6 Key Thoughts Along The Fundraising Journey (No5)

Investor Contact – A One-Hit Pitch or Contact, Not an Unfolding Mystery

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“You get one shot so make sure it’s your best. Be prepared, be focused and be thorough. “

A frequent frustration when receiving incoming investment enquiries (either for the angel network I run, or for me as an independent fundraiser) is when the enquiry is drip-fed or trickles across the internet to me via a string of emails. The most common contact or access into angel finance tends to be via ‘pitching events.’ However, company founders also seek out investors directly where the first point of contact would be by email or a message via LinkedIn. The problem is that these digital introductions can be a very time consuming experience for those on the receiving end. You may not like it but you will be sifted and most likely moved on quite quickly (hopefully politely) so that the next business propositions can be reviewed. Remember, investors are looking for the best of the bunch, as soon as they see the investment opportunity, if it’s not in the top bracket, then they need to drop it quickly and move on.

Bad scenario #1:  An incoming email with either, i) a 30+ page business plan, or ii) a 15+ page powerpoint pitch deck. My reply, “Dear founder, would you mind sending me an executive summary or a short 1 or 2 page overview of your proposition. If you don’t have one, please see the attached example (N.B. I often send out an executive summary template). I’m afraid I wouldn’t get my work done if I had to read business plans all day long.” The normal review and sift process takes about 20-30 seconds (similar to a HR recruiter), therefore don’t make the reader work hard or reject you just for providing too much information. Yes it’s true, at this stage it is possible to provide too much information.

Bad Scenario #2:  Incoming email with an attachment but with an explanation that “the financials are not quite ready but I’ll email them over later in the week,” or, “I’m waiting for the result of a really big deal. I’ll keep you posted as things become clearer.” Don’t assume that the reader will remember you or your business proposition when you next email or call them. Many investors and investing groups can get anywhere between 10-30 investment propositions a week.

The best advice I often give out is in focusing companies on how to make a decent executive summary. This summary is so important because it’s your foot in the door. Be unfocused in this and it will lead the reader to suspect that if you can’t write a half decent 1 or 2 page executive summary, then it’s quite likely that the same focus and attention to detail is likely to be seen in every aspect of the business and its associated business plan. The problem with many summaries is that they max out on market aspects and also on product/service information but with very little on the investment proposition being offered to investors. They frequently fail to address the main required question: “how are you going to make money for an investor and what can you show to support this?”

Take a look at some of the summaries in the ‘Deal Activity’ section of this blog. I find this format seems to cover most of the urgent things you should communicate to an investor.

Your feedback and comments to this article, as ever, are always appreciated.

6 Key Thoughts Along The Fundraising Journey (No4)

Validation & Traction – Two Crucial Words When Looking For Investment

“Too Many Businesses Want To Jump From Being A Minnow To A Whale”

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I’m currently seeing a lot of businesses with really great business proposals looking for investment but lacking vital demonstrations of key proof points; in essence they are concept stage or pre-development propositions that ask the investors to take a huge leap of faith. In times of boom, these proof point generally matter less as investors scramble and clamour to sign up all ‘n’ sundry in the hope of not missing out. However, in these times of austerity, reaching these proof points is vital in gaining investor interest. I like to equate these proof points in terms of two proof points; the first being validation and the second traction. It’s not enough to have the best theoretical money making idea, a fabulously detailed business plan, a full set of detailed financial statements and a team of all-star internationals ready and waiting in the wings. It will always be the business that has achieved these proof points who will gain investor attention, over those that have a great business plan and fantastic team but are still on the starting blocks. Achieving proof points can significantly de-risk the opportunity for the investor and significantly increase the possibility of a deal being struck. The first proof point, ‘validation’ is about proving that there is a market, to show that there is potentially a paying sizeable audience, client base or consumer volume that seems to be interested in buying your product or service. Engaging a little bit with that audience and getting early feedback helps your investor see that real people or real customers believe in your offering also. This can be done by getting trial registrations, downloads, client letters/emails expressing tangible interest. You can’t do this by quoting top-level ‘size-of-the-international-market’ statistics. Identifying the addressable market is the starting point of validating your offering. The next proof point is the big one – traction. In essence, this is about giving your investor an early and mini demonstration that real people will pay for what ever it is that you are offering. This Techcrunch article entitled “Why traction is so important” really digs down a little more into the subject and is really worth a read. http://eu.techcrunch.com/2011/01/06/guest-post-the-importance-of-traction

This one is also excellent: http://www.forbes.com/sites/caroltice/2012/11/02/what-really-makes-venture-capitalists-invest-in-your-startup/

And a late addition: http://techcrunch.com/2013/01/06/iterations-traction-capital/

And another:  How Much Traction is Enough for Investors? Really really important article:  http://bit.ly/1pL3eVh #Startup #Traction #RubberHitsTheRoad

I’d be really interested to hear other views on what validation and traction look like from your perspective.

6 Key Thoughts Along The Fundraising Journey (No3)

It’s Not All About Your Business Idea

(Image Courtesy of 123rf.com)“Good Ideas & Good Investment Propositions Are Two-a-Penny”

Yes, it really is true and yet many founders give the impression that they alone are holding the big ticket to success. The statistics show that the odds are heavily stacked against every milestone of business success that you are likely to encounter. From staying in business more than 3 years to procuring angel investment, the odds are not in your favour. Even if you do get investment, there are a million and one reasons why a business won’t achieve success and the statistics prove it. Angel investors are speculating their personal money, so don’t be naive and assume that just by the virtue of having a business idea or a business plan that you should automatically have the right to talk to investors. Business ideas that have not developed into an investment proposition are rarely worth the time and effort. My belief is that founders often feel that if they can just hook the investor with the opportunity then all other considerations will take care of themselves. Most investors that I know are too cautious with their money to hand it over on an untried opportunity alone. Most investors are not looking for good ideas (per se) but for ideas that have begun to prove themselves by gaining some form of business traction. The potential of the opportunity does not override all other considerations.

Investors are looking for people that have gone beyond just identifying a business opportunity, to actually demonstrating and validating it in the marketplace. Such ‘wise heads’ will often benchmark against real-world data that shows how much money they could return for an investor. If “ideas are worthless” (as Colin Willis of the business accelerator Ignite100 explains in the article link below) then what is worthy to an investor? My answer would be founders and entrepreneurs who know how to ‘configure an investment proposition’ and who have validated it as far as is humanly possible. There is always an abundance of investment opportunity out there for investors but an investment proposition is different, it’s an idea or an opportunity wrapped up in as much tangible market place proofs as possible. This proof is often referred to as traction or validation but more about this in article No4 – coming soon.

A few good articles loosely on the same theme…

http://www.growthbusiness.co.uk/comment-and-analysis/2129233/its-not-the-product-its-the-execution-stupid.thtml

http://www.forbes.com/sites/alextaub/2012/03/01/what-it-takes-to-raise-seed-stage-funding-in-2012/

www.timjoslyn.com/post/2400692301/funding-is-not-a-right

www.nebusiness.co.uk/business-news/science-and-technology/2011/07/01/why-your-idea-is-worthless-51140-28976859

http://blog.elegantbanners.com/2010/12/entrepreneurs-ideas-are-worthless-execution-is-gold