Money for Entrepreneurs

I have been to several Investor Forums and sometimes they teach how to pitch to Investors. It is interesting to hear every ones’ ideas. Investors are after all people, so they  come in all different types:

1) Angel Investors

2) Institutional Investors

3) Corporate Investors

4) Funds managers

There is not a “one pitch fits all” however in an Entrepreneur article by Scott Gerber called 6 Steps to the Perfect Pitch, he gives advice so that you succeed with investors.

URL: http://www.entrepreneur.com/startingabusiness/youngentrepreneurscolumnistscottgerber/article201826.html

Shortly after my college graduation, a few friends and I started a new media company. Within a few weeks we fleshed out the concept, wrote a business plan and set out to seek financing. With a little hustle, I managed to get us a meeting with a well-known investment firm to discuss the opportunity. Even though our business had yet to bring in a single dollar, and none of us had ever been the CEO of coffee shop let alone a multi-million dollar enterprise, we were all confident that we had a sure thing on our hands. After all, our financial projections forecasted gross revenues of $200 million. What investor could say no to that?

We’d be rich. All we needed to do was raise a small amount of capital–$15 million.

I remember thinking, “How hard could it be?” We were obviously, naïve, foolish and delusional.

There was one small problem with our plan. None of us had any idea how to pitch an investor. So I did what any clueless entrepreneurial upstart would do: Google searched “how to pitch an investor”.

Nothing that I read online could have prepared me for what was to come. We would quickly find out that our presentation was doomed before we ever set foot into the meeting. In reality, it was doomed before we started writing the business plan.

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At the beginning of the meeting one of the investors asked me to hand him a one-page executive summary review. I hadn’t prepared a summary, so I handed him the first 11 pages out of the binder encasing my 95-page business plan. Strike one.

Less than four slides into my 32-slide presentation, the second investor interrupted me and said, “OK. Stop. I get it. You definitely don’t need $15 million.”

Defending our business plan, I overconfidently replied: “It can’t be done for less.”

“Really? It can’t be done, huh?” he responded with a smirk masking a hint of laughter. Strike two.

Both of the investors then proceeded to hit us with a barrage of questions:

“How much money have you personally put into your business? Anywhere near $15 million?”

“Why should I pay a bunch of twenty-somethings with no track record $100,000 executive salaries?”

“How much revenue has the business produced to date?”

“Why should I give you $15 million when the company hasn’t even made $15?”

“How can you possibly substantiate gross revenues of $200 million in year three?”

“Why are you trying to produce, market and distribute 10 products at the same time before you see if a single one sells at all?”

The questions went on and on. None of our answers were favorable. Strike three.

As you might have guessed, I didn’t walk out of that meeting with a $15 million check. I later realized, however, that this was one of the greatest educational experiences of my young career. I learned more about real-world fundraising in 30 minutes than many entrepreneurs learn in a lifetime. To this day, whenever I pitch investors for capital, I always remember these six hard-learned lessons:

1. Less is always more.
   An elevator pitch is vital. Verbose presentations and lengthy explanations will not impress investors, and most likely will turn them off. Present your business in a manner that’s short, sweet and to the point. Investors need to be confident that your business will attract and retain customers. If they don’t grasp your concept in a short time span, they may presume that customers won’t understand it either.
2. Never hypothesize. Execute, execute, execute.
   Inspire confidence with facts, not fiction. Most investors seek out low-risk businesses with proven managers that are as close to guarantees as possible. A company with cash flow, a track record and real-world experience has a better chance of getting investors than a business plan forecasting large returns. Find ways to test your business’s viability on a shoestring budget, and turn your idea into a functional business before you seek investment.
3. Leave the hockey sticks on the ice.
   Excite investors about your big picture, but be reasonable and responsible. Avoid hockey stick projections. Respectable investors will not take you seriously if you present them with nonsensical financial graphs that claim your company’s revenues will grow from $100,000 to $50 million in three years. Show investors that you have a grasp on reality with three versions of financial projections: best case, moderate case and worst case. Base each of these models on facts, past and present performance data, industry and competitor analyses and a series of well-thought-out, defendable assumptions.
4. Learn to love discount stores.
   Being cheap is chic. In an age where spending is out of control, you’ll need to prove that you are a fiscally responsible manager who knows how to get the most out of a buck. Give yourself wiggle room in your operations and marketing budgets, but avoid being excessive. Never ask for a large salary or big-budget perks. Investors want you to be in a position where everything is on the line.
5. Rome wasn’t built in a day. Your business won’t be either.
   Investors are wary of funding over-eager businesses that seem destined to bite off more than they can chew. Before asking for millions of dollars to fund 50 divisions and hundreds of product lines, prove how well you can create, manage and fulfill demand for a single product. Demonstrate that your business can crawl before you say it can walk. Perfect your marketing tactics, sales strategies and operational procedures. Investors appreciate companies with sustainable step-and-repeat business models that are poised for exponential growth. Remember, even Google’s success is based on a single product.
6. Choose not to be the smartest person in the room.
   Know what you know, know what you don’t know and find the people who know what you don’t know. Build a team of credible experts. The smartest leaders in the world are those who surround themselves with smarter people. Investors are funding a management team as much as they are investing in a great business concept.

