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.

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.

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.

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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.

I was reading these tips from Eric Stevens on getting your Film Financed and found them very useful.

He has been in film finance  for over 10 years and   has come to learn methods that help aspiring films makers and independent  producers get financed and hopefully help  avoid the pitfalls he sees so often in this realm. He is pitched probably 3-5 films per week and he finds that  all have common mistakes.

E. Stevens states “Every film with only one exception is financed based on or along these lines. The exception is where the content has an emotional connection with the investor and they really don’t care about the rest.

1. Content: Obviously the story sells, and the genre has to be a money maker.

2. Attached talent: Many producers always tell me that such and such actor is attached but can’t get any paperwork. I understand the chicken or the egg situation here well. I know you can’t get a play or pay agreement without money. You CAN get a LOI or letter of interest from managers, or agents. This basically states if all the stars align and money is there the client may do the film. It doesn’t seem like much but you know by the amount of work you have to do get it, it means a lot.

3. Budget: Below and above the line. If you don’t have one get one. Submit a top sheet with you business plan. If you have one scrutinize it, have a line producer look it over. TRIM THE FAT!! With the technology advancements CGI and animation does wonders.

4. Distribution: This is always an obstacle for ANY producer. Some of my clients see this as their biggest obstacle. Why? The risk involved..preselling territories costs a lot in the way of equity as their is no finished product to view. However, a lot of times you need it to get the investors. DO a mix, get a commitment on some territories while leaving others open.

5. Financial structure: Most of you already know this but I will say it anyway. Each film must be setup as its own corporate entity. LLC, C Corp, Partnership, that’s for your attorneys to decide.

The way I have always suggested moving forward is doing a debt/equity mix or debt with an equity kicker. NEVER let your debt be over 30% of your budget. This will turn off any potential investor. While you are telling them they are in first position they know debt always takes first.

Usually what this means is that you can finance part of your film or slate, but the debt money isn’t kicked in until proof of funds on the equity portion is provided.

Take advantage of incentives in place! In the U.S. and some parts of Asia there are a lot of incentives for producing your film in that territory. For the EU I would venture to guess there are some, but I honestly just don’t know about them.

Look for states offering incentives for filming there. BUT BEWARE.. there are caps, and you must use their state citizens or you get no credit for those dollars expended. This has a lot to do with your above the lines costs which account for a good portion of any budget.

There are federal tax incentives to up to 15-20 million. Check them out.

Finally IRR. I see coupons issued for 115%, I see shares issued giving away the farm to investors.

How do you value your film. BE HONEST! first of all. IMDB is a valuable tool. Run your talent and see how much the films they are in pull in. Do genre comparisons. Look carefully at your distribution. Can the content be easily translated for other markets? Are the stars well received overseas?

Finally if you can offer a slate. Investors like to spread their odds. especially where you can use the same assets to produce additional platforms like games, and sequels.

There is no better time for film investments than now. It is the safest out there when the studios are begging for financing and short for content. This creates a void you can fill.

If anything movies will increase this year and next. People simply can’t afford to do other things and need the escape a good story gives them.”

Coming to you from the voice of a financeer.

THE MOST IMPORTANT JOB IS THAT OF LEARNING HOW TO NEGOTIATE WITH OTHERS WITHOUT FRICTION, SPECIALLY IF YOU ARE TRYING TO GET FUNDS FROM ANGEL INVESTORS OR VC FIRMS.

Experts in negotiation handle the process so smoothly that discussions hardly seem like negotiations at all. And they get their point across fast and with tact. While the word negotiation itself conjures up visions of cigar-chomping adversaries pounding the table to emphasize their demands, the best results are achieved when all the parties involved are able to put themselves in the others’ shoes and arrive at an agreement that is beneficial to everyone involved. It has to be a win-win situation.

Whether you are negotiating a selling part of your company, a higher salary, a new job,  the acquisition or merger of a company, your chances of success are far greater when you approach the situation positively and with a clear objective in mind.

It also helps to understand the motives of others involved and to have in-depth knowledge of the subject under discussion. Angel Investors, VC firms, fund managers  for the most part, are sophisticated business people, so you need to cut the small talk and get to the substance. No one has time to waste.

