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Monday, January 3, 2011

The Ten Commandments of Fundraising

from Gray DeFevere





1. Thou shalt focus, focus, focus thy plan. Make sure that our strategy is a rifle shot, not a shotgun blast. And always keep in mind the problem that you’re trying to solve. Proprietary, protectable, and sustainable technology is a necessity, but it’s not a sufficient condition for success. Identify the collective IP to commercialize. Carve up target markets finely and restrict yourself to two or three well-defined segments.

2. Thou shalt weave a story. Remember, all potential investors are looking for a reason to believe. Create excitement around our plan and show energy, enthusiasm, and Commitment when we present it. We detail both the mystic and the mundane. Cover our long-term vision, and then spell out short-term practicalities of its implementation.

3. Thou shalt understand thy audience. Research and understand our target audience — both for our plan and our pitch. Understand our prospective investor’s history, areas of expertise, rolodex, prior areas of investment, any obvious predictable conflicts and so Forth. Don’t forget that you’re in the selling mode, and you need to understand your Prospect’s hot buttons. Knowing as much, or more about them than they due about us is A show of respect and professionalism.

4. Thou shalt arrive via referral. Nothing turns off a prospective investor more than something coming in over the transom, regardless of the medium. An industry expert or an insider friend of the investor, a reference will instantly give you credibility, visibility, and the investor’s attention.

5. Thou shalt be crisp in thy plan. Keep your plan succinct, and remember a picture is often worth a thousand words. Although graphics can be overdone, they convey information efficiently and add impact. Your plan should be no more than 25 pages and the executive summary no more than 2 pages.

6. Thou shalt fine-tune thy presentation. Your presentation is not a fireside chat. Plan your pitch and pitch your plan, preferably a half hour but no more than an hour. Have backup for all claims, slides for common questions, and prepare a reference list in Advance. Efficiency in both plan and presentation will create a good impression that often is taken as a proxy for how you will run your business. You get one shot in front of your prospective investor. There are no dress rehearsals.

7. Thou shalt thoroughly research and evaluate current and prospective competition. All startups have competition of one sort or another. Thoroughly map out the competition, and honestly assess our relative status. Openly disclose the management team’s background strengths and weaknesses. Today, marketing and sales execution is more important than ever.

8. Thou shalt get real about financial projections. Investors understand that financials for new businesses in undefined markets are very hard to estimate, much less verify, but be realistic. Even if you believe that you can build a $500 million business in five years, understand that this kind of growth would make you one of the fastest-growing companies in American history. To the extent possible, build projections from the ground up, not the top down.

There is no substitute for showing investors direct prospect/customer contacts who are willing to vouch for the product and company.

9. Thou shalt not obsess on valuation. Valuation is clearly very important, but don’t be penny-wise and pound-foolish. The entrepreneur must give credit to the value-add of the angel or professional investor. By understanding this, hopefully everyone gets a piece of a much larger pie than would otherwise be the case.

10. Thou shalt understand potential exit strategies. Although the investor’s first thought is the excitement of getting into an investment, his next priority is how he’s going to get out of it. An IPO is one obvious path, but today, strategic buyers are acquiring more and more companies. Be explicit about potential buyers or licensees and the rationale for their interest in your company.

Gray Defevere started his first company 37 years ago, and thinks of himself as a 'recovering entrepreneur' who has had successes founding and growing businesses using profit and debt as financial accelerators. Defevere Advisory Group (DAG) focuses on the representation of emerging growth and technology companies, middle market public companies, large technology companies, investors, private equity funds, investment bankers and underwriters, and clients in the entertainment industry. Gray originally posted this on his blog at defevere.com.


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