On a Twitt from @gtiadvisors, he mentioned an article from Entrepreneur Magazine:

http://bit.ly/1ZR66s

If you want to secure venture capital, avoid these 8 mistakes by Brad Feld:

“As a venture capitalist, I’m constantly on the receiving end of pitches from entrepreneurs looking for capital. While there are plenty of different mistakes you can make, these are the ones I see over and over.

1. Not knowing your audience: I invest in early-stage software and internet companies in the U.S. I’m always amazed when someone reaches out to me to invest in a telecom company, a retail products company or a biotech firm. Do your research and make sure the venture capitalists you target invest in what your company does.
2. Asking the venture capitalist to sign a nondisclosure agreement, or NDA: This is a stupid idea perpetuated by lawyers. Most venture capitalists will not sign an NDA, so all you’re doing is putting up a barrier to get their attention and demonstrating your naivety.
3. Sending a 74-page business plan in the mail: This might have been the right approach in 1972, but today you should start with a short e-mail introducing you and your company. If you must, include a short (four pages or fewer) executive summary. Make it easy for a venture capitalist to either engage or say he isn’t interested. If the venture capitalist is interested, he’ll inform you of the next step in the process.
4. Spamming 150 venture capitalists with a “Dear Sir” e-mail: If you do send an e-mail, make sure it’s personalized. Remember to target your audience first, and then personalize your e-mails to that person. Oh, and if my name is “Brad,” please don’t start off with “Dear Fred.”
5. Name-dropping other venture capitalists: If I’m interested in your company, I might ask you who else you are talking to, but don’t start off by name-dropping. It probably won’t have any positive benefit, and if I know the other folks you are talking to, I might reach out to them. If I hear they are lukewarm or, worse, have no idea who you are, you just blew it.
6. Listing 27 advisors but only one co-founder: Advisory boards, especially at the very early stages of a company, are generally useless. A few key advisors who have deep domain knowledge or experience in your industry are great, but a long list of lightly engaged people who have well-known names but aren’t helping you diminishes your credibility.
7. Using the wrong materials at the wrong stages: When you are raising money, you should have an arsenal of presentation materials ready to go. However, dumping it all on the venture capitalist with one big thud is rarely effective. Instead, provide access to a demo or PowerPoint presentation so I have the option of reviewing it and talking with you instead of getting pitched.
8. Thinking there are rules that apply to all situations: Each venture capitalist is different. Learn what you can beforehand so you can tune your approach to each venture capitalist.”

During a recession is a very good time to start a company. Nolan Bushnell and Ted Dabney founded Atari during a significant downturn in 1972, and that allowed them to share risk with business partners, which allowed them to keep the costs low.

The founders said in an article: “For example, we were able to move into a large facility. Our meager balance sheet could never have supported that rent, but the landlord looked at us a a better option than just leaving the building vacant. Also, our vendors were all willing to provide long terms for payment on their parts and services.

The most important part of all was that I had my pick of the best engineers and managers in Silicon Valley. Since many of their friends were laid off, the thought of moving to a fun job at a new start-up seemed not that much more risky to them than staying put where they were. Our ability to cherry-pick the best of the best allowed us to crush any technical problems we encountered and the talent we amassed powered Atari as not just a game market leader but also a technical super power. We were the first non-government organization to use the N channel MOS semiconductor, and we basically put that technology on the map. We innovated on so many technical levels that by the time I left the company we had a 85 percent market share.”

Many things are better for a start-up during a recession. Now is the time to start a company. It is very important that the business plan and all paperwork has been updated to this economy. Financial Projections calculated more than 2 years ago, need to be re calculated. Marketing plans need to be updated to include Social Media and internet marketing if applicable.

