Monday, February 28, 2011
Sunday, February 27, 2011
Venture Capital for Startups & High Growth Technology Companies | SBA.gov
About Venture Capital | Understanding Venture Capital | Angel Investors | Understanding Equity Capital | The Venture Capital Process
About Venture Capital
Venture capital is a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from more traditional sources, such as public markets and banks. Venture capital investments are generally made as cash in exchange for shares and an active role in the invested company.
Venture capital differs from traditional financing sources in that venture capital typically:
Focuses on young, high-growth companies;
Invests equity capital, rather than debt;
Takes higher risks in exchange for potential higher returns;
Has a longer investment horizon than traditional financing;
Actively monitors portfolio companies via board participation, strategic marketing, governance, and capital structure.
Successful long-term growth for most businesses is dependent upon the availability of equity capital. Lenders generally require some equity cushion or security (collateral) before they will lend to a small business. A lack of equity limits the debt financing available to businesses. Additionally, debt financing requires the ability to service the debt through current interest payments. These funds are then not available to grow the business.
Venture capital provides businesses a financial cushion. However, equity providers have the last call against the company’s assets. In view of this lower priority and the usual lack of a current pay requirement, equity providers require a higher rate of return/return on investment (ROI) than lenders receive.
Understanding Venture Capital
Venture capital for new and emerging businesses typically comes from high net worth individuals (“angel investors”) and venture capital firms. These investors usually provide capital unsecured by assets to young, private companies with the potential for rapid growth. This type of investing inherently carries a high degree of risk. But venture capital is long-term or “patient capital” that allows companies the time to mature into profitable organizations.
Venture capital is also an active rather than passive form of financing. These investors seek to add value, in addition to capital, to the companies in which they invest in an effort to help them grow and achieve a greater return on the investment. This requires active involvement; almost all venture capitalists will, at a minimum, want a seat on the board of directors.
Although investors are committed to a company for the long haul, that does not mean indefinitely. The primary objective of equity investors is to achieve a superior rate of return through the eventual and timely disposal of investments. A good investor will be considering potential exit strategies from the time the investment is first presented and investigated.
Angel Investors
Business “angels” are high net worth individual investors who seek high returns through private investments in start-up companies. Private investors generally are a diverse and dispersed population who made their wealth through a variety of sources. But the typical business angels are often former entrepreneurs or executives who cashed out and retired early from ventures that they started and grew into successful businesses.
These self-made investors share many common characteristics:
They seek companies with high growth potentials, strong management teams, and solid business plans to aid the angels in assessing the company’s value. (Many seed or start ups may not have a fully developed management team, but have identified key positions.)
They typically invest in ventures involved in industries or technologies with which they are personally familiar.
They often co-invest with trusted friends and business associates. In these situations, there is usually one influential lead investor (“archangel”) those judgment is trusted by the rest of the group of angels.
Because of their business experience, many angels invest more than their money. They also seek active involvement in the business, such as consulting and mentoring the entrepreneur. They often take bigger risks or accept lower rewards when they are attracted to the non-financial characteristics of an entrepreneur’s proposal.
Understanding Equity Capital
Equity capital or financing is money raised by a business in exchange for a share of ownership in the company. Ownership is represented by owning shares of stock outright or having the right to convert other financial instruments into stock of that private company. Two key sources of equity capital for new and emerging businesses are angel investors and venture capital firms.
Typically, angel capital and venture capital investors provide capital unsecured by assets to young, private companies with the potential for rapid growth. Such investing covers most industries and is appropriate for businesses through the range of developmental stages. Investing in new or very early companies inherently carries a high degree of risk. But venture capital is long term or “patient capital” that allows companies the time to mature into profitable organizations.
Angel and venture capital is also an active rather than passive form of financing. These investors seek to add value, in addition to capital, to the companies in which they invest in an effort to help them grow and achieve a greater return on the investment. This requires active involvement and almost all venture capitalists will, at a minimum, want a seat on the board of directors.
Although investors are committed to a company for the long haul, that does not mean indefinitely. The primary objective of equity investors is to achieve a superior rate of return through the eventual and timely disposal of investments. A good investor will be considering potential exit strategies from the time the investment is first presented and investigated.
The Venture Capital Process
A startup or high growth technology companies looking for venture capital typically can expect the following process:
Submit Business Plan. The venture fund reviews an entrepreneur’s business plan, and talks to the business if it meets the fund’s investment criteria. Most funds concentrate on an industry, geographic area, and/or stage of development (e.g., Start-up/Seed, Early, Expansion, and Later).
Due Diligence. If the venture fund is interested in the prospective investment, it performs due diligence on the small business, including looking in great detail at the company’s management team, market, products and services, operating history, corporate governance documents, and financial statements. This step can include developing a term sheet describing the terms and conditions under which the fund would make an investment.
Investment. If at the completion of due diligence the venture fund remains interested, an investment is made in the company in exchange for some of its equity and/or debt. The terms of an investment are usually based on company performance, which help provide benefits to the small business while minimizing risks for the venture fund.
Execution with VC Support. Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally do not make their entire investment in a company at once, but in “rounds.” As the company meets previously-agreed milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.
