The following is a guest post by a fellow
Gravity Ventures member and
friend, Dr. Tony Ratliff:
Learning to Pitch Before You Start Raising Capital
By Dr. Tony Ratliff
It only took about six months of deal flow and a handful of
“pitches” before I realized that most entrepreneurs are really,
really bad at “selling themselves” and “pitching” their ideas and
companies to investors.
I cringe every time I listen to a great start-up idea or read a
well-written business plan, and then watch in horror as...
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Determining a valuation for a pre-revenue company is a difficult
process. A Harvard VC formula does not make sense at this
stage as available P/E ratios essentially compare apples to
oranges, cash flow projections are too untrustworthy to use a DCF
method, and there is no such thing as a true market comp.
Investors must rely on qualitative factors in connection to
valuation formulas to determine how much they think the thing is
worth. Some qualitative factors include:
• Is the...
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Angel investment groups tend to quickly dismiss investor
presentations that cover complicated products and markets.
They tend to lean towards investment opportunities which they
easily understand the market – often even if it as a worse
valuation or lower expected return than other more complex products
or markets.
This is a problem for those more complex technology
companies. If this is your company, don’t fret. They
key of any angel investor group presentation is NOT to get them to
commit...
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I've had several conversations with concerned
entrepreneurs over the last year about changes in the accredited
investor standards under the Dodd-Frank Act. In January the SEC
proposed amendments based on Dodd-Frank to the accredited
investor standard which subtracts the net equity value of an
investor’s primary residence from that investor’s net worth
determination.
Example: Currently if an investor has $800k net equity before
equity in primary residence and $300k in net equity in the...
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I have said it a million times since learning the lesson myself in
a failed entrepreneurial effort a couple of years ago, the CEO of
any entrepreneurial venture must understand the importance of
managing cash flows and how to use cash flow analysis for the
strategic growth of the company.
Trust me, I am all into the Six Sigma approach of throwing a couple
of innovators together, rolling out a v1 product as quickly as
possible, and slowly scaling the company from hobby phase to a
successful...
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The last couple of years have been strange. With the change
in the economy, many early stage companies are looking for anybody,
and I mean anybody, to invest in their capital round. As the
economy rebounds (which we are seeing in technology markets)
business owners are again able to be picky when considering angel
investors.
An angel investor (or an angel investor group or private equity
firm) should be more than just a liquid wallet. He/she
should be a strategic member of your team. They...
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Next week I am moderating the plenary panel at TechPoint’s
Innovation Summit entitled
Funding Innovation.
Check it out:
TechPoint
Innovation Summit
Also check out the
sponsors page. I
counted today, and
nine Alerding Castor
Hewitt clients are sponsors of the Summit. That is
awesome.
This year’s panel members represent private equity investors, angel
investor groups, successful entrepreneurs and grant funding
organizations which look for funding and investment opportunities
in Indiana...
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I work with a national angel investor group that invites members
(investors) to join on two general rules:
1. You cannot be a jerk;
2. You have to invest in companies.
The President of this organization has removed a couple of members
this year because they received rule #1 complaints from other
members.
In my funding law practice I represent and/or work with several
private equity firms, angel investor groups and private equity
funds. Most funds and angel investor groups run into this
jerk...
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I attended an angel investor group meeting today. This was an
interesting group - only 10 or so people, each of very high net
worth, looking for large investment opportunities. They
remind me more of a private equity firm with the types of deals
they are considering, but they invest individually - maintaining
the typical angel investor dynamic.
One investor is a recently retired C-level executive of a fortune
100 company. He told me about his approach to investments -
questions he works...
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I read many business plans for early stage companies - most of whom
are seeking some sort of seed or early round capital funding from
private equity investors. One of the largest discrepancies
I see in plans is in the expense models regarding allocation
of salaries.
Post-revenue, most businesses will find salaries (including
benefits) falling somewhere between 30% and 55% of their net
revenue. But what about pre-revenue companies that are
looking to use early capital to launch? I read a...