Over the years we have  been asked what is the best structure for their  business in order to get it funded.

We have information on that on our website www.fudsforprojects.com, however I figured repeating it on our blog would be a good idea.

In an article I read  by Davis Glass of Business Credit News, he stated:

“There are a couple of things you can do to determine that. Sit down with a tax or legal professional or do some research of your own. I tend to do the research myself. I find that the tax professional gives their slant on which entity I should choose, based only on what’s best from a tax perspective as the attorney has the liability perspective only. If you were to sit down with me, I’d give you the positive and negative to each of the entities from the tax and liability side, but I spend a great deal of my time determining your financing needs now and in the future. So the answer to which is best is really determined by you once you have all the facts from the different perspectives.

To help in getting all the facts here are a few tools. First, is a link to The Company Corporations website where you can fill out a questionnaire and learn what entity other people in your industry are using in your state. This is helpful to understand what the majority of people who are forming S Corporations, C Corporations and LLCs are doing.

Second, I’ve provided an explanation of the three types of entities I tell 99% of small business owners to form either an S, C or LLC.

LIMITED LIABILITY COMPANY
Limited Liability Companies have been around for many years in such countries as South America and Germany, but was first adopted in America in 1977 by Wyoming.

Evidence of LLC legislation in other states around the country did not take place until the IRS made a key ruling on the taxation of this new structure. On September 19, 1998, the IRS issued Revenue Ruling 88-76, stating that LLC’s would be taxed as partnerships even though none of the members (partners) or managers would be personally liable for any of the company’s debt. This ruling encouraged other states to adopt this new vehicle as well. All states have accepted LLCs into their domain as legitimate business structures.

The LLC structure can be used to hold property and transact any type of business. LLC structures are similar to partnerships, limited partnerships and “S” corporations. An LLC by default is taxed as a partnership which make it a flow-through entity. It passes all of the LLC profits and losses directly to the members of the LLC. Individual members are therefore taxed at their personal tax rates. It is possible to elect a different tax status when you file your SS-4 form with the IRS. Speak with a tax professional to determine which is best for you.

LLCs can also be handy tools when exploring joint ventures. For example, let’s say you are enjoying the benefits of controlling your own corporation, and you now want to combine efforts with another individual by forming a joint venture. Taking two corporations that you control and forming an LLC will allow the profits or losses from the joint venture to flow directly into your respective corporations. The taxable entity in this case would be the corporation. This is a simple way to bring two corporate entities together and keep an arm’s length from the business at hand.

CORPORATIONS
Although a corporation is separate and distinct from its stockholders, directors or officers, it is a separate entity that can act only through its members, officers, or agents and cannot have knowledge or belief of any subject independent of the knowledge or belief of its people. A stockholder (owner or partial owner) is a holder of shares of stock in the corporation and is NOT IN LEGAL DANGER for the acts of the corporation. In other words, you, as the owner, are not responsible. A stockholder is not the employer of those working for the corporation nor is he the owner of a corporate property.

A corporation is a citizen in the state wherein it was created and does not cease to be a citizen of its state of domicile by engaging in business or acquiring property in another state. Since corporations are solely creatures of Statute, their powers are derived from the constitution and laws of the state in which it is incorporated. As an artificial person, a corporation is considered to have its domicile in the state where it is incorporated and the place where it has a statutory presence. When the corporation functions in a different state, the site of its designated resident or registered agent is sometimes called its “statutory domicile”.

The existence of the corporation is not affected by the death or bankruptcy of a shareholder, officer, or director. It has a continuous existence as long as it complies with the statutory requirements of the state where it is incorporated.

For the purposes of raising capital and building credit for a small to medium sized business, corporations provide the best chances for gaining approval and are recommended by the authors of this book. A corporation is a separate legal entity from the owners and officers of the business. It files a SS-4 form with the Internal Revenue Service to obtain a tax identification number that will be used to create a separate credit profile for the business.

Corporations are the oldest business entity in the United States and have the most case history. Credit card companies have designed credit cards just for corporations. Venture capitalists and banks will spend more time with the owner of corporation then that of a sole proprietorship. Corporations are taken more seriously in business. Some companies will not hire another business unless it is incorporated.

There are several types of corporations, but the two that are most commonly used are the “S” and “C”. To decide which of the two is best for your situation consult a tax professional.”

His article provides a lot of useful information worth mentionned here.