Exit. While venture funds have longer investment horizons than traditional financing sources, they clearly expect to “exit” the company (on average, four to six years after an initial investment), which is generally how they make money. Exits are normally performed via mergers, acquisitions, and IPOs (Initial Public Offerings). In many cases, venture funds will help the company exit through their business networks and experience.
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Friday, February 25, 2011
Seed Capital From Angel Investors: Tim Cartwright, Chairman, Tamiami Angel Fund – Naples, Florida (Part 1) | Sramana Mitra
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Wednesday, February 23, 2011 No comments
By guest authors Irina Patterson and Candice Arnold
I am talking to Tim Cartwright, chairman of the Tamiami Angel Fund. Created in October 2010 in Naples, Florida, this member-owned and -operated fund, offers early-stage capital in the range of $250,000–$750,000 to high-growth companies located anywhere in the state of Florida. There are 30 investors in the fund, who each put in $50,000. Tamiami Fund is the first angel fund for southwest Florida.
Irina: Hi, Tim. Why don’t you briefly start with your background?
Tim: I’ll take you back to college. I started at the University of Wisconsin. I graduated from there with an economics degree. I was recruited to Arthur Andersen in Chicago, spent a of couple years with them, and left and went off and started my own company, a supply chain consulting company called Benchmark Solutions.
I grew that company to about 30 consultants in four different cities: Minneapolis, Chicago, Cleveland, and Detroit. I sold it in 1999.
I should probably mention that, along the way, when I was in Chicago with my consulting company, I picked up my MBA from J. L. Kellogg School of Management at Northwestern University. I graduated in 1997. I did that part time on the downtown Chicago campus.
Then, I was co-founder of another company called By-Products Interactive, which is an electronic publishing and price reporting service for agricultural commodities, primarily agricultural by-products.
I raised angel and venture capital for that endeavor. I went up and down with the Internet boom and bust. That company is still actively going, and my business partner it. We’re an Internet publishing company now in that particular industry vertical.
I moved down to Florida, looked at buying a business, and investigated investment banking and merger and acquisition, private equity venture capital jobs.
I ended up going to Naples and started my own firm that specializes in middle market mergers and acquisitions. Then I joined an organization in Naples called the Gulf Coast Venture Forum, which was an angel and entrepreneurial networking group.
I became the leader of that organization, and out of it grew the Tamiami Angel Fund.
Irina: How exactly did the Tamiami Fund come about?
Tim: I was the president of the Gulf Coast Venture Forum, which is a 501(c)6 not-for-profit organization. We operate with two different chapters, one in Naples and one in Sarasota.
In 2007, the Florida legislature passed an economic development act that included the establishment of the Florida Opportunity Fund.
I was approached by a number of community leaders and asked whether the Gulf Coast Venture Forum was going to participate in the Florida Opportunity Fund. The Florida Opportunity Fund was a fund of funds approach in which the state established a $30 million fund that would invest in venture capital funds or angel funds that promised to invest in early stage Florida-based companies.
So, we looked at that economic development act, studied it, and thought that it might be a good time, a good impetus or catalyst, to rally around and create an angel fund.
Before we decided to dive headfirst into creating the angel fund, we wanted to understand the strengths and weaknesses of our region and assess the probability of being successful.
So, I knitted together the Southwest Florida Regional Angel Fund assessment team, which included economic development officials from six counties in southwest Florida – Sarasota, Charlotte, Lee, Collier, Glades, and Hendry counties – and higher education officials from Ave Maria, Florida Gulf Coast University, Edison State College, and Hodges University, along with the Gulf Coast Venture Forum and an organization called the Regional Business Alliance.
Those 12 organizations conducted an assessment of our region based upon a Ewing-Kauffman Foundation Community Assessment template that was published by Susan Preston and talked about what was the right angel organization for our region.
We conducted an assessment over a 12-month period, and the conclusion was that we had a need for and means to establish an angel fund in southwest Florida. That collective group charged the leadership of the Gulf Coast Venture Forum to go out and establish the fund.
At that time, we named the fund the Tamiami Angel Fund. I went about the business of organizing and creating the fund, and we were successful in raising $1.5 million, initially.
I went out on a fundraising tour in probably one of the worst economic times to go raise funds. Fortunately, it was successful enough that in October 2010, we did a closing of the Tamiami Angel Fund for [again] $1.5 million. We’re actively reviewing business plans and holding company presentations and have a couple of companies in to do due diligence right now. But we have yet to make our first investment.
This segment is part 1 in the series : Seed Capital From Angel Investors: Tim Cartwright, Chairman, Tamiami Angel Fund – Naples, Florida
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via sramanamitra.com
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Thursday, February 24, 2011
Wednesday, February 23, 2011
25 ways-to-find-your-passion
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Tuesday, February 22, 2011
"La curation bouleverse-t-elle l'information?" [FR] (Panel1) Social Media Week
La curation bouleverse-t-elle l'information?" [FR] (1) Social Media Week Voici des EXTRAITS vidéos du Panel 1: "La curation bouleverse-t-elle l'information?", avec : Panélistes: Frédéric Montagnon Fondateur OverBlog & Directeur marketing Wikio Group. Benoît Raphaël Co-fon
via capecalm.tv
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Monday, February 21, 2011
Sunday, February 20, 2011
Angel Investors Are Changing Business As We Know It | eWallstreeter
February 12th, 2011 at 8:24 am
Angel Investors Are Changing Business As We Know It
By: Instutional Investor
The year 2000 wasn’t great for liberals in America. That was the year, of course, that a bunch of uncounted hanging chads in Florida helped George W. Bush defeat Al Gore in the U.S. presidential election. Even worse was 2004. That year, Bush won again, prompting a wave of right-wing voices to ensconce themselves in the media. The political agenda was dominated by the likes of Rush Limbaugh on the radio, Bill O’Reilly on television and Matt Drudge on the Internet. Suddenly, liberals didn’t have a voice.