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I read around 2 new business plans per week – about 100 per
year. Some private equity investors I know read upwards of 10
per week – or about 500 per year. When you are reviewing that
many of anything, you get impatient. That is why I encourage
business owners writing plans for private equity investors or angel
investor groups to be succinct.
Get to the point. What does your company do? What pain
are you solving in the market? How will you do that at a
profit?
Business summaries should...
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A couple of weeks ago I wrote a post on the
Culture of Private
Equity addressing how private equity investors and angel
investor groups in different geographic regions look at private
equity opportunities differently. To be truly considered, a
deal must be excellent at three things:
- Management Team
- Market Opportunity
- Capital Structure
I have gone into great detail for each of these points in past
posts.
Last week I was back in Southern California visiting with a couple
of clients. I also met with...
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Most business owners who are raising capital are willing to take
capital from just about anywhere. Investors are a means to an
end of meeting capital requirements and scaling a business towards
profit. As Indianapolis is the “biggest small town in
America” and the number of investors and amount of private
investment capital is limited, certain business owners find looking
outside of the state for capital is beneficial. In my SaaS
law practice, for example, I see a lot of companies look...
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I have heard this "problem" stated several times from private
equity investors angel investment groups over this past year, "We
are just not seeing any good deals lately." The Halo Group,
an Indianapolis-based angel investment group focusing on emerging
technology companies, canceled its March meeting due to a stated
lack of deal flow.
Halo members, like most private equity investors, want to invest in
businesses with proven markets and executives. They, like
most investment groups, also want...
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I love Indianapolis,
but I find it a difficult place for emerging companies to raise
capital through private placement offerings. More established
companies have less trouble, but earlier stage companies often are
caught in a chicken/egg situation – they need capital to move to
the next business stage, but private equity investors don’t want to
invest until they are through that next stage.
Part of what makes Indiana so great is that we are very fiscally
conservative. In fact we were one of only...
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There is a good
article on the Mercury News Blog today on
How dot-com
start-ups have changed 10 years later. The article
addresses the maturity of both technology companies and
US private equity investors over the last decade. It is
an interesting read.
There has been a lot of activity in angel investor groups and
venture capital investments in Indiana technology companies over
the last few months.
2010 has definitely started with a bang at
Alerding Castor Hewitt where we have helped five...
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I have taken a few
weeks off of blogging. Honestly, I felt like I needed the
break, but I am excited about getting back on the saddle and
writing again.
Since it has been a few weeks, let me give a brief update on what
we have been up to. Alerding Castor Hewitt has had an
exciting beginning to 2010. On January 1, Bill Boncosky
joined us. Bill is a business attorney / technology and SaaS
law attorney working with privately held companies, primarily in
technology industries. Bill has spent the...
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I
have helped a number of clients pursue and secure capital funding
from private equity investors. For all clients in this
process I tell them to approach potential investors as they would
potential customers. Investors come in all types. Learn
as much as you can about the individual, angel investor group or
private equity fund before presenting to them; then present to them
the information that they want to hear (not falsely, but approach
investors on their ground, not yours).
A few weeks...
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When presenting to an angel
investor group or private equity investors, two rules of thumb
should be followed:
1. The investment opportunity should be easy to
understand (Focus on the investment opportunity, the market
opportunity and why this particular management team can pull this
off).
2. Know your numbers and your assumptions.
I read a business plan this past week that segmented cash flow
projections into four options, each with a weighted probability of
occurrence. They were...
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Yesterday I had the honor of
moderating the plenary panel on Funding Innovation in Indiana at
the TechPoint Innovation Summit. This was just a great
event.
The panel members included Michael Brown of Battery Ventures -
Boston, Michael Arpey of Credit Suisse - New York, Steve Hourigan
of the 21st Century Fund, Mathias Schilling of BV Capital - San
Francisco, and Bob Compton, a serial entrepreneur most recently
founding Vontoo, LLC. I want to thank the members once again
for their participation....
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