When you’re a VC, your job is like drinking from a fire hose. You have a constant stream of business plans and pitches coming at you. There’s no way to get through all of them.
So you start looking for shortcuts, quick little glimmers of magic that tell you this idea is worth paying attention to. Is it an amazing management team? Proprietary technology? Exclusive contracts? Is it the first mover in a totally new space?
The magic: That’s what a VC wants to see. And yet, entrepreneurs always want to tell you everything about their business. They are excited, passionate. They’re in love. I was an investor for 12 years, and during pitches I wanted to grab these people, shake them and scream, “Just tell me the one thing that makes your business special! It’s not that hard!”
Then I left investing in 2008, started a company myself, got in front of a VC… and made the same mistakes. I couldn’t stop rambling on about Kwippit, my image-amplified messaging app.
Get to the point, quickly
I was so consumed by my own story that I missed the VC’s body language. He looked tired, his eyes were glazed and he kept looking at his watch and taking notes from his assistant. He’s just busy, I thought. Hang in there; a few more slides and he’ll really perk up.
Now, finally, I understood why founders kept making the same mistakes in front of me. Entrepreneurs are like proud parents bragging about their kids. It’s hard getting to the point – whether pitching an investor, potential partners or clients. And that meant I kept blowing deals.
Luckily, one investor invited me back to meet with others on his team – but before I came, he advised me to get to the point earlier than an hour and a half into my pitch.
Lead off with the meat of the subject, he said. I blushed. I was embarrassed. It’s the same thing I used to tell people. But now I knew exactly what to do.
I grabbed a pencil and a sheet of paper and wrote out bullet points:
- Large market opportunity
- A differentiated strategy
- The right product
- Attractive monetisation opportunities
- Opportunity to build a barrier to competition.
I went in with my new pitch. It didn’t take long, and it went well. And it’s gone well ever since. The first five entities we pitched signed on, and Kwippit is growing and growing.
The lesson I learned is invaluable.
Investors want to know so little, and they aren’t going to change, so it’s incumbent on the entrepreneur to digest their own wealth of information, their boundless passion and their countless hours of hard work into a couple of nuggets of gold and drop them into a VC’s lap.
I’m still refining my pitch; I know it needs work. But I’ve come to believe that the key, like most things in life, is balance. One nugget is too few – but all the nuggets are too many.
This article was originally posted here on Entrepreneur.com.
The 10 Most Reliable Ways To Fund A Start-up
Every funding decision is a complex tradeoff between near-term and longer-term costs and paybacks, as well as overall ownership and control.
One of the most frequent questions I get as a mentor to entrepreneurs is “How do I find the money to start my business?” I always answer that there isn’t any magic, and contrary to popular myth, nobody is waiting in the wings to throw money at you just because you have a new and exciting business idea.
On the other hand, there are many additional creative options available for starting a business that you might not find when buying a car, home or other major consumer item. If you have the urge to be an entrepreneur, I encourage you to think seriously about each of these, before you zero in on one or two, and get totally discouraged if those don’t work for you.
Of course, every alternative has advantages and disadvantages, so any given one may not be available or attractive to you. For example, professional investors put great priority on your previous experience in building a business, and they expect to own a portion of the business equity and control for the funds they do provide. These are tough for a first-time entrepreneur.
Thus it is always a question of what you qualify for, and what you are willing to give up, to turn your dream idea into a viable business. Here is my list of the 10 most common sources of funding today, in reverse priority sequence, with some rules of thumb to channel your focus:
- Seek a bank loan or credit-card line of credit
- Trade equity or services for start-up help
- Negotiate an advance from a strategic partner or customer
- Join a start-up incubator or accelerator
- Solicit venture-capital investors
- Apply to local angel-investor groups
- Start a crowdfunding campaign online
- Request a small-business grant
- Pitch your needs to friends and family
- Fund your start-up yourself
The Ultimate Guide To New Business Funding
In our comprehensive small business funding resource, you can find all the main types of funding and how you can go about applying for each.
Funding continues to be one of the top challenges facing South African start-ups and small businesses. Acquiring business start-up funding can make-or-break your business, but is your concept ready for funding? What’s the best type of small business funding for your start-up? What do you need the new business funding for exactly?
“The truth is, finding the money to run a start-up requires a lot of preliminary planning, regardless of whether you’re going to pursue outside funding or choose to bootstrap your first few months,” says Jared Hecht, CEO of Fundera, an online marketplace that matches small business owners to the best possible lenders.
Are you ready for funding?
“If you’ve been operating for a while and need money to scale, which is when you’re most likely to get hold of funding, you should be able to prove that you’ve been keeping records and have a good handle on the financial state of your business. You need to know your numbers,” advises Matsi Modise, Managing Director of SiMODiSA.
“You also need a good understanding of your industry. You need to be able to talk intelligently about the prospects for your business. It’s important to show that your business truly can scale. Moreover, investors don’t want to hear over-optimistic projections — you need to be able to back up your claims,” she says.
For more on Matsi Modise’s full story and lessons she’s learnt from hands-on experience.
Before you wander down the rabbit-hole of small business funding, you should first determine whether your business is ready for funding. Here are a few identifiers that indicate whether your small business needs funding:
- Your business idea needs a customer base: Does your product or idea deliver a solution to a problem that those potential customers are facing?
- Your product works: Very few lenders will feel comfortable investing into just a concept, no matter how enticing.
- You’ve compiled a business model and business plan: Your business model and plan provide proof, both to yourself and to any potential lenders, that your business idea is practical and operable.
- You have a financial plan: Your potential investor will want to see how you plan to use your money, exactly how much you need and why you need it.