That’s when angel investor Kenneth Lerer decided to act. A prominent liberal activist and veteran communications professional, Lerer felt there needed to be a response to the conservative voices. Together with California columnist and commentator Arianna Huffington, in 2005 he launched the Huffington Post, a web portal that would aggregate political commentary and news from a liberal point of view. To finance it, Lerer initially put up $1 million of his own money and he and Huffington brought in several other seed investors, including former America Online COO Robert Pittman.
A venture of passion and politics, the Huffington Post didn’t have much of a road map at first. Indeed, many media critics mocked the Greek-born Huffington for getting involved in such a seemingly unplanned endeavor. But Lerer and Huffington were able to attract enough journalistic firepower to quickly make the Huffington Post the most influential liberal media platform in the U.S. In 2006, Lerer keyed a second round of financing, raising $5 million for the Huffington Post, bringing in venture capital firms SoftBank Capital and Greycroft Partners. (A year later the Huffington Post raised another $5 million from the same group of investors.)
Over the past two years, the Huffington Post has expanded its footprint to cover social and cultural issues. Coverage of media and entertainment has brought criticism — the news web site has been accused of straying from its roots — but also greater visibility and increased traffic. A section on divorce, for example, has generated a wave of new visitors. A third round of financing, in November 2008, this time a $25 million infusion from Westport, Connecticut–based Oak Investment Partners that valued the portal at $125 million, has given the Huffington Post financial staying power and the ability to call its own plays. Last year the Huffington Post significantly added to its New York operations and signed on new heavy-hitting contributors.
The Huffington Post, which became profitable last year, is a real business, with estimated revenue of more than $30 million in 2010 and $60 million projected for 2011. Today, the Huffington Post announced that it had agreed to be acquired by AOL for $315 million — $300 million in cash and the rest in stock — a windfall for its inve
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Exactly for 2011 !!
Ten tips to kick-start your startup with Twitter - National Startup Business
It seems like only a few months ago when I wasn’t sure if Twitter was relevant to my business, or if it would be a waste of time. Now I have over 300,000 followers on Twitter as StartupPro, and the business is fun as well as profitable. I’m now convinced that any entrepreneur can use it to kick-start their business, and build their brand as well.
First, I’ll try to answer the most common question I still get from business people “What is Twitter, really?” For business people, it’s a way to put out “sound bites” or tiny ads on the Internet, much like you see them in the mainstream media on TV, but without the cost, to your prime audience.
Actually they are “txt bytes,” like cell phone text messages in length, and they are broadcast to all your followers, or directed at select recipients. People can respond in the same fashion with personal requests or general comments. The important responses are real “business leads.”
A lot of people are doing some very innovate things with Twitter. I won’t cover those here, but I’ll offer some practical tips to get you started:
- Offer something of value. Make the relationship a win-win. That means give before you expect to get – free advice, special promotion, pointer to useful information, or sometimes just friendly conversation. Show that you are a real person, sincere and trustworthy.
- Search tweets for business leads. With Twitter Search, and a host of free tools on the Internet, you can mine the universe of all tweets for people needing your product or service. Set up filters to find them, and follow-up diligently and politely on every lead.
- Use free tools to improve efficiency. Twitter’s native user interface is arcane. Use tools like TweetDeck to set up your control room, SocialOomph to spread out your responses, and WeFollow to find key players in your domain. There are many others.
- Create separate account for business. If you like Twitter for personal notes to your friends, use another account for business activity. Your business account should have a name, picture, and tone that reflects your business brand and logo.
- Become an authority in your area. One of the challenges of buying things on the Internet is to identify the quality sources from the scammers. Use Twitter to personalize your business, knowledge, integrity, and your leadership. People still buy from people.
- Stay top-of-mind with experts. Seek them out, offer interesting links, respond to tweets, and post thoughts for conversation at least a few times a day. Twitter is not like email, where people diligently save and respond to every message. Stand out in the stream.
- Follow potential clients. That’s how you tell your potential clients and customers that you exist. They will see you following them, check out your profile, and if you have something they can relate to, they will follow you back. This is “pull” marketing.
- Increase size and quality of following. Never stop working to increase your following, by finding others, and improving your offering. A larger following means more credibility, which iteratively attracts more followers. Don’t be afraid to un-follow people who don’t fit.
- Re-tweet for double impact. Adding ‘RT @username’ in front of the original tweet forwards it to your followers, and is a double win, if used selectively. It improves your value to your followers, and increases the audience and credibility of the original sender.
- Cross link all your web profiles. Make sure people can find you from all directions on the Internet. Your website should have a link to your blog, your Twitter profile, LinkedIn profile, Facebook, and vice versa. This also improves your Google search ranking.