We are constantly being bombarded with all kinds of daily news on how bad the economic times are. You can’t view the TV news, read your daily paper, pick up a trade magazine or browse the Internet without seeing  stories relating to the “financial crisis,” and about our bad financial times and the industry bailouts. Bailing out the auto industry, bailout’s in the financial industry and bailing out the government sponsored “Fannies.”

In an article by Jim Arkebauer he states:

“The stock market has gotten clobbered, the price of gas was unbelievable, it seems that every industry in the country is cutting jobs, and the “banks ain’t got no money” (and if they do, they sure aren’t going to lend it to small companies that ONLY want to help save the country by increasing the GDP and adding new jobs and bolstering the economy.)

The Calvary is here and more are coming: But you know, the bad times have not, and currently are not, affecting the private financing markets. We see lots of deals being done!!! Yeah, the private investors are holding back to some extent, but not much. Private investors have bucks, they are liquid — they don’t like the minimum returns they are getting on their CDs. They want to make up for their Big Board losses. They want some of their investment dollars to make more than five percent. They are looking for some action! This includes start-ups, expansions and lots of real estate deals.

Private investors are patient. They know that they are not going to make 20% returns in twelve months. But they do know that they can get 20% returns, maybe more, over a three to seven year period, They are sophisticated. They don’t put all their eggs in one basket. In fact, for most of them, they have a pretty diversified farm. The funds they invest in private deals usually make up only 5 to 20 percent of their portfolio.

The Baby Boomers have inherited nest eggs. You would be surprised at the large number of private investors who have inherited sizable sums of funds from their World War II parents. These folks were the product of their parents who came up in the great depression. They scrimped and saved throughout their lives to be sure they had money to pass on to their offspring. The kids (baby boomers) are now receiving these funds and they too are seeking investments that will boost their financial holdings in the future, pay their children’s college education and supplement their lifestyle as they too reach retirement age.”

There is a lot of money out there right now and smart entrepreneurs are taking advantage of this to expand and start their projects.  We are always looking for quality projects to submit to our investors.

We get asked that question constantly. And I think it is easier to post some specific projects that we are looking for. So here are some of our mandates:

Investor  101 BEED 

Investment Range: $15 Mill to over $ 500 Mill

Type of Investment: Equity, Debt w. Equity, Lines of Credit, Loans

Stage of Investment: Start Up Growth

Industry: Real Estate (new construction) with a big potential to sell, energy (infrastructure)

Location: Anywhere exotic: Caribbean, Pacific Islands, not in USA

Investor 267 COBL

Investment Range: $3 Mill to over $ 1 Bill

Type of Investment: Debt Financing, Joint Venture Loan programs, Bridge Loans, Interim Financing, Commercial Loans, Refinance.

Stage of Investment: Start Up, Early Stage, Expansion, Later Stage, Growth 

Industry: Real Estate, Commercial, Shopping Centers, Hotels, trade, Energy, Renewable, Mining. natural Resources. 

Location: Anywhere in the world

Investor 102 COKE

Investment Range: Up to $2 Mill

Type of Investment: Lines of Credit

Stage of Investment: Start Up, Early Stage, Expansion, Later Stage, Growth 

Industry: Any

Location: South Florida

Investor 225 FIDA

Investment Range: $ 50,000 to $250,000

Type of Investment: Debt Financing

Stage of Investment: Start Up, Early Stage, Expansion, Later Stage, Growth, Acquisition Merger

Industry: Any

Location: USA only

Investor 111 KAST

Investment Range: Min. $ 20 Million

Type of Investment: Equity as a GP

Stage of Investment: Start Up, Early Stage, Expansion, Later Stage, Growth, Acquisition Merger

Industry: Any

Location: Any

Investor 220 KEAN

Investment Range: $ 50,000 to $1,000,000

Type of Investment: Debt Financing

Stage of Investment:  Early Stage, Expansion

Industry: Any

Location: USA only

Investor 100 MEHO

Investment Range: $ 2,000,000 to $100,000,000

Type of Investment: Debt Financing

Stage of Investment:  Any

Industry: Any

Location: USA  and some countries abroad

Investor 103 PAMI

Investment Range: Up to $ 4,000,000 per project

Type of Investment: Equity, JV, other

Stage of Investment:  Any

Industry: Clean Tech, Green Tech, Alternative Energy, Medical

Location:  Any

Investor 103 STAM

Investment Range: $ 2,000,000 to $50,000,000

Type of Investment: Debt Financing

Stage of Investment:  Any

Industry: Any

Location:  Europe

Details: Essential requirements is that you have a minimum of 10 % to 30 % in liquid collateral

Investor 103 STAM

Investment Range: $ 2,000,000 to $50,000,000

Type of Investment: Debt Financing

Stage of Investment:  Any

Industry: Any

Location:  Europe

Details: Essential requirements is that you have a minimum of 10 % to 30 % in liquid collateral

In an article  in the S. Florida Business Journal, by Bruce Rector, he states:

“I often speak with shareholders of growth companies who view the infusion of external capital as a panacea for all that ails them today, such as constraints on expansion and lack of funding for more R&D. If only they had capital, they reason, the business would be propelled to glory.

