Tag Archive: investors

When Approaching Investors Here are Some Things to Be Mindful of

When Approaching Investors Here are Some Things to Be Mindful of

 

It’s a scenario that viewers see every week on the popular reality TV show, “Shark Tank.” Aspiring entrepreneurs pitch their company or product to a panel of tough-minded investors that include billionaire mogul/Dallas Mavericks owner Mark Cuban and real estate magnate Barbara Corcoran. Offering a percentage stake of their business at a certain valuation, entrepreneurs will often encounter resistance from the “sharks” who may either not be interested in their startup or want a higher equity in the business to justify their investment.

Although the show’s fans might consider the entrepreneur/investor dynamic to be exaggerated and full of histrionics created to appeal to a TV audience, the truth is that it’s not that far from the reality. Yet there is one glaring difference. Where the show’s investors tend to gravitate toward companies that have proven profit potential as demonstrated by six- or seven-figure sales, very often in the real world that isn’t the case. Sometimes, an idea is all it takes to catch an investor’s interest.

John Frankel, a founding partner at the New York City-based venture firm ff Venture Capital, has funded many startups and early-stage firms and says it’s a fallacy to think that investors will only back companies generating healthy revenue streams. In fact, he says, small business owners should approach investors early on.

“We believe you should talk to investors early to get a sense of what they’re looking for,” he maintains. To illustrate his point, Frankel cites the $80 million in venture funding that was recently raised by Quora, a five-year-old question-and-answer website that he says, “still doesn’t have a revenue model.” (Translation: It has yet to generate revenue or even create a plan on how to do so).

Find investors who have an interest in your industry

Just as you would investigate a company thoroughly before a job interview, you should also learn all you need to know about a potential investor and their history before you even consider phoning him or her.

“Do your homework. Don’t waste your time or theirs on meeting someone not interested in you,” advises Panu Keski-Pukkila, CEO and co-founder of Caktus, a startup that provides “optimal hydration” solutions for health-conscious consumers. Recently, Caktus received $200,000 in seed funding where the lead investor was European venture firm Kima Ventures.

Frankel strongly agrees. “If you’re trying to approach an investor, find out everything about them,” he urges. “What do they like? What interests them?”

Investors_PQ.jpg

Get referrals

Ask trusted colleagues and friends for names of investors you should approach. Solicit feedback from industry peers who are familiar with these investors.

“This works so much better than cold-calling,” says Keski-Pukkila. “If someone is ready to give you an introduction, the investors will be willing to find that 10 to 20 minutes to review your deck [from your PowerPoint presentation] or executive summary.”

Because Keski-Pukkila’s company Caktus was part of an accelerator program, which offers resources and advice that help small businesses grow, he says they were constantly being introduced to potential investors as well as being mentored by them.

In addition to asking people you know for referrals, Keski-Pukkila also recommends having a presence on AngelList, a website that helps startups raise funding from accredited investors (defined in the U.S. as having a net worth of at least $1 million or an income of at least $200,000 for the last two years).

“Investors will contact you if they like what you do,” he says. “That’s how our lead investor got into touch with us.”

Be truthful

Whether it’s overstating your company’s revenue projections or obscuring a detail concerning your product, never mislead potential investors when meeting with them. Chances are more than probable that your deception will be discovered, which will be the end of your ever securing funding from these backers. Many of them are shrewd and savvy and will ask for evidence to support your claims. Avoid the temptation to lie to impress. You will only hurt yourself in the end.

Keski-Pukkila echoes this sentiment, qualifying it with a warning.

“[Investors] will call your bluff, sooner or later,” he cautions. “The word will spread in the investor circles and you won’t get any further meetings.”

Adjust your pitch to your audience

In general, your pitch should contain the basics: brief company history and overview that explains why you are keen about this product or business, market projections, and exit opportunities for investors (how the investor will recoup their investments). However, depending on the audience, you might want to tailor your pitch based on what you think will resonate with them.

