Archive for category Introduction
How can studying about investors and entrepreneurs be used?
Posted by Steve in Execution, Introduction, Pitch, Plan on April 13, 2009
Part 3 of 3.
Two weeks ago (Monday March 30, 2009), Bart Kemper asked how he could use this blog if he was not seeking investments or investors. Then and last week I pointed out:
1. I strive to provide information that in the right setting can open up more opportunities leading to more clients.
2. The information can be used to prepare the company for a merger, acquisition, sales, or other type of owner exit. All these elements make the company better and look better.
The third and final point is even simpler.
Just because you are not looking for investors does not mean you should forget about a business plan, or not have a good pitch, or not have a good strategy.
The idea is not to make the company just look better. It point is make the company actually be better, and to be able to effectively communicate that to outsiders. The 14 points are there to provide a guideline on the real qualities of a business that makes the business successful.
Each of these 14 points is not just useful for getting investors, but they are useful for growing the company. I will be writing not just about the high level stuff but also the low level details. How do you write a business plan? How do you write an executive summary? What are good interview questions?
For example, how could you use a well designed elevator pitch?
- Get investors.
- Get clients.
- Get a job.
Everyone at some point has been in a room where the audience is asked to each stand up and say something themselves. Most people are unprepared and give a rambling 20 seconds. There is nothing like standing up in this crowded environment and delivering a very clear, concise, and punchy elevator pitch. People will remember you. It will open up doors.
How can studying about investors and entrepreneurs be used?
Posted by Steve in Exit Plan, Introduction on April 6, 2009
Part 2 of 3.
Last Monday (Mar 30, 2009), I Bart Kemper of Kemper Engineering (www.kemperengineering.com) posed a question about why should someone who is not actively seeking investors or being an investor read this blog. How would they use this information? Why is it important?
The first answer is that it provides information that in the right setting can open up more opportunities leading to more clients. This is especially vital for a growing company working in high technology.
This week, let us look at another use for this information: how it relates to the future of the company itself. What is the exit plan?
Will they go public and be considered by the underwriting firm?
Will they merge with another company and have to evaluate that potential merging firm? How will that firm evaluate them?
Will the owners seek to sell the company?
In each case, someone is acting like an investor, the underwriter (and public), the two merging companies, or the buying entity. What if the firm treats the buyer like an investor? What if they prepare like they are seeking funding? The company will increase the likelihood of getting a better price and selling sooner.
Of course, the owners could make it a family business and give it to their children, leave it to other partners to run, or just shut it down and retire.
Next week, we will look at one final, but maybe obvious answer.
Angel Investors vs. Venture Capitalists
Posted by Steve in Capitalization, Introduction, Valuation on March 31, 2009
I was asked, “What is the difference between Angels and VCs?”
Angel and venture capitalist investors differ in size of investment and business structure. However, they both use similar criteria for qualifying a company.
Angel investors typically invest up to one million dollars individually, or eight million dollars as a group. Obviously, this could be more, but above eight million, you typically end up talking to VCs. Angels use their own money (or family funds) and do not have a charter of rules to follow. Angels are only answerable to themselves (and of course, their family).
Venture capitalists invest from about two million dollars to as high as two hundred million dollars, depending on the size of the fund they raise. They manage funds composed of investments from individuals, companies, and other managed funds (i.e. Fireman’s Fund). The largest fund to date is by Oak Investment at $2.56 billion dollars. VCs have a charter of rules they must follow, and are answerable to these investors.
Both angels and VCs have a targeted amount they invest. Startups should target angels and entry level VCs (or startup VCs) because the size of the investment would be typically under eight million dollars.
How can studying about investors and entrepreneurs be used?
Posted by Steve in About, Introduction on March 30, 2009
Part 1 of 3.
After looking at this blog, Bart Kemper wrote:
Steve — I haven’t approached any VC stuff. … You’ve seen my website … how would VC be applicable?
Bart also mentions he does not want to give up any ownership. That is for discussion at another time; let us first focus on how this blog could help the your company if you are not an investor and not seeking investment…now.
First some background: Bart’s business is Kemper Engineering Services, LLC in Baton Rouge, Louisiana. The web site is www.kemperengineering.com. You can read about their background, client list, goals, market, and mission statement. There is an impressive list of clients. Their goal is to grow to become one of the “premier engineering companies for the innovation, design and analysis of equipment and products”.
Bart is far from retirement and Kemper Engineering Services will be around for a long time. They may never need an investor. However, I am thinking of the possibilities…what situations could arise that Bart could use this knowledge? Go visit his site and think about how he could use this information…
What if they are working with a client that needs them to evaluate a product design? It could be a startup for the client to invest, or it could be for the client to attract investors. Understanding the concerns of the client is first step in landing that client and then following through with delivery.