There are many good reasons why a capital infusion might make sense for a company. But, before a company goes charging down the capital-raising path, it is crucial for shareholders and management to ask themselves a number of hard questions:

Am I ready for appropriate corporate governance procedures to be implemented?

Your company will not be allowed to run as a mom-and-pop business, even though that may be how it has functioned historically. You can count on a board of directors being implemented at closing of the investment process, and outside investors will typically participate on the board. There will be binding delegations of authority emanating from this board, giving different officers in the company the authority to perform their functions.

As part of this process, the owners may find that they no longer have the legal authority to bind the company in certain ways, or perform such functions as banking and contract negotiation, which they have historically done.

Am I ready be held accountable to rigorous operating and financial goals?

It’s great to be involved in a company that has what it takes to attract outside investors.

However, investment professionals are also accountable to the individuals investing in their fund. Therefore, they make very thoroughly considered investment decisions. And, on an ongoing basis, they will expect management to deliver the results that were portrayed during the due diligence and budgeting process.

Management absolutely will be held accountable to the shareholders. Management that fails to deliver promised goals should expect to be replaced. Excuses will not suffice.

Am I ready to no longer hold absolute authority at this company?

Many controlling shareholders derive a great deal of personal fulfillment from being the person who runs the company. With the appearance of institutional capital, this relationship to the company often can change.

New professional management might be brought in, and there often is a change in reporting relationships as part of that process.

When the dust settles, you might find yourself with less direct control and influence over the operations and strategy of the company.

If you can honestly answer “yes” to these questions, then you might be ready for prime time when venture capitalists and private equity groups again begin actively seeking compelling investment opportunities.

If you can’t answer “yes,” then management and shareholders need to rethink whether they truly wish to initiate the process of raising external capital.”

In cases where you can’t answer yes, then considering debt financing  and keeping ownership of your company is an alternative way to go.

The best way start any venture is by raising seed capital. It is very common at the beginning of the venture to be raised from friends and family. This start up money is usually enough to germinate the business through the process of conducting market research, building a prototype or getting the product or service ready to be sold. Until this first step is taken, approaching potential funding investors is fairly pointless since they will perceive that there is no business in which to invest.

Once you’ve started the process rolling, you can start looking at the options of approaching companies who provide venture capital such as angel investors and venture capital companies. There are major differences in these two types of investors and the best ways to approach them.

Whether you are presenting to a venture capital company or an Angel Investor, prepare a realistic and well structured business plan and  be sure that you know your product/service inside out. After the initial approach and only upon further invitation send a detailed executive plan – this will be your sales pitch so don’t just list features of the product without revealing benefits.

Angel investors are individuals who invest their own money so take a greater risk. It’s best to approach an angel group who, if you’ve made it past the screening committee will allow you a 20 minute presentation and then decide whether they will invest. Expect to give them 20 – 40% equity.

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The best way start any venture is by raising seed capital. It is very common at the beginning of the venture to be raised from friends and family. This start up money is usually enough to germinate the business through the process of conducting market research, building a prototype or getting the product or service ready to be sold. Until this first step is taken, approaching potential funding investors is fairly pointless since they will perceive that there is no business in which to invest.

Once you’ve started the process rolling, you can start looking at the options of approaching companies who provide venture capital such as angel investors and venture capital companies. There are major differences in these two types of investors and the best ways to approach them.

Whether you are presenting to a venture capital company or an Angel Investor, prepare a realistic and well structured business plan and  be sure that you know your product/service inside out. After the initial approach and only upon further invitation send a detailed executive plan – this will be your sales pitch so don’t just list features of the product without revealing benefits.

Angel investors are individuals who invest their own money so take a greater risk. It’s best to approach an angel group who, if you’ve made it past the screening committee will allow you a 20 minute presentation and then decide whether they will invest. Expect to give them 20 – 40% equity.