unsuccessful in gaining capital, the reasons why not (if you are lucky enough to learn them) will help you improve your business as well as your next pitch.
• If you successfully secure capital, you can be sure that an investor will demand systems to allow them to see how things are running at any given time. Very few investors (other than family, friends, and fools) are likely to simply run things however you like.

So, don’t assume that capital will fix all your business problems (or take advantage of opportunities). If it is in trouble, decide if your business is worth fixing (not all are) and then decide if and how it is attractive to an outside investor.

Capital would fix your business… Or would it? is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read