I had 225 conversations and pitched 95 separate investors in order to raise my first $2.2 million. I remember applying for every possible pitch competition, attending every startup event and chamber meeting, tracking down every high net worth individual I could find – anyone willing to listen to my 30-second, 5-minute and hour-long presentations. It was a full-time job raising money, and it took me more than a year before the final investor closed.
But then, on that fateful spring day in 2012, the seed stage fundraise was complete. Then the real work began. It is one thing to paint a vision and promise a movement. It is entirely another to meet milestones, generate revenue, and keep the company on track for an exit. The one thing that I could have never prepared myself for was the pressure that I’d feel from the investors after the money had been raised.
If you are gearing up for a fund raise or are in the midst of one, you may think that you are undergoing the toughest part of your journey. And if you can prepare appropriately and build good habits early on, you will be.
Related: The Investor Sourcing Guide
Here are four tips for managing the investor’s expectations before you create cause for concern:
1. Communicate early, often and to everyone
When I first began interacting with investors, I made the (incorrect) assumption that they invested in me because they expected me to know what I was doing, and that they only wanted to hear from me if I had dividends to pay. This could not be further from the truth. As a (now) early-stage investor, I invest in businesses when I believe that 1) the founder has the passion and fortitude to stick with it through the tough times; 2) I have experience that can be helpful in propelling the business to first revenue, cash flow positive or exit; and 3) I will be engaged throughout the early days of the company.
To engage your investors, whether current or future, you want to be consistent and honest. If you are sending a prospective investor email and a current investor email each month, continue to send both. If you are undergoing a colossal failure or your burn rate has grown to three times what you had projected, your investors should be the first to know.
The biggest failure in building a relationship with your investors is not sharing everything that might affect them. An investor never wants to be surprised, but if you hit a wall, they would much rather hear the news from you and as quickly as possible.
2. Structure board meetings before you have a board
One way to structure communication formally and in a way that investors will appreciate is to schedule monthly board meetings before you have a formal board of directors. Invite all current investors to join this meeting/call, send an agenda in advance, and ensure that any items discussed during the meeting are followed upon in as timely a fashion as possible. Show your investors that you know how to work with them, value their time, and heed their direction.
Related: Is Venture Capital Right For You?
3. Engage your investors for assistance
I enjoy being engaged by my companies. If I have a connection that could be useful to a sale, additional investment or a decreased expense, I expect that you will ask me for an endorsement and introduction. If I have modeled financial projections for several previous companies, ask me for help in modeling yours (if relevant). If my home would serve as a great venue for a client dinner, ask me to host.
By engaging your investors for operational assistance, you build stronger champions for your vision, and empower them to better advocate on your behalf with the outside world. If they invested in your company, they have likely found personal and/or professional success themselves, and appreciate using their credibility to propel your company forward.
4. Know when to say “no”
Perhaps the most difficult lesson I learned in my early days of investor interaction was learning to differentiate when to heed investor advice and when to respectfully disagree. Your investors come from all walks of life and have varying motivations for involving themselves with your company – not all selfless. Often, you will receive guidance that does not agree with your business model, other valued opinions, or common sense. In these moments, it is important to voice your opinion, backed by evidence, to ensure that the direction you ultimately take is a sound one for the company.
Humility and coachability are important, but you raised the money because you know, inherently, something that others don’t. Be sure to use that experience of yours to guide your investors, and use their experience, where appropriate, in turn.
This article was originally posted here on Entrepreneur.com.
Angels & Demons: What To Know When Negotiating Equity Funding For Your Start-up
It is important that you don’t treat equity funding lightly. A few key points are discussed in this article for you to consider.
Getting your start-up off the ground and scaling it up usually requires an injection of capital to ensure that you can get past the lean years. Many a start-up has been left to starve in the proverbial desert seeking the promised land of an equity funding raise and many start-ups have drunk from the poisoned chalice of a poorly aligned investor relationship. It is important that you don’t treat equity funding lightly. A few key points are discussed in this article for you to consider.
Hold onto your equity, it is precious
Equity may seem like an attractive way to raise funding for your business, it is easy to “create” and it doesn’t really require that much effort to exchange it for funds, but remember that with each share you give away, you are giving a little more control and value in your company away.
At first, this may not seem significant, but the more funding rounds you go through, the more you are going to wish that you had held on to more equity, especially if your company’s growth is in line with your aspirations! Ideally, an equity raise should be one of your last options for raising funds until you have at least developed your ‘minimum viable product’. An equity raise should only be used if you are really in need of funds to keep going or to jump your production to the next level; even then, only give away as much equity as you need to.
Know what stage your business is at
This is really a simple principle. If you are pre-revenue and trying to create a minimum viable product, if you have to raise funding, you should seek out “Angel” or “friendly” investors who are willing to give you very favourable terms generally at a high valuation (meaning you give away less equity and control), these are often friends or family members. If you are post-revenue, you may wish to seek out venture capital funds or institutional investors to invest in your company.
