So my brother emails me asking what he would need to present a business idea to raise capital. And this is part 1 of my reply to his query…

Part 1: How to get an investor to cut you a check on the spot

Ok, I’ve raised some cash in the past, angel money mostly, some bank loans, and negotiated with VCs, but never closed that loop. So here’s what I know, a mix of theoretical and practical knowledge.

You need a business plan. But it’s not really a biz plan, it’s more of a sales pitch. Asking for money is the ultimate sales pitch, you’re not asking someone to take a chance on buying 1 widget, but to invest money, time and energy in the business. So for any good sales pitch, you need to have your act together.

30 second pitch. Also known as the elevator or phone pitch. It needs to be hard hitting, concrete and credible. You’re not even talking about what your widget (could be product of service) is, you’re talking about what problem its solving; what’s the pain, who has it, and why would they buy your solution to it?

15 minute presentation. Get your Power Point cued up.

• Put it on your laptop, on your PDA in micro version.
  
• No more then 10 words per slide, use images.

• First few minutes establish your credibility, who are you, and why am I listening to you?
  
• Describe the pain, if you can get the investor to associate with it even better (“Have you ever experienced/felt/etc”) but make sure you know the answer first, or that could blow up in your face.
  
• Who has the pain? This is a rough calculation of market size. What’s the opportunity here? Are we talking about a billion people willing to line up all night to spend $100 on your widget?
  
• Now you finally get to talk about your widget. Benefit statements only. I don’t care if it comes in black, green and blue and has the best features on the market. Keep it to the WHYs.
  
• What is your competitive edge? Patent? Trademark? Complexity? And finally, why you?
  
• Sell you and your team. VCs but especially angels, they don’t invest in businesses, they put their money into the people behind the businesses.
  

Demo time.

• Can you demonstrate your widget? VCs are tough now. They want to see a demo or prototype. They want to see skin in the game.
  
• Do you have an inclusive distribution deal?
  
• Do you have any customers yet? If not, any one willing to sign a letter of intent to purchase?

Now you answer questions – tough questions, make sure you have answers. Remember, your 15 min presentation won’t cover everything, just the basics, leave the holes open where you’ve prepared your hard-hitting responses.

• Answer with concrete benefit statements.
  
• You need bucket loads of enthusiasm and passion.
  
• Sell baby, sell.
  
• Don’t forget about Glengarry’s ABC – always be closing. Engage the money people. Make it their problem you’re solving, try and get under their skin, ask them questions and get them emotionally involved with what you want to do.
  
• Make it real for them.

Selling the money people is critical, they want to know you can sell. If you can sell them, you should be able to sell others; and thereby generate revenue.

Brief leave behind. Forget the massive paperweight business plan; have a 12 pager with a 1 page tight executive summary and leave it behind. Paper clip some items to it:

• letters of reference
• resumes of principles
• board of director profiles, if you don’t have a B.o.D. then at least get an advisory board together
  
• You want a letter from your lawyer, your accountant, your banker.

You want people you’ve worked with testifying to your capability. Testimonials are a powerful tool. Find the highest profile people you know or can access. Convince them of what you want to do, get them to endorse you with pen and paper. Piggy back on their credibility. This is essential if you have none, and unless you’ve already raised capital, built a multi-million dollar business, and sold it for a huge gain where investors were all smiles, then you have none. Trust me, that lesson comes directly from my experiences..

Tomorrow I will post Part 2: How to write a knock-out 12 page business plan.

This entry was posted on Friday, February 16th, 2007 at 4:37 pm and is filed under Raising Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.