Situation: Early stage companies often find it difficult to raise funds from traditional sources. An experienced CEO wants to help certain new companies of which she is aware in two ways – assisting them in receiving funding, and then helping to assure that they reach key milestones. What is the best way to profitably address this ambition? How do you fund a start-up?
Advice from the CEOs:
Build relationships with a few select sets of local investors – venture capitalists, angels, and private investors – with whom you have strong credibility. For a retainer or fee, agree to bring them a number of new pre-vetted companies in the next year, and post-finding, help the companies to succeed and hit milestones. From the companies that you bring to funders, ask for equity in return for securing funding and providing guidance.
Put yourself in the shoes of the person who will pay you – what do they want and how do you deliver this for them? Develop statistics from your past successes that highlight your capabilities. Don’t be shy about your accomplishments.
What are you passionate about? If the answer is development – linking technology entrepreneurs to strategic partners and then being an accountability partner to assure that milestones are met – this will be your focus and your pitch to both funders and tech companies.
Your value is linking the entrepreneur to the funding source and being an accountability partner.
Situation: A CEO has identified a new business opportunity that looks promising but will require raising additional cash short term. What are good sources of short term cash, and what will simplify access to these resources? How do you raise cash short term?
Advice from the CEOs:
You must be the biggest critic of this opportunity. If it doesn’t fly to your critical eye, it will be hard to sell to others. As a reality check, ask yourself whether the opportunity is something on which you’d bet your house.
Build the new capability around a web distribution system that compliments your other capabilities. This broadens the appeal of the offer.
Generate an investment proforma and revenue stream. Most investors or debt financers will want to see this. You can position it as an immature business plan backed by your best estimate of the numbers.
You’ll need a business plan unless you’re lucky enough to find someone who believes that you can turn any opportunity into gold.
Presell subscriptions to target clients to prove the value of the offer – both to you and for investors.
Assure that any payments due from you go into an escrow account, to be released on a quarterly or other phased basis pending performance from the other parties within this deal.
This is not a venture capital story. Angel investors will seek a lower return for lower risk than VCs. Set some milestones for the Angels that will help them to see that you are monitoring their risk.
Interview with Sandy Lawrence, Past CEO, Therative, Inc.
Situation: The technology sector is growing following a couple of lean years. Whether you want to fund a new company, or a new effort within a smaller company, what are the best avenues to capital? How has the game changed?
Funding and credit markets are opening but still tight. The bar has been raised because too many people are chasing too few available dollars.
The venture capital sector has consolidated. Over 80% of current focus is on technology, software and medical. Under 20% goes to the consumer sector.
It is important to target VCs who specialize in your technology, market and business model.
Research current VC portfolios.
Angels now act more like VCs – particularly structured angel groups.
Initial investments are typically under $1 million.
If you have a technology, investigate the grant world – e.g., NIH or DARPA. These organizations fund research, but not marketing, etc.
Look for specific programs or RFPs that align with your technology.
Target your grant request toward prototype development and studies.
Search LinkedIn for military people who can introduce you to contacts within programs like DARPA.
Investigate SBA Grants, and foundations with an interest in your technology or application.
Foundations sometimes will grant funds ($100k) to support the work of individual scientists and researchers.
Call on friends and family who believe in you and your work.
Whoever you approach, these rules apply:
Do your homework. Choose sources that align with your project and profile.
Presentations must be crisp and easily understood. Investing in professional assistance is wise.
Be able to make your case in 15 minutes or less. The first minutes are most crucial, so have your ‘elevator’ pitch perfected.
Your model and financials must support a high multiple exit, 5-10x their investment in a reasonable period of time (~5 years).
Team, Team, Team – credentials, experience, presentation – be a team with whom the investor can work.