Venture Finance - Reality vs. Rumors with Dick Brown
Few entrepreneurs understand or appreciate that raising money is very difficult.
To begin, it’s been estimated that 40% to 50% of all American companies are seeking funding, today! If companies are going well, they need more capital for growth. If things aren’t so hot, they’re desperately trying to procure more money to keep the doors open.
Your competition for funding may range from Chrysler and GE to other anxious entrepreneurs seeking their first seed money. This creates a tough, frustrating, complicated marketing and sales task. The neophytes ignore that their venture is also at the bottom of the pyramid fighting with those hundreds of other entrepreneurs – all seeking the same available capital and usually from the same sources.
Rarely do they understand that they must find a way to stand apart from all these competitors. Yet, not one in ten bothers to learn anything about “adventure capital”; the multiple sources thereof; nor how this array of international funding sources actually functions. They blindly accept the word of a few ill-informed compatriots that: “Venture Capital companies are always the correct choice” … and, that these firms are chomping at the bit just to find “new blood” and turn their founders into the latest Bill Gates or Steve Jobs … just as they’ve often read in Time, the WSJ or the San Jose Mercury. It seems to them that life is sweet and fortune and fame are “just a moment away”.
The most common (and usually fatal) blunder the money seekers make is believing it’s going to be easy and they can get instant funding of millions for their business … and, without spending any of their own money … even when reality shows that the search for funding will consume six to twelve months and is a full-time job.
Whether you are a new entrepreneur or the seasoned CEO of an existing company, a total commitment is required along with enough money for you to last for all this time. Expenses also must be paid. Whilst expenses relating to the actual money-capturing will vary, what is certain and continuous will be travel, legal and accounting expenses.
Additionally, if they’re wise, entrepreneurs will seek out knowledgeable consultants that are “connected” to the money moguls and understand the language and rules of the game. None of these are cheap and contrary to the “common knowledge” believed by the entrepreneur’s friends and relatives, no expert will work for stock or other “cuts of the action” that still lie off in some dim future. Cash is king in practically all cases.
I’ve always been astounded by entrepreneurs that are trying to raise funds who totally ignore reality and profess to have no funds of their own to spend – just good resumes and ideas. Perhaps my classic case is an entrepreneur that contacted me wanting to raise $50,000,000 to build a particular type of hotel and resort. I had no interest in his venture but it was very clear that he needed a great deal of help. I suggested he read my book about raising money to broaden his knowledge. It sells for $9.95. He said he didn’t have much cash and couldn’t afford it!!
Also, most entrepreneurs don’t realize that VC’s effectively belong to a “club” whose members are other VC’s and a supporting array of people that provide them with services. If you’re an entrepreneur seeking funding and an “outsider”, achieving a membership of this club (and subsequently funding) is nearly impossible. However to conquer this daunting task, the careful and proper recruitment of an existing club member, a few expensive lunches followed by selective introductions can far more easily achieve this goal.
More marketing considerations – entrepreneurs usually neglect the reality that once they release their ES or BP they’ll live or die according to how well these represent their business or venture … and, most important, differentiate it from all the garbage that professionals receive every day.
My experience is that the average ES or BP is full of mistakes. I still marvel that the most common is that the entrepreneur soliciting funding neglects to tell the prospective investor how much money the investor might make. The average BP is replete with obscure techno-talk and arcane references, but never addresses the sole motive of any investor … making money.
As in earlier columns, I urge entrepreneurs to have their finished ES and Business Plan reviewed by an experienced, successful entrepreneur – or better still, a VC or Merchant Banker – folks that are daily involved in the “money business” and funding real deals. You’d be amazed how different one of these “players” will gauge the emphasis of what you’ve written.
Further, your ES and BP must be clear, readable, documents that succinctly describe your venture. They should have color, pictures, graphs, illustrations and coherent financial projections. With the most casual glance, these should convey that you’re a top-drawer professional and that the recipient is missing a major opportunity if they remain unread. Most important, these documents tell your potential investor how much money they can make and show how you’ll achieve that ROI for them.
As a new entrepreneur raising funds, one of your first tasks is to warn your immediate family that they will be seeing far less of you for a long while.
Finally, get wide distribution of your story to as many qualified investors as possible. Further, you will need to recruit members of your management team to help you and hone every sales skill you all have ever learned. Practice your presentation so that you can say it (convincingly) even in your sleep and develop the skin of an alligator against rejection.
Most important: Remember to say: “If you’re not interested do you know someone that would be?”
Look to see who benefits for every pitch you make, then laser-focus your presentation to that need.
Finally, keep a sense of humor and balance … and “Win the Game”- there are not many things better than victory.
Suerte!
Finally, A Brief Commercial!
Dick’s consulting company is American World (AW). His web site is www.amerwld.com.
AW now provides the new “Entrepreneurs’ Edge” (EE) - a complete package for entrepreneurs that seek funding. EE begins by providing a real-world "Investor's Review" of your Executive Summary and Business Plan followed by the creation of an appropriate "Financing Strategy". Next, AW distributes "your story" with a unique, eye-catching introduction to 100's of our world-wide list of qualified investors. AW will then continue to work with you to close your financing.
AW also 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 www.amerwld.com.
If you have questions, comments or suggestions, send them along. Vontact 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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