For instance, if your company is a tech startup and you’re meeting with investors that have a history of backing these types of firms, then you’ll want to play up the tech components of your company. However, if you’re meeting with early-stage investors that are far more eclectic in their investments, you may do a general pitch that either de-emphasizes the technology or puts it on an equal footing with the other elements you’re covering.

Although he admits it’s an ongoing challenge, Ben Hertzog, president and CEO of Procyrion, a Houston-based medical device startup that recently raised $2.9 million, finds this best practice to be an imperative for all entrepreneurs who are serious about getting outside backing.

“Do your best to tweak your pitch to the audience,” he counsels. “But don’t get caught in the endless cycle of reactionary edits. Just because a potential investor on Monday told you that your presentation was too technical, doesn¹t mean that the potential investor on Tuesday will agree.”

Pay attention to feedback or lack thereof

If an investor thinks you’re not ready to raise funding for your company, then you will need to respect that. Don’t overstay your welcome. Thank him or her for their time and leave. You will not help your case if you press on, notes Frankel.

“Sometimes investors might say this is not a good fit for them and [the entrepreneurs will] carry on and be like a broken record,” he adds.

If investors offer you constructive criticism, listen to them. Use the takeaways as invaluable lessons learned the next time you meet with investors.

However, if they do like you, make sure you remain on their radar, exhorts Keski-Pukkila.

“If you like a potential investor and get useful feedback, ask him to join as an advisor,” he says. “That way he is more committed to your startup, but does not have to invest money yet.”

Approaching an investor can be an exciting and heady proposition for a small business owner. Do your due diligence and always be honest in your meetings. And who knows, you might end up securing a considerable amount of funding.

Things To Think About When You Are Approaching An Angel Investor

Things To Think About When You Are Approaching An Angel Investor

 
t’s a scenario that viewers see every week on the popular reality TV show, “Shark Tank.” Aspiring entrepreneurs pitch their company or product to a panel of tough-minded investors that include billionaire mogul/Dallas Mavericks owner Mark Cuban and real estate magnate Barbara Corcoran. Offering a percentage stake of their business at a certain valuation, entrepreneurs will often encounter resistance from the “sharks” who may either not be interested in their startup or want a higher equity in the business to justify their investment.

Although the show’s fans might consider the entrepreneur/investor dynamic to be exaggerated and full of histrionics created to appeal to a TV audience, the truth is that it’s not that far from the reality. Yet there is one glaring difference. Where the show’s investors tend to gravitate toward companies that have proven profit potential as demonstrated by six- or seven-figure sales, very often in the real world that isn’t the case. Sometimes, an idea is all it takes to catch an investor’s interest.

John Frankel, a founding partner at the New York City-based venture firm ff Venture Capital, has funded many startups and early-stage firms and says it’s a fallacy to think that investors will only back companies generating healthy revenue streams. In fact, he says, small business owners should approach investors early on.

“We believe you should talk to investors early to get a sense of what they’re looking for,” he maintains. To illustrate his point, Frankel cites the $80 million in venture funding that was recently raised by Quora, a five-year-old question-and-answer website that he says, “still doesn’t have a revenue model.” (Translation: It has yet to generate revenue or even create a plan on how to do so).

Find investors who have an interest in your industry

Just as you would investigate a company thoroughly before a job interview, you should also learn all you need to know about a potential investor and their history before you even consider phoning him or her.

“Do your homework. Don’t waste your time or theirs on meeting someone not interested in you,” advises Panu Keski-Pukkila, CEO and co-founder of Caktus, a startup that provides “optimal hydration” solutions for health-conscious consumers. Recently, Caktus received $200,000 in seed funding where the lead investor was European venture firm Kima Ventures.Frankel strongly agrees. “If you’re trying to approach an investor, find out everything about them,” he urges. “What do they like? What interests them?”
Get referrals

Ask trusted colleagues and friends for names of investors you should approach. Solicit feedback from industry peers who are familiar with these investors.

“This works so much better than cold-calling,” says Keski-Pukkila. “If someone is ready to give you an introduction, the investors will be willing to find that 10 to 20 minutes to review your deck [from your PowerPoint presentation] or executive summary.”

