VENTURE FINANCE – REALITY VS. RUMOR: 2011 Can Be “Your Year”

Venture Finance - Reality vs. Rumor with Dick Brown

For over a year I have tried to tell stories and write copy that would help entrepreneurs, particularly those trying to fund their ventures. With the New Year, I think I’ll follow tradition and summarize the most important points that must be followed to even begin to be successful.

Before The Battle

1. If you’re trying to raise money you’ll need plenty of time and enough funds on hand to sustain yourself for 9-12 months.


2. If you’re a “lone wolf”, your total pool of potential investors is your family, friends and those that read below a fifth-grade level. You need a team … and, those people need adequate time and money to help you.


3. Although the mythical “B’School Instructor” from Stanford or Harvard may say that you don’t need one, a slick, well-thought-out Business Plan will be required, complete with credible financial projections (“pro formas”). If the B’School Instructor defends their position by saying: “Apple Computer didn’t have a Business Plan”, have them research/meet a guy named: “Mike Markulla”.


4. Round out your initial team with a lawyer and accountant to help with the BP and make sure you conform to government security regulations … and, they’ll expect to be paid.


5. The financial projections must be done last, after you’ve worked out all the operational issues and strategies. An experienced accountant or consultant should do the projections. Never prepare the financials first (“wing it”) and then try and make the text match. This causes inconsistencies between the financials and text that jump out to anyone that’s ever read more than one plan.


6. If your team believes they can build a time machine for less than $20, you better be able to produce a working model before you seek funding. No investor wants to fund long development cycles (exception may be allowed if you have at least 2 Nobel Prize winners on your team).


7. You and all your team members repeat the following mantra at least ten times a day: “Our venture is about making outrageous sums of money for me, my team and my investors. If we can’t do that, we’re all kidding ourselves and wasting our time.” If a member of your team gets tired of this exercise, fire them and get someone new.


8. Add to your mantra … “and we all want to get liquid as soon as possible”.

Money Sources & Strategy

1. Each source of funds has its own set of rules. Understand these and don’t waste time trying to get capital by breaking these rules.


2. Venture Capital may be new to you, but it’s been around since the Egyptians, just under different names.


3. Not all ventures are funded by equity deals. Learn about loans and loan guarantees.


4. Before you and your team start raising funds, have a written, Funding Strategy.


5. Angels are individuals and bring with them the need to conform to stringent SEC regulations.


6. Most VC’s are “laid-back and informal” compared with the rigorous structures and paperwork created by nearly all angel organizations.


7. Investors are all people. People invest in people that they already know. If you don’t know “someone on the inside” your task will be ten times harder. Make sure to meet/greet/know some insiders.


8. You print Executive Summaries (your “elevator pitch”) on compact-sized paper and each team member gives the pitch and a paper copy to everyone they meet.


9. You make your ES’s different in both content and execution so regular investors don’t think it’s another “me-too” plan.


10. Recognize that when investors look at a new plan, their initial questions are always:
    
    
    a. What business is this company in?
    b. Do they have any technology edge?
    c. What’s the background of the people?
    d. Any “names” or “connected” people?
    e. How much money do they need?
    f. How much money can I make?
    g. What’s my risk?
    ….. Make sure your ES answers each of these.


11. If any of your friends starts giving you advice and it’s based on something he/she heard - not something from his/her direct, hands-on experience - don’t pay any attention.


12. If you meet a potential investor (usually representing a company) and they want a substantial up-front fee, they’re in the business of fleecing the stupid, not making investments.


13. Read books and magazines. Join clubs and organizations. Immerse yourself in the culture. Get smart.


14. Meet people that are “connected”. Use them.

General Advice

Don’t get discouraged. Starting a company is very tough and frustrating. It’ll “test your mettle” … particularly your sales skills. But, when you manage to finish the task you’ll find a satisfaction far beyond having dozens of jobs and “working for wages”.

Good Luck!
2011 Can Be “Your Year”

One other thing - I spent substantial time writing a book for entrepreneurs. I tried to cover all the basic issues about fund raising from the history of VC’s to writing business plans. I’d never defend this as “great literature”, but it’s short, simple and cheap and can give the reader a glimpse of the whole game in one evening.

I encourage all my clients to read it. I’ve found a correlation – almost all of the sincere, mature entrepreneurs read all, or at least part. None of the dilettantes do – it seems they universally have the attitude – “I want the world to conform to the way I want it to be and I’m not interested in receiving any education to the contrary.” Amazin’ coincidence … the latter always fail.

And, if you ever have any questions, contact me. The first few answers are always free.

Finally, A Brief Commercial!

Dick’s company, American World, publishes his book: How to Raise Money, Insider Edition. Dick feels he put in “everything you’ll ever need to know to raise money”. It includes extensive tips on how to raise money, including the common pitfalls that await the unwary entrepreneur. It costs only $9.95 and is available as a downloaded file at http://www.amerwld.com/.

If you have questions, comments or suggestions, send them along. Contact Dick at American World (dick@amerwld.com). You’ll get an answer.

For more information, please visit Dick's TNNWC Bio.

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VENTURE FINANCE – REALITY VS. RUMOR: 2011 Can Be “Your Year”