Twitter is merely a constant stream of absolutely current public communication. The good news is you can turn it on or off as often as you like, and mine the database at very low cost for useful information. Even big companies like Dell and HP use it to find customers, and claim million dollar returns. It’s a valuable resource for every startup. Tweet me if you need help.
via examiner.com
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Get credible market research without a consultant - National Startup Business
Most startup founders know exactly what they want to design and sell, and they are personally convinced that everyone will buy one. Yet they often fail to realize that their view is likely biased, and will be instantly discounted by potential investors. Business plans with no “industry expert” data on your target opportunity size and growth are routinely rejected.
Your business plan must have an “Opportunity” section, where industry market size and growth projections are included. Within this section, investors look for footnotes referencing external sources, or quotes from notable domain experts. Absence of these raises a big red flag.
Yet most startup teams have no idea where to start, and what kinds of data to look for, in building this key section of their business plan. Is it possible to get this information with minimal cost? Let me offer a few suggestions which should allow you to do the work yourself:
- Use Internet search engines. The Internet today is like the Library of Congress at your fingertips. Search on any product name for census data, online research reports, trade association publications, and online newspapers with relevant statistics. Look for growth and opportunity tables than can be copied and footnoted in your plan.
- Visit your local university library. On or off the Internet, there are dozens of reputable market research reports available for purchase. To give you a look first, and often get the data you need, visit a university library where many of these are stocked for free access.
- Check local economic development offices. Almost every county and municipality has an economic development office which features market research on popular market segments in your area. Also, this is a good place to ask for pointers to other sources.
- Visit the local bookstore. Browsing in the business section of your local bookstore is a great way to do market research, while enjoying a cup of coffee. Information here is more current than your local library, and you might even buy a book for later research.
- Purchase online reports for a fee. After exhausting all the free sources, go back to the Internet and order for a fee any additional report or association journal that you need. Credible sites include Gartner Group, Market Research Reports, and Frost & Sullivan.
- Informal focus groups. In conjunction with some outside expert data, it is acceptable to add your own research, like setting up a small focus group and documenting results. Variations include online bulletin boards, telephone surveys, and direct-mail surveys.
There are two types of research you'll want to collect. The big-picture market opportunity data is called secondary. It consists of previously collected data like demographic information, industry trends and census information. Next, you need data as specific as possible to your product and your market. This is called primary research, and may include information that you generate yourself.
The information you discover will help you build a profile of your market and the industry. For instance, if you're developing a product for vehicle owners, you'd want to find out the number of vehicle owners broken down by gender, age, and geography. Then how much this market spends on vehicles, spending growth or shrinkage in the past 10 years, and industry projections.
Having no data to back up your opportunity and financial forecast is the kiss of death for any startup funding request. We all know that you can use statistics to prove any point you want, so just quoting data doesn’t mean your plan is sound. Certainly, paying more for the data doesn’t make it any more sound either, so check the low budget alternatives first.
via examiner.com
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Saturday, February 19, 2011
10 things i wish i had known
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How to raise money for your first startup business
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How Not to Let BD Tank Your Startup
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Friday, February 18, 2011
Thursday, February 17, 2011
CBC News - World - Q&A: Cyber-espionage
Pradeep Khosla, dean of the College of Engineering at Carnegie Mellon University and founding director of CyLab cyber-security research institute, says governments need to agree on cyber-standards that would prevent hackers from masking their IP addresses. (Carnegie Mellon University)A wide-ranging cyberattack that targeted three Canadian government departments and seems to have originated in China has left counter-espionage experts scrambling to determine how much sensitive information might have been stolen and by whom.
CBC News made public on Thursday the results of an investigation that showed the cyberattack was first detected by government officials in early January and involved the Finance Department, the Treasury Board and Defence Research and Development Canada.
The breaches were traced back to computer servers in China although there is no way of knowing whether those who perpetrated the attacks were actually in China or simply routing the attacks through China to cover their tracks.
It's only the latest example of what experts say is a growing threat: global cyber-espionage.
CBC News spoke to Pradeep Khosla, dean of the College of Engineering at Pittsburgh's Carnegie Mellon University and founding director of CyLab, the university's cyber-security research institute, about the nature of such attacks and the need for greater cybersecurity.
CBC: What are the hot spots for global cyberterrorism?
Pradeep Khosla: It's easy to pick on countries like China and Russia or Eastern European countries, but to be honest with you, the Western countries are doing something similar but in a less obvious way. The point I'm making is, anybody is capable; everyone can do it; and everyone is probably doing it. Maybe not cyberterrorism but certainly cyber-espionage.
Why do countries like China, Russia and Pakistan, for example, repeatedly come up in cases of cyberattacks?
To be honest with you, I don't know why. I can see why China would be on the radar – it's a large country, large population, lot of what people call "patriotic cyberhackers" needing access to information. It is flexing its muscle; it's going from being a Third World country to a first world country. I think Pakistan may come up partly because of al-Qaeda; it's not like the government there is sanctioning this. But [Pakistani cyberattacks] might come up as a government-sanctioned program against India, for example.
Are there differences in prosecuting an attack on a country and prosecuting an attack on a company?
