Today I am preparing for a guest lecture at Purdue University's
Discovery Park this week on developing business plans and my
experience as an entrepreneur. I read a lot of business plans
- about 100 per year, and I also help draft business plans and pro
formas for business law clients and my own companies.
Here are some general guidelines to consider when developing a
business plan:
1.
Write to the intended
audience. Is the reader the leadership team or
potential investors? If to...
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I was reminded today of something told to me by a friend last
year:
Good people who are smart
ask good questions
Bad people who are smart ask bad questions
Good people who are not smart ask bad questions
In business we are always looking for answers – but what we
really want are good answers. Today the issue is never
whether we have enough data (we arguably have too much), it is
whether we can properly utilize that data to make better
decisions. I see this especially in my Internet Law /...
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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 probably hate the word "policy" as much as any word in the
English language, but I think company policies can be helpful - in
both giving employees information on what is available to them and
what conduct is expected of them.
In the last couple of years I have noticed a rise of social media
policies in company employee handbooks. Most larger companies
have Internet use policies stating that employees may not use
company time or computers for personal Internet usage. The
main goal here is to...
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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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One of my favorite aspects of building a business law / private
equity firm is seeing clients set and reach business goals.
Many clients face complicated issues that need careful legal
analysis and creative planning. Unfortuantely, most attorneys
focus on the problems with the complicated deals and have trouble
finding creative ways to navigate the legal minefield.
Alerding Castor Hewitt takes a unique approach on business law in
that we consider ourselves "deal makers" rather than what...
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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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The post below is fantastic. It is by Michael P. Alerding,
CPA (my business partner's father) at his accounting firm's new
blog site. He gave me permission to re-post it here (thank
you Alerding & Co.). Check it out:
Alerding & Co. BlogWhat Happened to Business
Ethics?
By: Michael P. Alerding, CPA
Every time I get a contract to sign, I find it almost impossible to
spend the time reading the fine print and trying to understand all
of the future implications of the agreement. As my son,...
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One of my favorite movie scenes is from
The Jerk.
Navin Johnson is working at a carnival guessing peoples
weight. He is talking to Frosty, his boss:
Navin R. Johnson:
[bleakly] I've already given away eight pencils, two hoola dolls,
and an ashtray, and I've only taken in fifteen dollars.
Frosty: Navin, you have taken in fifteen dollars
and given away fifty cents worth of crap, which gives us a net
profit of fourteen dollars and fifty cents.
Navin R. Johnson: Ah... It's a profit deal. Takes
the...
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I read a Guy Kawasaki blog post this week where he walked through
six reasons why an abundance of capital can hurt an early stage
business. In my entreprenurial law / funding law practice I
work with a lot of business owners through capital strategies and
the private equity processes. Honestly, the drafting of a
private placement memorandum is the easy part of my practice.
The hard part is creating the proper capital structure for
the long term growth and success and reaching investors who...
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There is a great article in the July-August edition of the Harvard
Business Review entitled
The Early Bird Really Does Get the
Worm. The article summarizes a study which found a
correlation between "morning people" and career
success. This is based on a number of traits which are
commonly found in morning people.
Traits
Agreeable
Optimistic
Stable
Proactive
Conscientious
Satisfied with Life
Being a morning person, of course I loved this! Most days I
am the first in the office. I love getting...
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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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2010 continues to prove successful for many of our clients.
In the area of business law and private equity we continue to see
many of our clients receive funding and meet their capital
goals. That is exciting. We are up to 9 clients that
have done so this calendar year.
We have several other clients who are still pursuing capital under
a Red D exemption / private placement offering. We are very
cautious about who we take on as clients, and I am hopeful that
each will be funded in full soon.
I...
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Clients often ask for my assistance in working through numbers and
rate of returns for private equity investors. Here is the
basic concept. If you have a pre-money valuation of $2M and
are raising $500k in a seed round, you are giving up 20% of the
equity to the private equity investors.
500k/(2M+500k) = 20%
ownership
Most angel investors will want to see 3 to 5 year cash flow
projections. What they ultimately are checking for is: (1) an
assessment of how reasonable you are estimating revenues...
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Some B2B business models do well in targeting early stage customers
(e.g., less than $5MM revenue) but have trouble scaling with
customers as they grow. Other B2B models cannot hit a price
point for early stage customers and must target customers at later
business stages.
I recently saw a business model that concerned me on this
point. The SaaS application in the model was not cost
effective for early stage customers – there are market alternatives
that are offered for free that do just about...
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If you are a founder of an emerging company looking to do your
first capital raise, consider talking to angel investors BEFORE
having your private equity attorney draft the organizational and
exempt securities documents for your private placement
offering. I meet a lot of business owners at this stage who
make guesses as to what investors are looking for and what the
market will bear. What pre-money valuation should we use?
What preferences (if any) should we include in the private
placement...
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So I am at the office tonight, about 10 PM, working through several
matters. I have a software licensing contract which we are
hoping to have signed by June 1 - I just finished and turned
the revised draft. I have a new SaaS law client that is
embarking on a small private equity round - I am working on
investment documents tonight. A financial institution client
contacted me this week and ask us to draft loan documents - so,
working on those. Have an independent contractor agreement
for a...
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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 recently read a summary of a lecture on applying the seven deadly
sins to software development. The sins are:
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Lust
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Obsessive or excessive thoughts
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Gluttony
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Over-indulgence, over-consumption
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Greed
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A sin of excess like lust and gluttony, but in reference to
wealth
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Sloth
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Laziness, indifference, apathy
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Wrath
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Uncontrolled feelings of hatred and anger
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Envy
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Resenting another because they possess something you do
not
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Pride
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Excessive love of self
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The idea is not to sell products leading to the sins themselves...
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