That money is flowing in Internet and IT is not an issue. Both the angel and
venture capitalist are investing money in many projects so that a few of them
might hit the rainbow. VCs invested close to $ 12 Bn in 1997 and an even greater
amount in 1998 and even greater in 1999. But a thorough business plan and attention to detail are as important as ever in the fundraising process. Whether
you're raising Rs 10,000 from friends of the family or Rs. 10 Mn from institutions,
the same basic principles and discipline apply. The following are 10 basic commandments that, although seemingly obvious and avoidable, are the most
commonly violated by those seeking to raise capital.
1) Thou shall focus, focus, focus thy plan.
Make sure that your strategy is accurate to the target, and not a diffused aim.
Always keep in mind the problem you are trying to solve. Proprietary, protectable
and sustainable technology is a necessary, but not sufficient condition for success. Define the target markets finely and restrict yourself to two or three
well-defined segments.
2) Thou shall weave a story.
Remember, person or company, which is going to invest should have a sound reason to invest. When meeting with a VC. Talk with conviction and confidence. Create excitement around your plan and show energy, enthusiasm and commitment in how you present it. Detail the plan - both the mystic and the mundane - cover your long-term vision and then spell out short-term practicalities of its implementation.
3) Thou shall understand thy audience.
Understanding your target audience is very crucial for success of your enterprise. Research and understand your target audience both for your plan and your pitch. You should also seek knowledge about your investor- his other interest, his background, his credentials, his domain expertise, his other interests. This would give you inkling whether your investor is in firm ground or is he on shaky feet. Don't forget that, you are in selling mode and need to understand your prospect's hot buttons.
4) Thou shall arrive via referral.
Don't announce your arrival yourself. Try to get a reference and get an appointment. Nothing turns off a prospective investor more than coming in over without even seeking an appointment. Whether it's an industry contact expert or simply a friend of the investor, a reference will instantly give you credibility, visibility and the investor's attention.
5) Thou shall be crisp in thy plan....
Keep your plan succinct. Remember a picture is often worth a thousand words. Although graphics can be overdone, they convey information efficiently and add impact. Your plan should be no more that 25 pages and the executive summary no more than two pages. Also have a revenue plan and an exit
plan in your business plan.
6) And thy presentation.
Your presentation is an important part of your pitch, your effort to sell your concept to VC. Either you pass the test and get funding or no funding. There are no second chances here. Therefore, plan your pitch and pitch your plan - preferably in 30-40 minutes and no more than an hour. Either answer questions as presentation progresses or take the questions at the end. Whatever may be the case, always have a Q&A session at the end. Always anticipate the questions that VC may ask in the Q&A session and plan your answers. Prepare a reference list in advance that you can drop off if so requested. Efficiency in both plan and presentation will create a good impression and will demonstrate that you will be able to run your business just as effectively and efficiently.
7) Thou shall thoroughly research and evaluate the current and prospective competition.
Competition is inevitable, all the more in the emerging industry. Therefore you should have a competitive analysis industry in which you wish to operate. Always identify the criteria that might be crucial. Identify the established players or other startups that will be your competitors. Thoroughly map out the competition and honestly assess your relative status. Openly disclose management team background strengths and weaknesses. Today, marketing and sales execution is more important than ever. Mostly ideas are basically same but it is the execution that matters.
8) Thou shall get real about financial projections.
For a startup, especially in emerging industry, it is particularly difficult to forecast. Investors understand that. But you should be realistic while planning estimate. This will enhance your credibility. To the extent possible, build projections from the ground up, not the top down. There is no substitute for showing investors direct prospect/customer contacts who are willing to vouch for the product and company. If you have a potential order, always discuss that with investors.
9) Thou shall not obsess on valuation.
Valuation is clearly very important, especially in the Internet business. But don't be penny-wise and pound-foolish. The entrepreneur must give credit to the value-add of the angel or professional investor. By understanding this, hopefully everyone gets a piece of a much larger pie than would otherwise be the case. Everyone should be in win-win situation otherwise things might go sour, sooner than later.
10) Thou shall understand potential exit strategies.
Although the investor's first thought is the excitement of getting into an investment, his next priority is how he's going to get out of it. An IPO is one obvious path, but today, strategic buyers are acquiring more and more companies. Be explicit about potential buyers and the rationale for their interest in your company. Be clear about the second level of funding and discuss these issues at the earliest, instead of keeping in abeyance.
We have tried to highlight some issues, which if dealt with fairly and squarely will see you through the day. Well begin is half task done, guys!