I think when a sovereign country supports such an attack, by definition, they will not help you in prosecuting it. But when an individual does it, or a group of individuals does it, against a company or some private entity, the sovereign country where it is happening will prosecute it.
But before we get there, we have to have some unified understanding of what constitutes a crime in this domain, and that everybody agrees to it and is willing to prosecute it.
Treasury Board President Stockwell Day, whose department was one of three targeted in a series of cyberattacks in January. The Finance Department and Defence Research and Development Canada also had their networks breached. (Adrian Wyld/Canadian Press)
Are there any international agreements on this?
It's not clear to me. If there is one international treaty that should happen, it should be in the cyber arena, like harmonizing laws and regulations across countries.
Have proposals been put forth?
There's nothing like that. At least I'm not aware of it.
Why do you think that is?
It's a very new area, so there's a lack of understanding at the highest levels of policy-makers. Secondly, there are countries that really may not want to collaborate. As another example, if you look at money-laundering on the internet – if you look at it, of course, money-laundering is a crime, right? Countries that come to mind are Latvia, Romania [and] credit card thefts. And there's no way to prosecute them, because of a lack of a bilateral treaty.
How involved is the U.S. in launching cyberattacks?
I have zero knowledge about that. Having said that, if I were to just conjecture, does the U.S. have the ability to launch cyberattacks, I would say, yes. I cannot imagine the country sitting there not having that ability. Maybe they are developing attack capabilities as a defensive measure.
Do you have any sense of what percentage of cyberterrorism is the work of individual, unaffiliated hackers and what percentage is the work of groups with an ideological agenda?
I don't know, but I'd be willing to bet that the work of individuals — it could be devastating, but it's more about playing a prank. Whereas the work of a group is either to make money or to debilitate a country, like Russia on Estonia, when the attacks happened a couple of years ago.
The recent attack appears to have been launched from computer servers in China, which doesn't necessarily mean the hackers themselves were in that country, as they may have simply routed their attack via Chinese servers. (iStock)
What are the most common types of attacks?
They're usually worms or viruses, but the worst kind of attack is denial of service. The denial-of-service attack is usually one that occurs against commercial enterprises, like Amazon.com. There, you stop the service from being offered, but you get no access to information. Whereas the goal of these sovereign nations, when they do this, the goal is to get information. Like credit-card thieves, they might not be a sovereign nation, but it's an organized group with a lot of money. Or drug dealers. And when they do this, it's to get credit-card numbers and move money around.
Based on what you've seen, what sort of tactics can we look forward to in the future?
All the con games we play in the real world are happening in the cyber world, too. But that's not the issue. The issue is, this needs to be contained and stopped. And what are we going to do about it? What we need to do is look at a single technology: IP trace-back.
Right now, if you start pinging my computer, you can hide your IP number and you can create a fake number that points to China whereas it's you in Canada that's doing it to me. That thing has to stop. IP trace-back should be a mandatory requirement in every network, end of story. That means, whenever somebody tries to attack me, and I find the IP number of who's doing the attack, I know exactly where that computer is located.
What's the biggest hurdle to establishing such a system? Is it a case of different countries having different jurisdictions?
Yeah, national jurisdiction, but even in the U.S., more than 90 per cent of our IP infrastructure is private, so unless everybody upgrades, it doesn’t work. And what's the mandate to upgrade? None.
I think government has to figure out a mechanism where people have to be somehow encouraged, if not mandated, to upgrade their infrastructure. And industry should be encouraged to build that infrastructure.
Is there anything that individuals can do to mitigate such attacks?
The individual consumer can't do anything, because we rely on technology supplied by big companies and providers. It's a very complicated thing, because half the story is technology, and half the story is policy. And the policy impacts privacy and investments, you know what I'm saying? We haven't figured this out, and it will take 10 years to figure this out. Something bad has to happen for us to figure this out.
via cbc.ca
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Wednesday, February 16, 2011
Russia Claws at the Rule of Law - Magazine - ABA Journal
The courtroom gallery brimmed with lawyers during the trial in January of four men accused of murdering Anna Politkovskaya, a reporter for the Russian newspaper Novaya Gazeta who was gunned down in 2006 at the elevator of her Moscow apartment.
via abajournal.com
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Tuesday, February 15, 2011
A primer on angel investment ‘simple term sheets’ - National Startup Business
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via examiner.com
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Top ten action items for angel funding success - National Startup Business
Every new startup I know dreams of being funded by an angel investor. Yet according to the latest data from AngelSoft, only about 3 out of 100 companies who initiate the formal request process actually get funded.
The AngelSoft Deal Funnel from the last 12 months indicates is that 70% of the interested companies never make it past the initial screening process. Over half of the survivors remaining are eliminated during live presentations, and another 6.5% are eliminated during due diligence.
What is this daunting process, and what can you do to optimize your chances of surviving it? Over the past 10 years, I have had the opportunity to see how the process works, several times from the startup side, and more recently from the angel perspective (as a member of an angel group selection committee).
So what should you do to prepare for this stage in your venture, and optimize your chances of making it through the process? Here is my list of top ten action items to best prepare you for success in achieving a funding event with angels:
- Incorporate the business now. If you expect to require external funding, you should first incorporate as an S-Corp, C-Corp, or LLC, rather than the more expeditious sole proprietorship or partnership. The corporate entity lends itself best to the concept of “sharing” equity required by investors, and unincorporated entities don’t get funding.