Because Keski-Pukkila’s company Caktus was part of an accelerator program, which offers resources and advice that help small businesses grow, he says they were constantly being introduced to potential investors as well as being mentored by them.

In addition to asking people you know for referrals, Keski-Pukkila also recommends having a presence on AngelList, a website that helps startups raise funding from accredited investors (defined in the U.S. as having a net worth of at least $1 million or an income of at least $200,000 for the last two years).

“Investors will contact you if they like what you do,” he says. “That’s how our lead investor got into touch with us.”

Be truthful

Whether it’s overstating your company’s revenue projections or obscuring a detail concerning your product, never mislead potential investors when meeting with them. Chances are more than probable that your deception will be discovered, which will be the end of your ever securing funding from these backers. Many of them are shrewd and savvy and will ask for evidence to support your claims. Avoid the temptation to lie to impress. You will only hurt yourself in the end.

Keski-Pukkila echoes this sentiment, qualifying it with a warning.

“[Investors] will call your bluff, sooner or later,” he cautions. “The word will spread in the investor circles and you won’t get any further meetings.”

Adjust your pitch to your audience

In general, your pitch should contain the basics: brief company history and overview that explains why you are keen about this product or business, market projections, and exit opportunities for investors (how the investor will recoup their investments). However, depending on the audience, you might want to tailor your pitch based on what you think will resonate with them.

For instance, if your company is a tech startup and you’re meeting with investors that have a history of backing these types of firms, then you’ll want to play up the tech components of your company. However, if you’re meeting with early-stage investors that are far more eclectic in their investments, you may do a general pitch that either de-emphasizes the technology or puts it on an equal footing with the other elements you’re covering.

Although he admits it’s an ongoing challenge, Ben Hertzog, president and CEO of Procyrion, a Houston-based medical device startup that recently raised $2.9 million, finds this best practice to be an imperative for all entrepreneurs who are serious about getting outside backing.

“Do your best to tweak your pitch to the audience,” he counsels. “But don’t get caught in the endless cycle of reactionary edits. Just because a potential investor on Monday told you that your presentation was too technical, doesn¹t mean that the potential investor on Tuesday will agree.”

Pay attention to feedback or lack thereof

If an investor thinks you’re not ready to raise funding for your company, then you will need to respect that. Don’t overstay your welcome. Thank him or her for their time and leave. You will not help your case if you press on, notes Frankel.

“Sometimes investors might say this is not a good fit for them and [the entrepreneurs will] carry on and be like a broken record,” he adds.

If investors offer you constructive criticism, listen to them. Use the takeaways as invaluable lessons learned the next time you meet with investors.

However, if they do like you, make sure you remain on their radar, exhorts Keski-Pukkila.

“If you like a potential investor and get useful feedback, ask him to join as an advisor,” he says. “That way he is more committed to your startup, but does not have to invest money yet.”

Approaching an investor can be an exciting and heady proposition for a small business owner. Do your due diligence and always be honest in your meetings. And who knows, you might end up securing a considerable amount of funding.

7 Ways To Fund Your New Business

7 Ways To Fund Your New Business7 Ways To Fund Your New Business

7 Ways To Fund Your New Business. I’m often asked: what is the best way to finance a new business venture. This question is usually followed by “So, do you ever invest in new business ventures?”  The answers, respectively, are: 1. there is no “best” way to fund a new business; and 2. I do invest in new business ventures, but darn it I can’t today because I left my checkbook in my other suit.

I’m often asked: what is the best way to finance a new business venture. This question is usually followed by “So, do you ever invest in new business ventures?”

The answers, respectively, are: 1. there is no “best” way to fund a new business; and 2. I do invest in new business ventures, but darn it I can’t today because I left my checkbook in my other suit.

The truth is there are a variety of ways to finance a new business and which way is best for you depends totally on your product, your market, your financial requirements, your burn rate, and most importantly, your personal and financial situation.

