Tag Archives: Funding

How Do You Finance an Early Stage Company? Three Considerations

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Situation: The CEO of an early stage web company is looking at steep ramp-up expenses. Many companies have bootstrapped their way to success. However outside investment may speed the process. How have others evaluated these options? How do you finance an early stage company?
Advice from the CEOs:
• Raising money takes time and is a major distraction to the development process. The two big variables will be investor interest and the timing of investment. Talk to Angels and venture capitalists now. Start by presenting a broad outline of your technology and business model. Ask what they will want to see to offer you funding at different levels. This will give you a reality check as to investor interest in funding the company. It also creates a roadmap to funding if the response is positive.
• What is the company seeking – money or accountability? One CEO bootstrapped her company during the early stages, then looked for outside investment to gain accountability and advice – a whip to help move things along. This CEO found that investors brought few of the anticipated assets, and added a new level of distraction and pain.
• If you are looking for funding to purchase content to serve through your Internet portal, consider a more creative way to gain content. Can you use a Web portal through which your target audience provides both the content and the consumer audience in a marketplace exchange? Establish the audience and then add premium services to monetize the model. This can minimize your upfront cash investment requirements, and may create a faster track to positive cash flow.

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How Do You Improve a Company’s Profile and Diversify the Customer Base? Seven Points

Situation: The CEO of a high tech company wants to improve the profile of his company for prospective clients. He also wants to diversify the company’s customer base. How do you improve a company’s profile and diversify the customer base?

Advice from the CEOs:

  • Develop a good description that easily expresses the company’s value proposition.
    • Test this with potential customers to assure that they easily grasp what the company has to offer – and are interested in paying for!
  • If the company is early-stage, focus on funding and proof of concept as early milestones.
    • If the company has a novel idea or capability, focus on proving the value of this capability to a buying customer base of sufficient value to interest investors.
  • Study and define customers’ needs before trying to communicate what the company can do for them.
    • Similarly, define the channels that will be most effective in reaching these customers.
  • To monetize the business focus on the seekers – those who need and will benefit from the product or services that is being offered.
    • If the company offers a free or low cost service, develop a premium offer for enhanced services.
  • To market a core set of skills to different customer markets, focus on a theme of reliability.
    • Flavor this theme differently through a branding exercise to address the needs and desires of specific customer segments.
    • It is both feasible and desirable to market the same set of skills differently to different customer markets.
  • Follow the money – it leads to the heart of customer purchase decisions.
  • Growth, momentum and the ability to change are essential parts of a successful business model.

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How Do You Evaluate Financing Options? Seven Key Points

Situation: A start-up company needs to raise cash to fund the achievement of key milestones. The founders have evaluated private equity, angel, and venture capital financing options. They believe that at their stage of development an angel is the best source of funds. What guidance can the group offer for negotiating with a private financier? How do you evaluate financing options?

Advice from the CEOs:

  • The important questions to answer are: who is the angel, what is the angel’s motivation, and what does the angel bring to the table?
  • What is the angel bringing to the table?
    • Is it money and connections? Who and how many people will be involved?
    • Do these individuals bring the expertise to take business to the next level and beyond?
  • Identify the strengths and weaknesses of the angel’s organization. Ask about other companies that the angel has financed. Talk to those companies about their experience with the angel.
  • Ask how long the angel plans to stay connected to the company.
    • Is the angel committed for the long-term or looking for a quick profit or exit and sale?
    • What happens after the angel leaves?
  • Validate statements made by and the experience of the angel.
    • How may IPOs has the individual or group been involved in?
    • What existing contacts do they have with additional potential funders or buyers?
    • Vet all of the claims and statements made by the angel.
  • Evaluate equity vs. cash funding and the prospects and terms that accompany future funding rounds.
  • What is the company’s long-term strategy?
    • Do the founders want to stay the course long-term or is it sale of the company to another entity?

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What are the Options for Your Next Phase? Six Suggestions

Situation: It’s a new year, and a CEO is thinking through options for the coming year and beyond. She has decided to leave her company and establish a new role and career for herself. Immediate concerns are funding the transition and entry into a new career. What are the options for your next phase?