- Line up an experienced team. Remember the old adage that “investors fund people, not ideas.” That’s why this item is so important, and is probably the biggest stumbling block I see in getting through the initial angel screening. If the founders are not experienced, find a couple of advisors from the business sector to fill the gap.
- Get your Internet domain name and website. In today’s world, if you don’t have a web site up and running, you will not be perceived as a real company. Investors routinely go to candidate web sites to get a feel for the tone and scope of the company, as well as its maturity and offerings. Reserve the company name on social networks to protect it.
- Define some intellectual property. File a patent and trademarks to show real intellectual property. Having a defensible competitive advantage or “barrier to entry” is another critical step to funding, and another common stumbling block during all phases of the funding process. Start early on this one, or you will lose the opportunity.
- Build a prototype product. A conundrum for many frustrated entrepreneurs is that they need money from investors to design and build a prototype product, yet most angel investors expect to see at least a prototype before they invest. Use your own money or friends and family to demonstrate progress early.
- Build an investor presentation and summary. Investors expect a one or two-page executive summary sheet for the initial screening, backed up by a ten-slide Powerpoint investor presentation. Remember to aim the content of both of these at investors, not customers. They must amplify your “elevator pitch” to investors, as well as key points from the business plan and the financial model.
- Prepare an investment-grade business plan. Every entrepreneur needs a professional business plan for their own use, whether they intend to seek investor funding or not. As a founder, you may think that everyone understands your vision and plan from your passion and words, but it doesn’t work that way. It should answer every question an investor or associate might ask, including current valuation, funding needed, and exit strategy.
- Finalize your financial model. Like the business plan, a financial model is required as much for your own use as to impress angel investors. In most cases, a Microsoft Excel spreadsheet is adequate, with projection formulas for revenue, costs, and cash flow over the next five years. Variables for “what if” questions add credibility.
- Close at least one initial customer. This must be someone who is willing to pay real money for your product or service. Free trials don’t count. All the conviction and market research in the world are no substitute for real customers paying real money. This is called “validating the business model.”
- Network to the maximum with investor connections. The last and possibly most important action item is to build relationships with investors and friends of investors BEFORE you need their help in building your company. A good start is taking an active role in relevant technology groups, trade associations, university activities, and local business groups.
In summary, being touched by an angel can lead you to your dreams of a new and successful business, but it doesn’t happen without planning, hard work, and careful preparation. Most angel investors are seeking psychic as well as financial benefit from their investment. Do your homework first to get their attention, but don’t expect anyone to swoop down and wave a magic wand.
via examiner.com
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Monday, February 14, 2011
NYC Venture Pitching Workshop: Pulling No Punches
Funding Post’s annual VC and Angel Investor Showcase was held last week at Credit Suisse on Madison Avenue, where the conference was divided into an afternoon Entrepreneur Event and Pitching Workshop, and later an Investor/Service Provider Meet and Greet. The workshop was hardcore and entailed learning the ropes to constructing an elevator pitch to a room of 35 VCs and Angels.
Instructions for pitching included the need to explain what a business does in two sentences or less to the point that “even a kindergartener could understand.” It was good if the capital seekers said whether or not they had raised capital at previous companies, what those companies were, and who made the exit. Also important was the need to let a fund know if they had invested in their own company (not in sweat equity), but in cash — and more than $50,000. In essence, the entrepreneurs were going to have 30-45 seconds to make a first impression, get their company funded and have their life changed.
The founder of the Investor Showcase, Howard Schwartz, pulled no punches saying, “If you get 5 minutes with a fund, it means the VC is being nice and didn’t kick you out yet, or it means they’re insanely interested. Talk about the format and give your elevator pitch. Then look for Indicators of interest; once the entrepreneur presents his idea to investors take a breath and let the funds ask the questions. They ask you no questions, they’re not interested. If you ask they for a business card and they say they don’t have one, most likely they’re not interested. If they’re looking at other people or they are on their Blackberry, then they’re not interested.”
Later, four hundred and fifty entrepreneurs seeking capital, ranging from a quarter of a million to 10 million dollars, flooded the showcase. Because of the ratio of capital seekers versus funds, the workshop attendees were instructed to use the sniper approach rather than a gunshot approach or as Schwartz put it, “If you spend all night tonight waiting on lines for funds that are never going to be interested in, you’re wasting your time and theirs. Plan your attack.”
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Profiling Questionnaire and Pitching Instructions | Sramana Mitra
Profiling Questionnaire and Pitching Instructions
Thursday, January 14, 2010 2 comments
My writing, today, is largely about technology/online entrepreneurs and ties in with the 1M/1M project. The aim of all this is to inspire, educate, and connect entrepreneurs through case studies, interviews, profiles, and so on that present a thorough and comprehensive view into the world of entrepreneurship.