He’s just not that into you
Make sure that your investor is serious about investing into your company. For institutional investors, the way that you will know when they are serious is when you receive a letter of intent or “term sheet” from them. It’s the venture capital equivalent of asking you on a date. They are trying to say that they’d like to see how things go, but they are not committing to anything serious just yet. If after a few months of discussion, you do not get a letter of intent, move on, there are more fish in the sea.
Know who you are doing business with
It is better to struggle through months or even years of bootstrapping than it is to have an investor relationship with someone who is completely incompatible with your business or who is going to add no value other than money.
An investor relationship can make or break your company. Don’t simply hand over your equity to the first bitcoin millionaire with a Colgate smile who approaches you.
Look for investors who want to invest in your industry and who have good connections in that field, this can be more valuable than the money that the investor is putting into your company.
Get good legal and commercial advice
It’s important to remember that an institutional investor is just as much a business as you are. They are always going to be biased towards getting the best return on their investment no matter how altruistic they may come across. This means that the commercial and legal terms, if left to them alone, will be weighted in their favour.
You may be tempted to avoid the expensive lawyers and commercial advisors, but too many startups make the mistake of being penny wise and pound foolish here. Unfortunately, commercial investment terms can be very complex and it is always advisable to have someone on the commercial and legal front sitting squarely in your corner.
Related: The Investor Sourcing Guide
In short, equity is an effective arrow in the start-up’s quiver to use when raising funding, however, it is not the only one available. If you do decide to let it loose, don’t do so aimlessly, pick a target and aim it in that direction. The more strategic you are in negotiating your equity fundraising, the more likely you are to get favourable valuations and investment terms.
Why You Need A Million-Dollar Pitch Before Your Start a Business
You’re not ready to launch your business until you can explain in 20 seconds or less how it helps someone.
I would argue that you should not try to start a business until you can clearly articulate how you help people in a pitch. Pitching is vital to your success so it makes sense that you need to master it before you can launch a business. Why? It forces you to focus on what you can do right now and what problem you solve in the marketplace. It’s the value of your business in just a few words.
You will need to pitch your product, idea, or service to:
- Turn strangers into customers
- Attract investment partners
- Hire new employees
Before anyone is going to do business with you, you have to get attention. A million dollar pitch is a short commercial that will attract attention and make the benefits of your company tangible to a customer. It should be 20 seconds or less and help the person take an immediate interest in what you do. It’s a simple statement with a specific goal.
How much time have you invested perfecting your pitch?
If you’re saying to yourself right now that what you do is “too complicated” to put in a few words, you probably lack clarity about what you’re doing. It might also be a sign you’re only thinking about making money instead of how you can add value to others.
A lot of people cannot articulate their value in a few words.
There are so many distractions out there, so you need a well-crafted pitch to cut through all the noise. People call me all the time on my shows with long-winded explanations about their business. When you’re pitching, no one wants to hear about your company history. I don’t say that to be disrespectful, but because it’s just the truth. You have to give someone a reason to want to ask more about you – that’s what a good pitch does. The other party knows the immediate benefit and whether it’s big enough for them to want to learn more.
What can you do right now?
Have you ever thought “I could do that too” when you hear about someone doing a particular activity to become successful? I always laugh when people tell me stories like this. Let’s agree that you can learn anything. Here’s my question: is your idea something that you could do if you learned it or is it something that you can do right now?
Before you can be successful, you have to base what you do in your reality. Ask yourself what you can do right now, not what you could do in the future. Unless you’re planning a career change, assess your income-producing skills that you currently have and centre your pitch around that.
What problem does this solve?
After you figure out what your skill is, you have to ask what problem it solves. If a lot of people are having the same problem then it could be a great idea for a business. Who is your audience? Who do you already know in the marketplace that already needs your product, that wants your product? Most likely it’s not going to be people around your street corner. Look for a market that already exists and see how what you do can help that market.
Putting it together
Now that you have a business idea based on these two requirements, create a 20 second or less commercial out of it. The shorter the better. Most people just string something together without much thought. It’s your job to create a powerful statement that makes it impossible for someone not to want to learn more about you.
Here’s one of my pitches “My company increases sales by 15 to 20 percent and we’ll do that in less than 14 days.” Look how it’s based on something that I can do right now and that solves a problem for a large group of people. Do you think that my prospective customer would be interested in what I have to say after they hear this pitch? I’ve used it many times so I can answer for you – yes!
Is your pitch effective?
What kind of response are you getting from your pitch? Are you getting people to take action or ask more questions? Aside from creating a compelling pitch, it has to be practiced to be effective. Why do you think I wrote the Closer’s Survival Guide? It’s a training manual for closing – it’s essentially a bunch of pitches with the goal of closing the customer. I wrote them out and train them all the time. That’s what a lot of people miss. They could have killer pitch but are horrible at delivering them. You will only sell someone on your pitch if you train, drill and practice it until it’s second nature.
