For many startups, it makes sense to grow organically. But for others, the answer is to seek capital.
So how do you get investment capital? Certainly, it’s critical to make the right presentation to investors.
Such entrepreneurs typically ask noted financial strategist Joey Tamer how much information they should reveal for venture or angel capital.
They turn to her because she’s a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices.
Ms. Tamer says entrepreneurs also typically express these concerns:
- “I’m not quite ready for a big investment until I get more early traction.”
- “Will I weaken my position by showing how much I need and how soon I need it?”
- “Will what I’m looking for move around the community to everyone and shouldn’t I be selective in what I say?”
What’s her response?
“The answer is to stand up and lay out your plans and your rationale,” she blogged in explaining how much an entrepreneur should tell investors when pitching for capital. “You must treat all investors as if they will become your partners, starting immediately. If you are taking a pitch meeting, you might as well pitch.”
She astutely reminds clients that investors of all stripes do their due diligence. She warns you risk not getting a second meeting, if you aren’t candid and informative.
“It is acceptable to take a short meeting — 20 minutes maximum – or two with potential investors, to get on their radar about your idea, even before you are ready to approach them for an investment,” she explains. “You can report back on your progress of reaching your benchmarks. This establishes an early relationship with them, and allows them to watch you deliver the benchmarks you promised.”
For an example, she suggests a possible scenario:
“Suppose you are looking for angel capital now, and you are presenting to an early stage boutique venture capitalist, who invests in revenue-generating companies, but who sometimes will step down to a seed round of a few hundred thousand dollars.”
“Pitch what you want now: say $250,000, and show what you will use the funds for, and what benchmark you will reach with that seed round,” she says. “Your potential investor might provide it and add a deal structure to his position for the next round, giving him right of first look, or protecting his investment in certain ways, even setting aside all or part of your next round.”
“Next you say you want to raise a Series A round after some specified consecutive months of growth,” she asserts. “You say when you expect that moment to arrive (what Quarter of what year), and what benchmark you will reach in what Quarter of what year with that Series A round.
“You can say that you will look for a growth round following Series A, once you can track the speed of your growth, and can assess competition and market conditions at that time,” she adds.
Ms. Tamer says this illustrates that you understand the big picture – that you fully grasp investors’ concerns about scalability and their likely return on their investment.
“If you look to your investors as long-term partners, this early truth telling and planning sets your relationship on the right path,” she points out.
(Note: I’m very acquainted with Ms. Tamer’s expertise. She and I are longtime associates and I know what ever she recommends is solid advice.)
From the Coach’s Corner, here are informative resource links:
What No One Tells You about Raising Investment Capital — Investment capital is available during all economic cycles, according to leading consultant Joey Tamer. Ms. Tamer has proven approaches for raising money. “In good times, risk capital is available from all sources, and they compete and sometimes share hot deals with each other; the practice is termed syndication,” said Ms. Tamer.
Eight Strategies to Consider Before Starting A Tech Business — So, you’ve got an idea for a tech business, but you’re unsure about your prospects. Do you know what are important strategies to consider before starting a tech business? Joey Tamer is a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices. She knows the answers.
“If you are beginning your company with Other People’s Money, it is good to have a strong relationship with the Other People and their Money.”