Marc Kneepkens has started small businesses in Europe, the US and the Middle East. At retirement age, he travels the world with his wife, who teaches in international schools. Reaching out and offering advice to the business funding community, Marc has created Business-Funding-Insider.com
VC Business Funding: the Paperwork!
Submitting paperwork for business funding is probably the least enjoyable part of the entrepreneur’s job. If not done right, the outcome will be disastrous. Here are a few tips that can increase your success ratio.
Timing and documents
You may think that writing an extensive business plan, and putting your heart and soul in it, is the first thing you need to do. Obviously it is good practice to get ‘all your ducks in a row’. It helps you get focused and starts a process of introspection, testing, expressing yourself and presenting your idea to outsiders. However, in terms of what the investor wants to see, a business plan is not the right document to start with. Investors are looking for a quick introduction to your business. They want an executive summary, a document that explains in maximum a few pages what your business is all about. It is also handy to have an even shorter version available. To get the attention, some ‘deal flow’ sources work with ‘teasers’ or ‘short exposes’. Just a few paragraphs offer the investor the basic idea. With this information the investors can sort through many deals, and look for the industry or type of business that they are interested in. The next step will be when they ask for the executive summary, and that’s when they will really start to read more attentively. From there they will request business plans and financials for further review. Next come initial investor contacts and due diligence sessions. The basic idea is ‘to get noticed’ using as little words as possible. Practice your elevator pitch, test with only a few paragraphs of words in writing, try to explain to someone on the phone what your new business is all about. You have a very short timespan there. Start this way, then expand and create your other documents. Having a variety of presentations like that helps to understand what is needed at different stages and in different situations.
At every stage of the funding process you need to get the attention and keep it going. Doing that is an art in itself: strike the note that will make them look. In order to find out how to do that, you need to know who the investor is and what he/she is looking for. Investors are people who have been through the process of creating, managing and expanding businesses themselves. They have made all of the mistakes, they have gone through the struggle, but eventually they have succeeded. Does that make them into more compassionate people who are ready to take you by the hand and guide you all the way? There may be the odd investor who will do that, but in reality investors see right through all of the shortcomings and mistakes that you are making. They are not the kind of people who will invest their time and hard earned money lightly. Hype will not have any effect on them, on the contrary. If errors are minimal, they will continue to read; however if they are structural, they will look at the next deal. Consider working with a professional. You can not be an expert in everything.
What does it take?
What is it that they are looking for? Expertise, skill, quality, integrity. Integrity runs all the way through every aspect of a business. Even if your new venture is not that new and original, you may be putting together a business with the right management, in the right sector, at the right time. You have found a way to distinguish yourself from your competition, which you know well. In the best case scenario, you have already started that business and you have sold the concept to others. Those ‘others’ are the people that work with you. Or the ones that become your clients, or referrers, or partners. You will be able to show results: contracts, cash flow, growth. You are not a dreamer, you follow through. Investors don’t sit around and wait for the best ideas to come up, they see hundreds of those every week, or even every day if they want to. Getting noticed is showing what you’ve got and what you have accomplished so far. Show that you have thought this through thoroughly, and that you are prepared. Risk needs to be minimal, with excellent and solid profit potential.
As professional investment documents reviewers, we see many mistakes: business plans with spelling errors in the title, insufficient contact information, inadequate time stamps, unclear file names, just to name a few. A good presentation jumps out at first glance. It looks right, is structured logically and clearly, and tells the readers what they need to know. The essential information needs to be there, not too many details, not too technical, just enough to explain the concept. Often the convincing part is not the ‘grand idea’, but the way the presenter shows that he/she is prepared. The investor needs to find a ‘partner’, someone to ‘deal’ with. Make an opening statement with authority: “This is what I bring, this is what I want to talk to you about, this is what I need money for. I am committed to what I am doing, I have invested my time, my energy, my own money in this. I believe this. I can do so much more with some investment money. If not, I will succeed anyway, it’ll take just a little longer”.
One more thing, find out from your source what is expected from you, follow instructions. You may be writing for a grant, for a bank loan, to a VC partner or for a big group of small investors (as in crowdfunding). Follow the instructions and the formats that are requested, otherwise you won’t even pass the first preselection.
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This entry was posted on Monday, January 7th, 2013 at 4:16 pm and is filed under Business Education. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.