One of Kemper’s engineers develops a patented item, and they want to take it to market.
What if the company decides the best way to fund it is with outside investors? So, they seek out and design their own patented product, form a company around that, and seek out investors to take it to market.
What if a startup is seeking funding, and asks Kemper Engineering to be on standby so that once they get funding they can fund Kemper Engineering to help them develop a product?
What if a startup asks Kemper Engineering to bet on the future with them? Assuming that Kemper Engineering even considers that, how would Kemper Engineering evaluate whether the startup was worthwhile? It may be a cool, useful product that is very marketable. However, the startup may have problems. Kemper Engineering should act like an investor.
FYI, not every company should consider “betting on the future” projects.
What if Kemper Engineering is asked by an investor to evaluate an engineering company or to come in and help an engineering company on the short term?
I think you get the idea. It opens up more markets and types of clients; especially for a growing company working in high technology.
Kemper Engineering is working with high technology and will be exposed to many new patentable products. They could be in a situation that they are working with someone who is trying to attract investors, or they might be working with the investors! By being versed in the considerations for an investor and a fund seeking firm, they would more likely be the company of choice when someone considers hiring them.
At the very least, it can be some interesting conversation fodder at his next networking meeting, opening up some doors to new projects.
Another answer published Next Monday wh one more answer a week after that.
PS Bart: You will have to come back then.
Introduction to the 14 Point List
Posted by Steve in 14 Point List, Introduction on March 13, 2009
An investor and entrepreneur meet for the first time. In a few minutes, the entrepreneur explains what they do and a little bit about the company. The investor is interested and asks for more information. They exchange business cards.
Over the phone, the entrepreneur discusses more points and answers a few key questions from the investor. The entrepreneur also asks the investor some questions about their history and background in investing. The investor requests an executive summary and it is sent promptly via email.
The next day, the investor invites the entrepreneur to give a presentation to their review board in two weeks. They also ask for the business plan, which is also promptly sent via registered mail.
The entrepreneur and two other staff members show up for the meeting. During the initial twenty minutes they present the major points of their business plan and why they are there. More importantly they know what the investors need to see and present that information as well. After about 20 minutes of exciting question and answer, the investors have a brief discussion, nod their heads and say they would like to see more.
Over the next two weeks, they have more meetings and decide they need to go into due diligence. After about a month of reviewing the business plan in detail, confirming many elements (including background checks on the entrepreneurs and follow-up on their references) the investors give the entrepreneurs an offer and a term sheet. After some negotiations, and review by their respective legal teams, the terms sheet is signed. That day, the entrepreneurs get their first check from the investors.
In about 90 days the entrepreneurs and investors met and made a deal. Now the entrepreneurs can focus on their business plan and meet regularly with the investors.
How did the entrepreneurs do it? The steps:
- Initial meeting.
- First in-depth discussion.
- Delivery and review of executive summary and then business plan.
- Formal Presentation
- Follow-up Q&A (which can take weeks).
- Due Diligence
- Offer and Terms Discussion
- Signing Agreement and Receiving Investment
It is very hard to get to step 6. Most people never get past steps 1 or 2. If they do, then they are very likely to fail on step 3 and they never get to the presentation. Consider that typically, investors only invest in 1 out of 100 pitches they hear. The failure rate is high for entrepreneurs.
Over the years, I noticed a trend in what investors would say as positives and negatives about entrepreneurs’ businesses. There were specific qualities that got entrepreneurs past steps 1, 2 and 3 so that they could be seriously evaluated in steps 4 and 5.
Over the last few years, working with investors, the SBDC, startups, and others, I developed criteria for companies that seem to get funding (and those that do not). I realized the criteria fell into fourteen categories, which each categories made up of one to several aspects. The current list is made up of 14 categories (aka Points) and a total of 36 elements. If any Point is in trouble (1 of the elements under that Point is bad), then the investor will most likely ask the company to correct and come back to them in the future. If two or more Points are in trouble then the investor will not ask the company to come back with the “corrections”. Multiple elements under one Point that are bad, only count as one bad Point.
The 14 Point List:
- Pitch – 3
- Corporate Structure – 2
- Business/Marketing Plan – 8
- Legal Protection – 1
- Existence of Prototype – 1
- Existing Customers – 4
- Manager’s Experience – 2
- Ability to Execute – 2
- Personal Risk – 2
- Finance/Burn Rate – 1
- Rich or King Syndrome – 2
- Exit Plan – 1
- Valuation – 3
- Plans for Use of Funds – 4
The numbers after each Point are the elements.
Conclusion:
To get the investors attention, there are 14 points the entrepreneur must possess. For investors to have a chance to be successful they must see 14 qualities in the entrepreneurs and their business.