So with that in mind, here are a few of the most common ways to finance a new business without hitting old Tim up for a loan. Keep in mind that all methods have pros and cons and some (or most) may not work for your specific situation. No matter what financing method you choose thoroughly investigate the ups and downs and don’t jump in with both feet until you’re sure you’ll land on solid ground. 7 Ways To Fund Your New Business

Savings and Investments

The first source you should consider tapping is your own savings and investments. I’m a huge fan of self-financing when it comes to business because it doesn’t make you responsible to others should the business fail. The bad thing is that it if things do go under, it will be your money that goes down with the ship. If you’re not willing to risk your own capital you certainly shouldn’t be willing to risk anyone else’s.

Friends and Family

After tapping their own savings and investments, many entrepreneurs turn to friends and family for help. This works well for some, but here’s the creed I live by: NEVER borrow money from anyone you have to eat Thanksgiving dinner with. Nothing causes tension in a family like lending money that is never paid back. And notice I say “lending money” rather than investing money. Venture capitalists invest money. Your relatives lend you money. They will expect it back someday even if they say they won’t. Remember, when a loved one invests in your business they are emotionally investing in you. It would be tough to tell mom and dad that their favorite son lost their life savings because his business went down the drain. 7 Ways To Fund Your New Business

Credit Cards

I financed my first business on credit cards, which was an incredibly stupid thing to do given the fact that my business could have failed and left me with thousands of dollars in credit card debt that would have taken until the year 2099 to pay off. It worked out in the end for me, but if you decide to finance your business on plastic keep in mind that you will be paying extremely high interest rates on the money you’ve borrowed and unless you hit it big you will be paying for that money for many years to come.

Mortgage The Farm

Bank loans are next to impossible to get if you don’t have collateral and a track record of business success, which is why many entrepreneurs use the equity in their homes to finance their business after being turned down for a bank loan. While this makes more sense than building a business on a deck of credit cards, the financial risks are no less abundant. You must pay this money back whether your business succeeds or not, but it is a good source of low interest money to get you started and the interest may be tax deductible (check with your accountant to make sure). 7 Ways To Fund Your New Business

Angel Investors

An angel investor is typically a wealthy individual who invests in start up ventures for a share of the ownership. Angel investors are usually the first formal investors in a business and provide the seed money to get the business up and running. Some angel investors will write you a check and leave you alone to run your business while others consider their investment a license to “help you” manage and make decisions. If you do accept angel money make sure the terms are clearly defined on both sides. Angel money always comes with strings. Make sure you know whether those strings come in the form of a bow or a noose before you accept an angel’s check. 7 Ways To Fund Your New Business

Venture Capitalists

Venture capitalists are to angel investors as pit bulls are to Chihuahuas. That’s not to say all VC are big, bad dogs, but they do have powerful jaws that can chew up your business and spit it out if things don’t go their way. VC money doesn’t come with strings, it comes with chains and locks and lots of legal documents. VC always have the upper hand in any deal they invest in. That’s just how it works and that’s the price you pay to get access to VC money. 7 Ways To Fund Your New Business

If your business gets to the level that VC money becomes a viable option, don’t jump at the first bone a VC dangles before your eyes. If one VC likes your idea, others will, too. Present to multiple VC and carefully consider each offer before you accept the check.

Just remember, no matter how you finance your business, use the money wisely. Don’t buy $1,500 plasma monitors and $1,000 Hermann Miller chairs.

Have a very clear plan of how the money will be used and how it will be paid back.

And remember this, the more you can shoestring the business, but more of the business you will own in the end. 7 Ways To Fund Your New Business

Ways to Fund Your New Business

Ways to Fund Your New BusinessWays to Fund Your New Business

Ways to Fund Your New Business. I’m often asked: what is the best way to finance a new business venture. This question is usually followed by “So, do you ever invest in new business ventures?”

The answers, respectively, are: 1. there is no “best” way to fund a new business; and 2. I do invest in new business ventures, but darn it I can’t today because I left my checkbook in my other suit. Ways to Fund Your New Business

The truth is there are a variety of ways to finance a new business and which way is best for you depends totally o…

I’m often asked: what is the best way to finance a new business venture. This question is usually followed by “So, do you ever invest in new business ventures?”

