If You’re Open to Growth, You Tend to Grow. Excellent Article By JANET RAE-DUPREE from the New York Times.
When you are sure he is ready for the next step, then you can start your homework.
Fundraising requires to be familiar with several aspects :
-Experience in project development : a lot of preparation : the client's business plan; financial projections; profitability; financial forecast; etc. Some clients think that because they have a good idea it should be interesting for investors to buy it no matter how realistic it is.
You have to re-evaluate the project and check that the numbers add up, to be sure to got the deal. And, of course, if you want to make sure your project is attractive for investors, the dead capital required has to be the lowest over the shortest period of time. Meaning a limited risk. All documents have to be checked more than once before starting in order to avoid mistakes and don't waste people's time. And never forget that you are the one who's dealing with investors, only your business reputation is on stake not the client's.
A wise quote "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." from Warren Buffett"
Never forget that no matter how good is your idea, typically investors will look to the numbers and how you've computed them first and this issue is very hard to explain to entrepreneurs: how does a company with no sales, no track record and no prospects justify a pre-money valuation.
The amount to be raised will be valuated according realistic projections such as :The next step in the pre-evaluation process is the team, you have to demonstrate that your client have a proven record of good management; existence of approved patents; the (niche) market growth evaluation (at least 20% per year); how competitive is the product to enter this niche, is there room for additional products or a lock out potential (new technology, new idea, untapped market)…
-Accuracy of the ramp up (how long it will take to launch the product in the marketplace, six to nine months being the maximum an investor would back as a dead capital).
-Sales target between Year 3 and Year 5 (never forget that investors look to the exit deadline) have to be accurate. Benchmark your competitors and the market prospects in the near future.
-Profitability: investors will expect high returns and excellent profit margin, and "razor and blade" product or a spin off would be a plus. So is the profitability realistic according to the industry’s standards. Is the EBITDA high enough to be interesting (over 30%).
-Great writing skills : Teasers, presentations, pitch... Be concise, clear and focus.
-Good Legal background : NDA, Finder Fees contracts, ownership stakes among founders and investors (the investment pie), etc. You have to think, check and sign a lot of documents, so better know what you are up to if you don't want to be screwed. If you don't have theses skills, better be advised by a business lawyer.
-Strategy. You have definitely to think on how to sell the project, adjust accordingly. Make research on the various sources of capital available in order to get the best match.
"in order to test your strategy, start by contacting the hardest investor : by refusing your project, he'll help you review the arguments in order to be better prepared for the next steps, the evaluation of the business plan, the screening process and initial selection."
-Superb selling skills. Here no matter the business, I am really beggining to think that, potatoes or nanotech are sold the same way if you have a strategy and you really handle what you are talking about. Know your market, know the competitors, get the maximum of information on the investor (even small details, -smokes cigars!-, are important) and in every meeting you have 5 seconds to quickly understand how he thinks in order to adjust your pitch. Always keep a low profile even you know more than he thinks you do. Open you ears and eyes (capturing his environment can be useful). Every word is important for this deal or the next.
-A good network. I attended so many meetings, international conferences, etc. Not really a rolodex but a huge network of investors easy to reach in today's 2.0 business world.
-Patience and persistence in all fronts. Sometimes you have also to handle your client mood, convince him when he is dumbfounded by the complexity of the procedures !
-Excellent closing skills. I am not in this phase yet. Tell you more about it soon, hopefully, asap.
According to my next door (blog) friend, Robert Hackers, from GH Capital Partners "we can have our clients in front of institutional sources of capital in as short a period as one week, if necessary. A typical financing ranges from $2-50 million and is completed in 4-8 months."
http://sophisticatedfinance.typepad.com/
Wait and see!
Sonia Bessamra.
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1 comment:
I read "The Point of the Deal: How to Negotiate When Yes Is Not Enough by Danny Ertel" from HBR. Wrote few comments which I can confirm.
je dirais “HOW TO DEAL OR NOT TO DEAL!” A force de vouloir absolument "vendre", on oublie trop souvent qu'un contrat n'est pas une fin en soi, ni la consécration d'une négociation, il faudrait d'abord vérifier que les accords négociés peuvent être réellement appliqués et qu'ils apportent in fine une valeur ajoutée à l'entreprise. L'auteur liste tous les Do's and Don'ts qu'il faut valider avant de crier victoire, une sorte d'analyse SWOT de tout accord. Toutes les erreurs qu'on a pu commettre un jour ou l'autre, je le recommande à tous.
The books summary : Why do so many business deals that look good on paper end up in tatters once they’re put into action? Because deal makers often treat the signed contract as the final destination in their bargaining journey—instead of the start of a cooperative venture. In The Point of the Deal, Danny Ertel and Mark Gordon show what negotiation looks like when the players involved strive to make the deal work in practice—not just on paper.
In this book, you’ll discover how to make the transition from concentrating on getting the deal done to focusing on what it takes to achieve value after the ink has dried. With a wealth of examples from multiple industries, countries, and functions, the authors illustrate how their approach to crafting an implementation mind-set works in all kinds of familiar business contexts—including mergers and acquisitions, joint ventures, alliances, outsourcing arrangements, and customer and supplier relationships.
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