Advice from the CEOs:

  • The area that can be built most quickly to provide income is a consulting practice based on the experience developed as a CEO and as a specialist leveraging past experience. Building a new practice is a big commitment. Make this the initial focus and get a few gigs to get the ball rolling. The company is an early option, as well as some of their key customers. These relationships are already in place.
  • On the academic side, investigate Executive Education programs in Business Schools. Here the clientele is different from normal undergraduate and postgraduate education – actively working managers and executives. For this audience the combination of experience as a CEO and academic credentials is advantageous. For this audience, a lack of credentialed teaching experience is largely counterbalanced by the weight of professional experience.
  • The Professor / Consultant track looks best if established as a 5-year plan.
  • While getting established in a new role there will be an initial challenge managing the time demands of teaching, research and developing a consulting practice. Think of this as managing the multiple functions of a company. It will be important to establish early priorities to accomplish the desired plan.
  • A professorship does not necessarily tie financially to current goals but can be an important strategic adjunct to consulting efforts. In a certain sense, teaching will have to be its own reward.
  • To the extent possible and depending upon how the board responds to the decision to leave the company negotiate the best possible severance package. This can tie into some of the suggestions, above.

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How Do You Improve Your Company Presentation? Four Points

Situation: The CEO of a specialty company that is a leader in their market asked the group to review the company presentation. The members of the group were asked to put themselves in the place of a potential customer or investor. How do you improve your company presentation?

Advice from the CEOs:

  • Don’t assume that the audience has a sophisticated understanding either of the company’s market or its technology. In any pitch either to a new prospect or for funding there will be individuals in the audience who are not experts. The pitch needs to deliver a message that any listener can easily translate to any colleague.
    • Give brief examples from the experience of current customers to make the technology and its advantages concrete.
  • What is the problem that the company solves?
    • State up front: What is the pain – why is it there? How does the company’s solution address this pain? What’s the impact?
    • Show market potential and explain why the company’s solution will be a home run.
    • What makes the company’s solution unique and gives it a sustainable advantage?
    • Assume Ignorance – KISS – Keep It Simple Silly!
    • The presentation should be high level, easy to understand, and crystal clear in 5 minutes.
  • Establish credibility by summarizing current success and list the names of current customers.
  • For presentations to investors have ready answers for the following questions:
    • How the funding sought accelerate development, and what is the expected return that this will produce?
    • Assure that timelines are realistic, particularly for a ground-breaking technology.
    • Do not be vague in answers to questions like “what is your market share?” Answers must be crisp and believable. If additional documentation is required to validate company estimates have a back-up slide in the presentation to address this. Keep the explanation in the back-up slide simple, even if the analysis is complex.
    • Add an expectation of return on investment. What equity will the company give for an investment of $X. State the company’s pre-money valuation as a believable number. Then give an estimated 3-year post money valuation with $X investment. Investors will discount anything number given but will not want a range.

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How Do You Manage a Business Transition? Five Thoughts

Situation: A company is moving from sole focus on servicing a market to a split focus including developing and marketing their own products. This is a significant transition for the team. What is the best way to organize this effort? How do you manage a business transition?

Advice from the CEOs:

  • While the company’s financials are great for their market, cashflow may be insufficient to fully fund a development company.
    • Internal development of new products can create conflicts if it creates competition for resources between internal and external projects.
    • To avoid this, create an independent company or entity – in a separate location. Seek outside funding whether bank, angel or partner financing. The independent entity can then buy resources from the primary entity at competitive rates.
  • Several years ago, another CEO utilized the strategy just described. The important lessons were:
    • Assure that venture is properly resourced.
    • Assure that there is a balance between proven structure and creative application development.
    • Utilize best resources available at same rates that key customers pay.
    • Offer free guidance but not free services – peer reviews are key.
  • A third CEO had an opportunity to open a new business using the spin-off model.
    • They allowed infrastructure sharing – with proper compensation and incentives (equity ownership).
    • Ultimately both entities were successful.
    • Lesson: Properly implemented, this model works.
  • There are four aspects to the challenge.
    • Product concept
    • Talent for execution
    • Financing
    • Distribution
    • The business plan for the new venture must address all four.
  • Building internally (vs. externally) creates natural conflict. Workers will tolerate change in direction from clients better than they do from insiders.

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How Do You Transition from Service to Product? Four Strategies

Situation: A company is transitioning from a service model to a product model. A major challenge is meeting funding needs during the transition. Funding sources perceive the current service model as heavy on cost of sales vs. implementation and this hinders acquisition of funds. The CEO sees this as a short-term problem as the company will quickly start to generate more cash through the product model. How do you transition from service to product?