If you are an experienced entrepreneur, we try to capture the strategies, issues, and anecdotes of your success to help less experienced entrepreneurs learn from you through our Entrepreneur Journeys series. For 1M/1M premium lounge members who are working on a project and have achieved reasonable levels of validation, we often profile you on our 1M/1M Incubation Radar series, which we then expose to investors, sometimes also to potential customers. In Deal Radar, we celebrate entrepreneurs who have reached $1 million in revenue, and this also exposes entrepreneurs to investors and customers. In addition, I often make acquisition recommendations to larger companies, and companies featured elsewhere on the blog show up in these recommendations in the Technology Stocks series.
Here is a media story on how one of our 1M/1M companies has received interest from five investors. The company was profiled in IR.
Below are comprehensive pitching instructions for working with me and my team.
Questions for Deal Radar and The 1M/1M Incubation Radar:
1. Give a brief summary of the company, your product, and what your product does.
2. CEO’s personal background. Where did (s)he get the idea for the current venture? What is his/her domain experience in the segment?
3. Any particular reason that led up to this venture? Other founders worth mentioning?
4. What was the market landscape like when you founded the company? Competition? Competitive positioning? Tell us about your market’s dynamics and why you stand a chance of making something innovative happen. Please be sure to name specific competitors; we cannot publish without this.
5. Describe the value proposition, including differentiation from the rest of the market.
6. How big is the market? How do you calculate total addressable market (TAM)? What is the business model? Be as specific as possible. I prefer bottom-up TAM versus top-down TAM for my analysis and dislike broad swathes.
7. What are the top target segments? Be precise and granular.
8. How did you penetrate the market and get early traction? In other words, what was your beachhead?
9. What stage are you at now? Revenue? Profitability? Please provide some appropriate numbers we can include. [Note: We need to publish revenue numbers and will not entertain deals that refuse to share these numbers. You can provide a range that is reasonable, not $10 million–$100 million, which isn't reasonable.]
10. Some detailed information on traffic? Customers? Users? Advertisers? Any other metrics you track and are willing to share? We need some anchor statistics to do a Deal Radar post. If you are unwilling to share any metrics, then we would have to decline any coverage. We also need validation points like customer names/sizes, if you are selling to the enterprise, or are involved in OEM business models.
11. What is your pricing model, and how much does your product cost? If pricing is determined separately for each customer, please give an average range.
12. How did you finance the different phases of the company? Seed? Angel? VC? Corporate? Please list each round individually with dates, investors and amounts for each round. I love bootstrapping businesses, by the way. If you have been doing so, feel free to describe stories of your bloody battles. And if you have used nifty financing strategies like receivables financing or factoring, do share.
13. What financing stage are you at right now? Will you be raising more money? When? Who is your ideal investor? (And yes, we consider non-equity investors as well.)
14. Describe some of your team-building experiences. Is your management team complete now? What is special about your management team? Human and anecdotal stories give us maximum ammunition to bring you alive in our coverage.
15. What is your growth strategy?
16. What are your thoughts about exit? Please don’t provide canned answers; it turns me off. And also, you don’t have to have an exit strategy. I am very supportive of businesses that like to build cash flow and offer healthy dividends to their owners/investors.
If your company is greater than $1 million in revenue, then we will profile you in Deal Radar 2010. Please fill up the questionnaire above, and email Melanie Blake [melanieb50 AT gmail.com] with a completed questionnaire.
If your company is less than $1 million in revenue, you have two opportunities: Every week, I host an online strategy roundtable for entrepreneurs, at which you are most welcome to pitch. This is part of our 1M/1M initiative aimed to help a million entrepreneurs reach a million dollars in annual revenue. Members of the 1M/1M premium lounge have the opportunity to be profiled on The 1M/1M Incubation Radar; this series is open only to members. You need to have validated customer feedback to qualify for Incubation Radar. To pitch at a roundtable, use this link.
Besides DR, I write Entrepreneur Journeys (companies with >$10 million in revenue only) and Tech Stocks (coverage of public company strategy).
via sramanamitra.com
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Sunday, February 13, 2011
Venture Funding Docs
via vcorbust.com
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NYC Early-Stage Angel and Venture Capital Event on Thursday, May 12, 2011 in New York
via fundingpost.com
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The Role of Seed Capital in Venture Financing
Seed capital is the first capital contribution of an enterprise which is sometimes even injected prior to the establishment of the company. These funds are generally used to fund all costs of placing the the first product on the market. Ideally, they can also cover costs of research and development, prototype, business plan, legal services, rent.
Besides the company's founders and their families, these funds also come from business angels or specialized funds. Subsequent phases of development of the company can be financed by venture capital. Seed capital finds its place particularly in the context of the development of high growth potential start up companies.
Unlike the first contributions of the founders, their families or the state, the interventions of seed capital funds are a milestone in the life of a young company. It is then when questions regarding the value of the company are asked.
If the founders do not have a clear plan on the distribution of power within the company. They will find themselves faced with a situation where management objectives diverge, be it financial or industrial, short term or longer term. The manager will reflect a synthesis of these different expectations.
The seed capital has the great advantage of significantly strengthening the capital base of young companies and is often the only alternative for the development of start-ups.