Finally, approach every topic with an open mind-don’t simply try to bully others into accepting your proposal or point of view.

You will get funded faster when you apply all this.

I read a great article from one of my favorite Entrepreneur Magazines: INC.

http://www.inc.com/magazine/20090101/angel-investing-2009.html

Angel Investing 2009

By: Kasey Wehrum

In a tough economy, angel investors are more cautious than ever. But it’s still possible to find funding. Here’s how

Where would we be without angel investors? In 2007, 258,200 angels pumped $26 billion into 57,120 companies, making these wealthy individuals the single largest source of start-up capital, according to the University of New Hampshire’s Center for Venture Research. But despite their ethereal name, angel investors are all too human. Their money comes from their investment portfolios, and theirs, just like yours, have been hammered. That’s sparking big changes in the way angels invest. Even in a tough economy, deals can still be done, but don’t expect them to happen in a hurry. Angels are pretty spooked these days. “Even highly diversified investors may be seeing a 20 to 40 percent decrease in the value of their stock portfolios,” says Michael Gruber, founder and managing director of Cornerstone Angels, a Chicago-based angel group. Further complicating matters is the fact that many angels are entrepreneurs themselves and may be more concerned with shoring up their companies than with helping you build yours.

As a result, they are being a lot more cautious than they have been in years past. The Center for Venture Research says investments through the second quarter of 2008 totaled $12.4 billion, up 4.2 percent from the same period in 2007. But just 23,000 ventures received those funds, a 3.8 percent drop. Why? “There’s safety in numbers,” says Marianne Hudson, executive director of the Angel Capital Association. Angels, she says, see syndication not only as a way of reducing risk but also as a means of ensuring that good companies are properly funded.

If you are looking for funds, be prepared for a buyer’s market. That means requests for more control as well as lower valuations. “I’m not saying we are going to be angels from hell, but we are not going to be stupid about how to price,” says John May, managing partner of New Vantage Group in Vienna, Virginia. On the other hand, says Bill Warner, chairman of the Triangle Accredited Capital Forum in North Carolina, “no angel wants to put an entrepreneur in the position of not being able to reap benefits from a successful exit.”

It is true, we have many Investors’ requests for projects. There is still a lot of money around, and Angel Investors know that they can have a better ROI investing in companies than in the Stock Market. However they are being a lot more careful.

We are  constantly asked what  the difference is between the registrations that we offer.

And we are always looking to build quality relationships that can benefit all parties.

So here is  an explanation of our Clients/Users:

Investors: are qualified individuals and groups of Angel Investors as well as private and corporate investment funds, any type of company that provides different types of funding worldwide  and are actively looking to fund companies.

Companies: entrepreneurs/companies that are looking for capital to start, grow, expand, merge or be acquired. We have access to a large deal flow from quality companies in all stages of development and in different industries worldwide.

Affiliates: individuals or businesses that are interested in referring Clients/Users to us whether it be companies or Investors.

Preferred Businesses: businesses that offer services that any of our Users can benefit from.  These could be attorneys, accountants, business plan writers, insurance agents, business consultants and many others.

If you are an Investor, you can register at:

http://fundsforprojects.com/listings/register_investor.php

In order for Investors to gain  access to certain specific projects, we may require proof of funds and the place of origin of such. After we receive all information and approve it, we will custom compile a portfolio of companies that fit each Investor’s criteria.

To register as a Company: If it is a company/project that we are actively looking for, there is no charge to register it with us, so that we can present it to Investors. If it is an unsolicited project, then any company can register their project online and choose for how long they want to attempt to find funding through us.

Here is the link to register your project with us:

http://fundsforprojects.com/listings/register_company.php

To register as an Affiliate: there is no charge. This affiliate will be added to our system in order to trace which Investors and/or Companies are registering through the Affiliate.

To register as an affiliate:

http://fundsforprojects.com/listings/register_affiliates.php

To register as a Preferred Business: there is a charge for this. Our other USERS will be able to contact these businesses via our platform and utilize the services that they offer. We actually link their information/website on our platform and when a USER has a need, they have access to those Preferred Businesses. If you are interested in being one of our Preferred Businesses, please send an email explaining the type of service that you offer to:

Services@fundsforprojects.com

And we will inform you  how to proceed.