The answers, respectively, are: 1. there is no “best” way to fund a new business; and 2. I do invest in new business ventures, but darn it I can’t today because I left my checkbook in my other suit. Ways to Fund Your New Business

The truth is there are a variety of ways to finance a new business and which way is best for you depends totally on your product, your market, your financial requirements, your burn rate, and most importantly, your personal and financial situation. Ways to Fund Your New Business

So with that in mind, here are a few of the most common ways to finance a new business without hitting old Tim up for a loan. Keep in mind that all methods have pros and cons and some (or most) may not work for your specific situation. No matter what financing method you choose thoroughly investigate the ups and downs and don’t jump in with both feet until you’re sure you’ll land on solid ground. Ways to Fund Your New Business

Savings and Investments

The first source you should consider tapping is your own savings and investments. I’m a huge fan of self-financing when it comes to business because it doesn’t make you responsible to others should the business fail. The bad thing is that it if things do go under, it will be your money that goes down with the ship. If you’re not willing to risk your own capital you certainly shouldn’t be willing to risk anyone else’s. Ways to Fund Your New Business

Friends and Family

After tapping their own savings and investments, many entrepreneurs turn to friends and family for help. This works well for some, but here’s the creed I live by: NEVER borrow money from anyone you have to eat Thanksgiving dinner with. Nothing causes tension in a family like lending money that is never paid back. And notice I say “lending money” rather than investing money. Venture capitalists invest money. Your relatives lend you money. They will expect it back someday even if they say they won’t. Remember, when a loved one invests in your business they are emotionally investing in you. It would be tough to tell mom and dad that their favorite son lost their life savings because his business went down the drain. Ways to Fund Your New Business

Credit Cards

I financed my first business on credit cards, which was an incredibly stupid thing to do given the fact that my business could have failed and left me with thousands of dollars in credit card debt that would have taken until the year 2099 to pay off. It worked out in the end for me, but if you decide to finance your business on plastic keep in mind that you will be paying extremely high interest rates on the money you’ve borrowed and unless you hit it big you will be paying for that money for many years to come.

Mortgage The Farm

Bank loans are next to impossible to get if you don’t have collateral and a track record of business success, which is why many entrepreneurs use the equity in their homes to finance their business after being turned down for a bank loan. While this makes more sense than building a business on a deck of credit cards, the financial risks are no less abundant. You must pay this money back whether your business succeeds or not, but it is a good source of low interest money to get you started and the interest may be tax deductible (check with your accountant to make sure).

Angel Investors

An angel investor is typically a wealthy individual who invests in start up ventures for a share of the ownership. Angel investors are usually the first formal investors in a business and provide the seed money to get the business up and running. Some angel investors will write you a check and leave you alone to run your business while others consider their investment a license to “help you” manage and make decisions. If you do accept angel money make sure the terms are clearly defined on both sides. Angel money always comes with strings. Make sure you know whether those strings come in the form of a bow or a noose before you accept an angel’s check. Ways to Fund Your New Business

Venture Capitalists

Venture capitalists are to angel investors as pit bulls are to Chihuahuas. That’s not to say all VC are big, bad dogs, but they do have powerful jaws that can chew up your business and spit it out if things don’t go their way. VC money doesn’t come with strings, it comes with chains and locks and lots of legal documents. VC always have the upper hand in any deal they invest in. That’s just how it works and that’s the price you pay to get access to VC money.

If your business gets to the level that VC money becomes a viable option, don’t jump at the first bone a VC dangles before your eyes. If one VC likes your idea, others will, too. Present to multiple VC and carefully consider each offer before you accept the check.

Just remember, no matter how you finance your business, use the money wisely. Don’t buy $1,500 plasma monitors and $1,000 Hermann Miller chairs.

Have a very clear plan of how the money will be used and how it will be paid back.

And remember this, the more you can shoestring the business, but more of the business you will own in the end. Ways to Fund Your New Business