Seed capital can also be derived from crowd funding or financial bootstrapping sources instead of an offering. Bootstrapping in this context translates to the use of the cash flow of another business entity. Investors decide to fund a project on the basis of the merits of the concept and the capabilities of its management.
via bukisa.com
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Saturday, February 12, 2011
Friday, February 11, 2011
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Three Reasons Why You Haven’t Closed Your Angel Investor Yet
Three Reasons Why You Haven’t Closed Your Angel Investor Yet
by Andrew on in Angel Fund Raising, How To
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I’m sure there are potentially hundreds of reasons why you haven’t closed your angel investors yet.
Now this is a blog and there is no way I can know who is going to come read this article right?
So – there are no cards up my sleeves, we didn’t meet each other previously and there are no obvious tricks here right?
Right…Good…glad we cleared that up….
So today, I’d like to try an experiment….
I’m going to propose three reasons why you have not closed your angel investors yet…
And here’s the deal – and this is where it starts to get really interesting…one of them is ABSOLUTLEY not the reason why you have NOT closed an angel investor yet…
…but I’m not going to tell you which one it is…you’ll have to figure it out.
That should make this experiment really easy right?
If one of the reasons is a fake then that only leaves two reasons why you haven’t closed your Angel Investors yet…
…(and just to give myself somewhat of an ‘out’ – elements of each reason may be accurate,other elements perhaps not so…well, hey, I’m the author, I can stack the deck any way I want!)
…and if there are only two big reasons why – if you know what those reasons are…then you are that much closer to addressing the reason right?
…right…
Here are the Reasons – now…don’t forget ONE is absolutely not the reason and one of the other two is!
YOU have to determine which is which and by all means add your thoughts to the comments or send me an email with your thoughts…
Three Reasons Why You Haven’t Closed Your Angel Investor Yet:
Reason 1
The reason you haven’t closed your angel investors yet is not your fault. Basically the economy stinks and the amount of cash out there to invest in new businesses has dried up. You, your business, your business plan, executive summary, elevator pitch, your sector, your positioning and your vision for what your business can be and your understanding of how to get there are all PERFECT!
It is absolutely not your fault – it’s the market and it’s because you haven’t met the right angel investor yet. As soon as you meet the RIGHT angel investor (even though the economy stinks!) you’ll close that right angel and be on your way to business success and fulfilling your dreams to create a world changing, heavily lucrative, personally rewarding company.
Right – that was Reason #1 by all means read it again to determine if that is one of the real reasons or the fake one. Remember – one reason will be fake, the other two possibly your reason /s.
Reason #2
The reason you haven’t closed your angel investors yet is absolutely and categorically your fault!
You’re just plain not ready to have someone drop $500K…$250K or even $2.50 or a semi-eaten bagel on your business, for that matter. You have the beginnings of a great idea – an idea which COULD become a great business – but you haven’t really jumped in and really owned making this happen, making sure you absolutely understand your market, your opportunity, the competition, and how you will deliver on the potential that your business has – you haven’t completely NAILED your business plan, your executive summary, your pitch deck, elevator pitch, your financials, you haven’t figured out how to creatively trial / test your business idea and you haven’t achieved many of the key milestones investors will evaluate you on as they go through the dating process. You have sort of determined your weaknesses – but you haven’t addressed them or completely determine a specific and tactical plan of action which will address them, like, yesterday.
Now – I could keep going but you get the gist…
So is this the real reason why you haven’t closed your angel investors yet (or is it the fake reason?!)
Reason #3:
The reason you haven’t closed your angel investors yet is absolutely and categorically your fault!
This reason is more around the ‘How to’. Believe it or not, you can’t just throw out a few emails, make some calls, meet a few folks for coffees, have a couple of meetings, throw a Kinko’s bound business plan across the table and expect that after a few follow up conversations you’ll be watching the ink dry on a new check made out to CASH! It ain’t gonna happen – and if you think it will or thought it will then
“Don’t Quit Your Day Job!”
So picture this….
You go to a car lot – you talk with the car salesman – and he tells you how great the car is but here’s the weird thing….he doesn’t actually show you the car. He just asks you to imagine it, tells you how nice the speakers sound (without letting you listen of course..), he tells you how soft the naugahyde leather seats feel, he tells you how powerful the engine is and how fast it can accelerate from zero to 60 in first gear…
…but, he doesn’t actually show you the car. Not even to toot the horn!
All the while you’re looking around a vacant car lot…
No cars – not evens a hint of a car…
So let me ask you a question….
How big a check would you write that salesperson for that car?
Yeah – me too!
So again – what makes you think that with some fancy footwork (assuming you even HAVE a great business plan, executive summary, financials, pitch deck, elevator pitch, …yadda yadda yadda…)
…that the investor will quickly see how great your business is and give you the cash you need?
Believe it or not – you have to know HOW to go through the investor funding process or at the very least, understand many of the dynamics, triggers and motivations involved.
++
Right folks…so which is the fake reason and which of the other two hit the nail on the head for you to some degree?
…and if today’s magic trick doesn’t hit the spot…
I challenge you to tell me why not…
…and if you’d like my help addressing any of the above – let me know through the contact page above.
Andrew
PS – Do you think I wrote this just because I was having a boring lunch? NO! I wrote it to help you. If you would like more help – join my mailing list (right column sign up) and my RSS feed (little orange icon…can’t miss it!)
PPS – take this survey and tell me what you need…and how you can start…really start growing, that great company of yours….
http://www.surveymonkey.com/s/SVMFLJT
Andrew
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