STRATEGIES FOR FUNDING YOUR BUSINESS PLAN

STRATEGIES FOR FUNDING YOUR BUSINESS PLAN Critical Elements In Marketing Your Company To Raise Capital STRATEGY 1: PREPARE A COMPLETE AND RESPONSIVE BUSINESS PLAN WHO IS YOUR CUSTOMER? • ANGELS: PRIVATE INVESTORS WITH HIGH-RISK SEED INVESTMENT DOLLARS • SEED VENTURE CAPITAL: HIGH RISK MONEY, PROFESSIONAL INVESTORS • FIRST-STAGE VENTURE CAPITAL: PAST STARTUP, PROFESSIONAL INVESTORS • MOST TARGET INVESTMENTS RULE 1: SPEAK THEIR LANGUAGE • IF YOU AREN’T SMART ENOUGH TO EITHER KNOW OR FIND OUT THE BASIC NEEDS OF YOUR POTENTIAL INVESTOR PARTNER BEFORE YOU PRESENT THE DEAL, YOU AREN’T SMART ENOUGH TO FUND! WHAT ARE THE ODDS? • DEPENDING ON THE MARKET SEGMENT, ABOUT 3% OF UNANNOUNCED BUSINESS PLANS GET READ CAREFULLY • ABOUT 1% GET FUNDED • BETTER ODDS ON MORE ADVANCED COMPANIES, THOROUGH BUSINESS PLANNING WHAT DO INVESTORS WANT? • A WELL-DEFINED OPPORTUNITY • AN OPPORTUNITY FOR LARGE RETURNS TO OFFSET LARGE RISK • A REASONABLE PLAN TO GET RETURNS • A TEAM CAPABLE OF SUCCEEDING • IN-DEPTH KNOWLEDGE OF THE MARKETPLACE INVESTOR WANTS (CONT.) • INVESTORS WILL DEVELOP A RISK MATRIX FOR A DEAL • THEY WILL MATCH THE SIZE OF MARKET, EXPECTED PROFIT AND DEAL PRICE AGAINST RISK • IF THE RISK/RETURN RATIO IS TOO LARGE, NO DEAL • SO, WHAT ARE RISKS, REWARDS? • THE PLAN MUST CREDIBLY ANSWER RULE 2: THE INVENTION IS NOT THE END • DEVELOPMENT OF A “KILLER APP” COVERS 5% OF THE RISK. • DEVELOPMENT OF A COMPREHENSIVE BUSINESS PLAN, AN EXPERIENCED MANAGEMENT TEAM AND PROPER CAPITALIZATION COVERS 50% OF THE RISK • THE PLAN EXPLAINS HOW ALL RISK IS MANAGED THE PLAN: INITIAL THOUGHTS • THIS IS A SALES DOCUMENT • THE GOALS ARE TO COMMUNICATE CLEARLY, DESCRIBE THE OPPORTUNITY, AND DESCRIBE HOW YOU PLAN TO EXPLOIT THIS OPPORTUNITY • YOUR AUDIENCE IS NON-TECHNICAL • YOUR AUDIENCE IS DRIVEN BY PROFIT THE PLAN: MARKET DEFINITION • A CLEAR DEFINITION OF THE MARKET IS CRITICAL • MARKET SEGMENTATION • FINANCIAL CONDITION OF CUSTOMERS, SERVED INDUSTRY SHOULD BE CLEAR • TRENDS IN MARKET ALSO CRITICAL THE PLAN: CUSTOMER NEEDS/BENEFITS • DESCRIBE YOUR SERVICE/PRODUCT • EXPLAIN AND QUANTIFY BENEFITS TO CUSTOMER • IF YOU CAN’T DO A GOOD JOB OF SHOWING SIGNIFICANT, QUANTIFIABLE BENEFITS, YOU WILL NOT BE FUNDED • THE DANGER OF REGULATORY MARKETS THE PLAN: MARKET PENETRATION • PREPARE REASONABLE MARKET PENETRATION ESTIMATES • PROVIDE A CLEAR STRATEGY FOR SUCCESSFUL PENETRATION • BASE STRATEGY ON A CAREFUL EVALUATION OF CUSTOMER BENEFITS AND OPTIONS • DEMONSTRATE KNOWLEDGE OF COMPETITORS RULE 3: THERE IS NO COMPETITION? • IF YOU HAVE NO COMPETITION, YOU ARE LIVING IN A FOOLS PARADISE • THERE ARE ALWAYS OPTIONS: IN PORT FACILITIES, NONCOMPLIANCE, MODIFIED ROUTES, OFFSHORE DISCHARGE • NO COMPETITION? PROBABLY NO FUNDING THE PLAN: SALES AND MARKETING STRATEGY • YOU FACE A COMPLEX, INTERNATIONAL MARKET WITH MOVING CUSTOMERS • WHAT IS THE OFFER? (PRICING) • WHAT ARE THE BENEFITS? • WHO SELLS? LEVERAGE? PARTNERS? • WHO ARE THE CUSTOMERS? (SEGMENTATION) THE PLAN: MANUFACTURING • HOW WILL YOU BUILD UNITS? • SYSTEM DESIGN, R&M • WHAT QUALITY CONTROL REQUIREMENTS EXIST AND HOW ARE THEY MANAGED? • CAPITAL, STAFFING AND RAMP-UP REQUIREMENTS? • HOW MUCH CAPITAL AT RISK AND WHEN? RULE 