Here are a few more determining factors as to whether your business is ready for funding. Some insightful techniques Elon Musk’s career can inform you about getting business start-up funding.
Alternatively, if you’ve realised your start-up isn’t quite ready for new business funding, here are a few pointers to get there from a small business that secured investment on the inaugural episode of M-Net’s Shark Tank.
Keep these 5 mistakes to avoid when seeking start-up capital in mind when starting your journey to business start-up funding.
Here are 10 ways to get funding for your new business:
6 Signs Your Business Idea Is Ready For Funding
Potential investors need to be convinced that your idea is viable before they offer you cash.
Are you fundable?
For aspiring entrepreneurs, sometimes the hardest thing isn’t coming up with innovative ideas, it’s knowing which of those ideas are worthy of financing. Watch out for these six signs to know when you’re ready to seek the financing you need to turn that big idea into a reality.
It’s thrilling to hit on a great idea for a business and envision yourself at the helm of a lucrative new endeavour. Less thrilling, though, is the prospect of securing the necessary financing to get from idea to real-life CEO.
The truth is, finding the money to run a start-up requires a lot of preliminary planning, regardless of whether you’re going to pursue outside funding or choose to bootstrap your first few months. Most start-ups looking elsewhere to kickstart their cash flow will have the best luck securing funding through their personal networks. You can look to an angel investor, a loan from friends or family or even crowdfunding.
Regardless of which financing route you take, your potential investors need to see evidence that your idea is practically viable before they throw their hats into the ring. These six signs indicate that your business idea is ready for financing — and just might provide the evidence your potential investors need to be convinced.
1. Your idea serves a true, identified need
Your business isn’t going to work, let alone make money, if it doesn’t have a customer base. And, what’s more, if they don’t need whatever you’re creating. This may seem obvious, but many aspiring entrepreneurs get so caught up in the excitement of their big ideas that they fail to plan for how that idea will function in the real world.
Before you jump into the financing process, you need to identify your target customer segment and understand their behaviour. You should design your product or idea to deliver a solution to a problem that those customers are facing.
While we’re on the subject of product: You need to know what that product or service is, how it works and how you’re going to sell it. You’ve identified potential problems that may arise with your product, or barriers you may come up against in the market, and you have a game plan for troubleshooting those snags.
Then, you need to perform due diligence in your industry. Determine exactly how you’ll situate your business within the existing market, understand how your product can shift and grow along with it, and differentiate yourself from competitors. And make sure your customers can afford your product or service.
2. You’ve tested out your product, and it works
Pay attention, especially to that second part. Very few lenders will feel comfortable investing their money into just an idea, no matter how enticing it might be.
Your business idea is ready for financing when you have material evidence to bring to your investors’ table — whether it’s a prototype of a physical product or a beta version of a programme or website. Be ready to present any data, reviews or research you’ve acquired after testing out that product, too. And if that data isn’t favourable, you might need to go back to the drawing board.
3. You have a business model and plan
If your business model is the what, your business plan is the why.
Your business model indicates your business’s revenue streams, and your business plan lays out how you’re going to acquire those revenue streams. How is your business’s leadership team organised, and how is your business legally structured? What kind of equipment, staffing and marketing plan do you need to operate your business and generate income?
Both your business model and plan provide proof, both to yourself and to any potential lenders, that your business idea is practical and operable.
4. And you have a financial plan, too
Whether you’re pitching an investor or seeking a small business loan through a lender, your financier will want to see how you plan on using that potential money. You can’t just ask for money as an entrepreneur. You need to know exactly how much money you need, why you need it and how you’ll use it.
That’s especially true if you seek financing through an angel investor. Since these individuals lay their own money on the line to fund your start-up, they need to be sure your venture is sustainable, eventually lucrative and that you’ll use their resources wisely.
Poor financial planning, or no financial planning, certainly can’t convince potential lenders of your business acumen. So, draw up a financial road map that projects exactly how you’ll get from point A — where you and your resources are now — to point B, where you hope to be within the next one to five years.
Be sure to include a detailed plan of your projected business expenses, or how much capital it’ll take to get your business idea off the ground, and your operating expenses, or how much it’ll cost to keep that business going.
5. You’ve recruited a qualified team to execute on your vision
Even if you created your business idea on your own, in reality, every entrepreneur needs help kicking off, then operating, their start-ups.
Before you seek financing, recruit a capable and qualified management team to run your business, or have a hiring plan in place to do so ASAP. And if you don’t have enough relevant experience in the field yourself, you’ll need to gather a team of partners or mentors to fill the gaps in your knowledge. It’s crucial to acknowledge you can’t do and know everything yourself.
6. You can prove you spend money responsibly
Although you might not have a way to prove you’re responsible with business financing yet, you want to make sure you’re positioning yourself to create a track record so investors and lenders can trust you.
Even if you start with seed money from close friends, or crowdfunding from Kickstarter for your business idea, you may need to seek additional financing through a larger venture round or a small business lender.
That’s where the proof becomes necessary. For instance, if you’re working with a lender, they’ll want to know that your business is capable of repaying your debt before extending you a loan. And any other investor will want to know that any money they give you will be spent responsibly, especially if they’re expecting returns.
One of the best ways you can do that is to cultivate a healthy financial profile, and keep a high business credit score. Open a business credit card, and follow best practices to improve your credit score, like paying all your bills in full and on time and regularly checking your credit reports for errors.
Then, the proof will be in the numbers. Alongside a squeaky-clean track record and a strong personal credit score, a great financial history will position you for the financing your growing SME needs.
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