3 Tips for pitches
Clarify Your Goal: What is the purpose of your pitch? To have a successful pitch, you need to clarify your goal. Do you want the other party to sign a contract, agree to a meeting or sign up for your email list? If your goal is clear, then it’s much easier to create a pitch that serves that purpose.
Ask for Attention: You’ll have to get the full attention of the person before they will listen to your pitch. Never start your pitch before you ask them if you can share what you do. The best way to do this is to simply ask them. If you’re in an elevator ask, “can you give me your attention for the next 20 floors?”
Make It Memorable: A pitch is not an explanation of how your business operates or your company history – it’s a well-constructed value statement and it has to be BIG. You need to wow the customer and you’re not going to do that if your pitch is dull. It has to hit hard using a big claim. If you use my pitch as an example, it has a quantifiable result for the customer. That’s a good strategy to use. Show exactly how you can help that person. I always say show me don’t tell me.
Building a business one person at a time
Remember that strangers have everything that you want. Using a well-crafted pitch is the best way to introduce yourself to someone because you created it to get attention. It’s your job to make them interested in you. You must network and make your contacts grow so you can grow your business.
Promote and market yourself using your pitch 24/7. The better it is, the more attention you’ll get. Don’t be like everyone else and “start a business” before you have created a million-dollar pitch. I can tell you from experience that if you follow these simple steps, you’ll have a better business and will be able to sell more people on your ideas. Let me know how this strategy works for your business.
This article was originally posted here on Entrepreneur.com.
Financing That Backs Entrepreneurs
The SME landscape is fast and flexible. It requires financing that understands how entrepreneurial businesses operate. Through its unique processes and assessments, Spartan’s finance solutions are geared to do just that.
It takes an entrepreneur to know entrepreneurs, which is why Kumaran Padayachee and his team at Spartan are dedicated to financially backing an often-underserviced sector: SMEs.
“We’re fast, we’re flexible, and we’re understanding,” says Kumaran. “Every single person who works here is SME-centric. We hire for fit, looking for empathy and alignment in every position. All of our processes and assessments are done with empathy and understanding towards SMEs.”
Becoming funding ready
Thanks to these systems, processes and the team’s unique way of assessing SMEs, Spartan typically grants finance within seven days, although the fastest approval has been six hours, with the longest 15 days.
“How quickly we can approve finance is determined by how prepared the business owner is,” explains Kumaran.
“Do they have all their basic documentation ready? These include financials, management accounts, debtors age analysis and creditors age analysis. From a working capital context, this information makes it easy to assess the health of the business. Every business owner and financial director should be on top of these figures.”
Finding a funding fit
Not every business needs funding. Some can grow organically and draw on their own cash reserves. Others choose an equity route.
Spartan is a debt funder. However, even as a debt funder, the team’s aim is to back entrepreneurs and help them grow their businesses. They evaluate what the finance will be used for, and if the return is greater than the repayments.
“There are numerous ways that finance can be applied incorrectly by SMEs,” says Kumaran. “One of the first flags we look for is debtors age. If the industry norm is payment in 30 days, but a business is typically paid by its clients in 60 or 120 days, then we know there is something wrong with their internal processes. Either the company is too shy to be assertive with clients, or it lacks the capacity or capability to invoice clients and collect cash efficiently. Either way, the result is a shortage of cash.
“Business owners in this situation apply for a loan in order to be able to pay the bills, when they should be reviewing their own business, pulling one or two levers, and improving their cash flows.
“A customer project or contract is an example of an expansionary and positive need for finance. These cases are ideally suited to bridging finance. The problem is that there’s a lead time gap. You need to start the project, spend cash to hire people or purchase equipment, build internal capacity, deliver on the project and then the customer only pays you. Working capital and bridging finance allows the entrepreneur to do just that, and the company grows as a result.”
Bridging finance, in particular, is high risk and requires a large amount of flexibility, which is why more traditional funding institutions shy away from it. Spartan, on the other hand, offers revolving bridging loans to customers the team has worked with. “We understand this space, and our aim is to support the entrepreneurs within it,” Kumaran concludes.
Alternative finance solutions
Spartan is a 36-year-old Non-Bank Finance Company — that specialises in financing Small and Mid-sized businesses by providing:
- Growth Finance [structured finance for expansion]
- Specialised Asset Finance [equipment/machinery/technology/software/office fit-outs/energy/etc.]
- Working Capital Finance [bridging finance & medium term loans].
Bridging Finance is available for one to three month terms and is ideal for contract or project-based businesses. It is a solution that assists businesses with solving cash flow issues due to growth related challenges in their business and is either for a once-off need or for revolving business use.
Spartan is an Authorised Financial Services Provider 47631 and Registered Credit Provider NCRCP8669.
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