4: MAKE CAPITAL WORK! • CREDIBILITY GROWS WHEN THE MANAGEMENT TEAM SHOWS THEY KNOW HOW TO STRECH CAPITAL TO THE LIMIT. MONEY IS LIFE. • VIRTUAL MANUFACTURING, REP SALES WITH COMISSIONS ON DELIVERY, EQUITY INSTEAD OF SALARY, GRANTS, ETC. THE PLAN: OWNERSHIP AND MANAGEMENT • PREBUILD MANAGEMENT TEAM, BOARD • PAY FOR EXPERIENCE, SHARE EQUITY AND RISK/REWARD • SET UP CLEAR CONTROL • DEMONSTRATE COMMON GOALS FOR INVESTMENT/RETURN RULE 4: NO TEAM, NO GAME • IF YOU HAVE A WEAK MANAGEMENT TEAM, YOU REDUCE THE CREDIBILITY OF THE BUSINESS PLAN, INCREASE THE RISKS OF FAILURE AND REDUCE THE PRESENT VALUE OF THE COMPANY. IN MOST CASES, THIS IS A DEAL KILLER DEVELOP A MANAGEMENT TEAM • CEO WITH SUCCESSFUL STARTUP EXPERIENCE • STRONG MANUFACTURING AND ENGINEERING CAPABILITIES • STRONG FINANCIAL MANAGEMENT • MARKETING/INTERNATIONAL SALES EXPERIENCE • SOLID INDUSTRY EXPERIENCE RULE 5: DOES IT WORK? • THE FURTHER YOU ARE FROM FULL PRODUCTION AND DEPLOYMENT IN THE FIELD, THE HIGHER THE RISK AND THE LOWER THE VALUE OF YOUR EQUITY • DO WHATEVER YOU CAN TO GET PRODUCT IN THE FIELD BEFORE RAISING MONEY THE PLAN: FINANCIAL PROJECTIONS/PLANNING • USE CONSERVATIVE GROWTH AND COST DATA TO ESTIMATE FINANCIAL PERFORMANCE OVER FIVE YEARS • EVALUATE CASH FLOW • EVALUATE VALUE CREATION RULE 6: WHERE IS THE MONEY? • IF VALUE CREATION DOES NOT CREDIBLY EXCEED INVESTOR EXPECTATIONS, NO INVESTMENT OR LOSS OF MORE EQUITY THE PLAN: EVALUATE DOWN-SIDE RISKS • CUT THROUGH THE ROSY GLOW AND IDENTIFY LIKELY PROBLEMS • LAY OUT RESPONSE STRATEGIES, TIMING AND COST • THE GOAL IS TO BUILD CREDIBILITY THROUGH BOTH HONESTY AND QUALITY OF PLANNING SELLING THE PLAN SELLING THE PLAN: PLAN DISTRIBUTION • MASS MAILINGS ARE A WASTE OF TIME • NETWORK TO TARGETED INVESTMENT FUNDS (LIPPER WILL ADDRESS) • GET A PERSONAL INTRODUCTION INTO THE FIRM FOR YOU/PLAN • TRY TO DELIVER IN PERSON • DON’T OVERSHOP SELLING THE PLAN: PLAN PRESENTATION • IN A FIRST MEETING, HAVE AN “ELEVATOR PRESENTATION” READY • MAKE PRESENTATION OF FULL PLAN A SALES PITCH SLANTED TOWARDS AN OPEN DISCUSSION • THESE INVESTORS HAVE NEVER SEEN A DEAL WITHOUT RISK: DISCUSS IT OPENLY SELLING THE PLAN: DEAL PRICING • MAKE SURE THAT PRICING, FINANCIALS, AND DISCOUNTED FINANCIAL RESULTS ALL SUPPORT VALUE AND INVESTMENT RETURN • REMEMBER THAT DEAL PRICING WILL VARY BASED ON THE INDUSTRY INTEREST IN YOUR SECTOR SELLING THE PLAN: DUE DILLIGENCE • IF THE INVESTORS BEGIN A DUE DILLIGENCE EFFORT, HAVE A FILE FULLY PREPARED THAT IS DESIGNED TO SPEED THEIR INQUIRY • THIS BUILDS MORE CREDIBILITY AND SPEEDS THE EVALUATION PROCESS SELLING THE PLAN: SECOND EFFORTS • IF YOU ARE REJECTED, USE IT AS AN OPPORTUNITY TO CORRECT AND IMPROVE YOUR PLANNING EFFORT, THEN RETURN TO MARKET CONCLUDING THOUGHTS • FUNDRAISING CAN BE A HEALTHY EFFORT, FORCING BETTER PLANNING AND FORECASTING • IF SUCCESSFUL, YOU WILL OWN LESS OF THE COMPANY AND YOU WILL TRADE RIGHTS AWAY, BUT GAIN A NEW PARTNER • FUNDRAISING CAN BRING ADDITIONAL DEPTH TO FIRM CONCLUDING THOUGHTS • THIS MARKET WILL BE AN INVESTMENT CHALLENGE…SMALL DISPERSED DEMAND, RELIANCE ON REGULATORY CONSTANCY AND CONSISTANCY, SLOW MARKET DEVELOPMENT • WINNING TECHNOLOGIES WILL NEED FLEXIBILITY/RELIABILITY • MUST BE BACKED BY TEAM/MONEY