Business

I had the privilege of speaking at the Rainmakers Incubator event this morning.  I thought the Rainmakers team did a nice job organizing the event - even with a last minute change in location due to factors outside of their control.  Thank you guys for the opportunity to join you this morning!

The topic given to me was "Three Things Every Entrepreneur Should Know."  My legal practice focuses on entrepreneurial law, funding law, SaaS business law and securities law.  In these fields I see a lot of business models for emerging companies and read a number of business plans - close to two a week.  When the topic was given to me I figured that the talk would be easy to organize as I review every business model under a 3-prong analysis. 

So, here is the cliffs notes version of my talk. 

There are 3 things that any successful company must have in order to be successful:

1.  The right market opportunity
2.  The right management team
3.  The right capital structure

If any of these are broken, move on - the business will fail.

The right market opportunity is more than just a great idea to hit a hole in a market.  The entrepreneur (or private equity investors) should satisfy 3 proofs:

1.  Proof of Concept
2.  Proof of Scale
3.  Proof of Commercialization (at profit)

For management team, beware of the scientist syndrome.  If the visionary is a scientist whose ultimate goal (in all honestly) is to advance his science, move on.  If the visionary does not understand corporate finances or cash flow models, move on.  Take on partners ONLY when you NEED them - not just when you like them, are buddies with them, or are related to them.

For capital structure, if you are raising private equity, set specific goals and milestones for equity raises.  Consult with a securities attorney who not only understands the law related to equity raises, but also understands how to get deals done. 

Side note - most attorneys don't understand the private equity landscape.  Don't hire your cousin the divorce attorney to help you with your equity raise.  Of those attorneys who understand securities law, all of them should be able to draft investment documents for you - but that is the easy part.  Find one that understands corporate finance and will help you model your capital strategy and help you meet investors.  That is the harder part - and I meet very few attorneys that are capable or willing to do this.  This is a point that I believe sets my firm aside from most.

If you are not raising capital, be specific on your cash flow projections.  Revenue projections should be an educated guess, but expenses can be largely known.  Most early stage companies have more fixed expenses than variable costs for their first year or two.  There is no reason that you should not be able to budget for this and keep costs under control.