Advice from the CEOs:

  • In a competitive funding environment, it is important that the offering be credible. While others may be offering similar solutions, believability will prove to be a strong differentiator.
  • Where to focus over the short term?
    • Create a hybrid model as a transition between the current service offering and the planned product offering. Demonstrate that current customers have responded favorably to the product/hybrid opportunity.
    • Test this concept with an investor. The story is that the company needs funding to get to a saleable product model.
  • What is the message to investors?
    • Helping the company to achieve a short-term and very feasible objective gives the investor the following advantages: purchasing at a lower valuation, getting a larger share of the company for less, and at a low risk.
    • As the valuation of the company increases, the earliest investors will get the best deal!
    • During meetings with investors, ask them for advice on the current and following rounds and financing, and what they will find most appealing.
  • How do you mitigate the risk to the first investor?
    • Have a solid business plan and projections that have been vetted by others.
    • Have a list of referenceable clients.
    • Utilize the current service model and demonstrate the product/hybrid Package. Build a case on the advantages of the hybrid model including the financial case. The company is always there to provide back-up assistance to meet customer needs in the hybrid model.
    • Demonstrate flexibility – the customer can always choose the service model or convert to this if they wish.
    • A Key Point: You are selling yourself as the trustable resource, not the product or service.
    • Reference previous investment including founders’ investments. The founders did not invest to fail!

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How Do You Optimize a Financing Pitch? Seven Suggestions

Situation: A company is drafting a pitch for their next round of funding. They want to reach both current and a new set of investors and highlight the improvements that they’ve made since their last round of funding. How do you optimize a financing pitch?

Advice from the CEOs:

  • Work on a quick demo of the site. This is critical for a software company. The site must clearly and quickly show what differentiates you.
  • When you sit down with potential investors, start your pitch with a catchy statement, e.g., “We’ve all heard about ‘pay it forwards’. I want to talk to you about ‘Job-It Forward’.”
  • Start the presentation with an overview and a simple illustrative explanation so that the audience instantly gets what you are doing. For example, “we’re about generating social capital and here’s an example of how we do this.”
  • Be careful not to drown your audience in detail. Limit yourself to 3 bullets per page. Use graphics rather than words as much as possible. Most people can only absorb a limited amount of verbal information, but they remember pictures.
  • If you’ve already started talking to potential investors, what are your results? What feedback have you received to date? Analyze this and adjust your presentation and pitch accordingly.
  • Can you show a potential funder ROI? For example, if you give us $X, we will generate $Y in terms of return. You want to demonstrate IMPACT! Those who will support you want to see the advantage of investing in you vs. other options available to them.
  • Include a slide showing sources and uses of money spent to date. Show how you will use the money that you wish to raise.

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How Do You Focus Your Sales and Marketing? Eight Thoughts

Situation: A company has a technology road map and a flexible set of technical capabilities. To date they have elicited broad interest from a variety of different markets. They currently don’t have the resources to pursue a large number of different markets, and will likely need their next round of funding within the next year to year and a half. How do you focus your sales and marketing?

Advice from the CEOs:

  • A race to generate interest from a number of markets is a valid strategy at this stage of your development; provided that you raise or generate the cash to survive. This caveat describes your critical challenge – determining how long you can afford to maintain and fund a broad strategy.
  • Look at your burn rate and timeline. Pursue options that will generate cash before your next round of funding. Your top objective is to validate your ability to generate revenue prior to your next round.
  • You haven’t yet found the fish. You are fishing and have nibbles but no bites. Look at what your people are doing and start to eliminate options that are less likely to pay off both short and long-term.
  • To preserve development cash, create a new rule. Any project that you accept must come with development dollars. This will eliminate some smaller prospects and targets but will help you to focus on others which are more immediately promising.
  • When one company was in this position, their rule was that the first PO gets the engineers. No PO, no commitment of resources.
  • Another’s company’s policy is that they don’t work for free.
    • A softer version is to give the prospective client 30 days to produce an LOI for the proposed project or you will go elsewhere.
    • Even better is an LOI and $50K up front.
  • A third company’s strategy from the beginning was always to hunt for elephants – even when they had no money. This has worked well both short and long-term. It represented the level of faith that they had in their technology and capabilities.
  • The team needs to hear this message from you.

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How Do You Fund a Start-Up? Four Suggestions

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.

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