Shark Tank – Funding a Startup? – Angel Investors

Raising capital is no small task; in fact, it can be likened to the process of climbing a ladder. At each rung, you achieve new goals for your company and the height of your ascent represents the value of the business. Initial financing are often the first or second rungs. Now, before you try to get all the media’s attention by charging into a VC’s office you should first consider Angel Investment.

Angels are wealthy individuals who will attempt to help finance your business with personal checks for anywhere from $20,000 to $1 million. Choose your Angel investor very carefully. The initial funding of a few hundred thousand dollars may allow you to quit your day job, and enable you to focus more time on the setting up of the business. Also, this construction capital should be adequate while not diluting the company’s ownership significantly.

Don’t be shy about Angels! Start looking early, and tell everyone about what you’re doing. Don’t worry about giving away too much of your idea nearly as much as not getting early funding soon enough. A good start is to talk to friends, family, lawyers, PR firms, accountants, and marketing consultants–anyone who’s had dealings with Internet Startups. It is very important to keep in mind, however, that we’re looking for more than just money here. We want an honest commitment from Angels: we want them to make the venture a success.  They should assist in developing contacts, recommending potential employees, identifying a good public relations firm, negotiating licenses as well as supplying however much capital is needed. Ask them to take an active role in the company, and tell them outright that you will expect them to make the startup a success. Even offer a position such as formal advisor or director of the company.

When beginning your pitch, keep your purposes in mind: you want to entice them to call you for a more extensive conversation. But keep you plans to yourself at first. Your initial goal is not to get them to invest on the first communication. You may want to put together an abridged business plan: essentially, a document version of the startup story we discussed in the previous Blogged entry. Keep your business plan concise; remember there is no substitute for fundamentals.

 The size of the investment should depend how high you are on the ladder. Are you in grad school and armed only with your idea? Or are you actually in business and have a product and revenue? Don’t worry too much about the exact numbers, as Angels are probably more aware of the ladder than most entrepreneurs. And they realize their place in the grand scheme of things: they give you a little now, so that eventually, you will ask for millions later from a VC firm. In terms of equity, it is not unreasonable to give 20 percent of your company to a first round Angel.  Just remember that initial investors will be heavily diluted in following rounds of funding. By the time an IPO rolls around, they may only account for a few percentage points.

Special investor rights are a common form of deal that angels may want to try to cut. Here’s where hiring that great lawyer will come in quite handy. But keep in mind; you’re negotiating in the spirit of partnership. After all, your very first employees are somewhat like founders. Similarly, initial investors deserve a special place. Don’t try to bully an Angel the way you would approach a VC, but also, don’t waste your time with someone who acts like his $50,000 check is a term sheet. You want to conduct yourself in a professional manner, reasonable and attentive. Find someone with whom you relate well, because once the dotted line is signed, the knot is tied.

Keep the faith, just remember, if it was that easy everybody would be doing it.

Starting a Business – Essential Reader Entrepreneurship 101

Lessons in Entrepreneurship

When we pursue our dreams, we feel empowered. This power, in turn, connects us to others who share the same dreams. It gives us the strength to overcome great challenges. It inspires us to spread the joy of our dreams to other people. Ultimately, the power borne of a dream is a creative force, capable of producing revolutionary ideas. – Honda

1. Managing Growth for SMBs
2. Starting a business: Steps to Financial Freedom & Self Employment
3. Are you Startup, Small Business, an Entrepreneur – Ready for Success?
4. Integrated Approach for SMB, Small Business, Startups, Entrepreneurs
5. Small Business Funding, How to fund a startup, Due Diligence (I)
6. Small Business Funding, How to fund a startup, Due Diligence (II)
7. Small Business Funding, How to fund a startup, Due Diligence (III)
8. Writing a Business Plan
9. What is an Executive Summary?
10. Executive Plan Synopsis
11. The Shark Tank – Funding a Startup -  Angel Investors

Bene Gesserit: I must not fear – procrastination

Bene Gesserit

“I must not fear.
Fear is the mind-killer.
Fear is the little-death that brings total obliteration.
I will face my fear.
I will permit it to pass over me and through me.

And when …
it has gone past I will turn the inner eye to see its path.
Where the fear has gone there will be nothing.
Only I will remain.”

Based on the overwhelming response to this post,  I would like to further eloborate on the choice of this powerful verse.  In business as in life, one of the primary reasons people are unable to achieve thier fullest potential because of a multitude of FEARS that hold them back.  Fear is insidious, Fear is infectious, Fear is subversive, Fear is a predator, it attacks us when we are most vulnerable, Fear preys on the weak mind, but above all Fear paralyzes us to the verge of absolute inaction.

Fear is the primary cause of Procrastination defined as the deferment of actions or tasks to a later time. Psychologists often cite such behavior as a mechanism for coping with the anxiety associated with starting and/or completing any task or decision.[1] There are three criteria for a behavior to be classified as procrastination: it must be counterproductive, needless, and delaying.[2]

Procrastination may result in stress, a sense of guilt and crisis, severe loss of personal productivity, as well as disapproval by others for not meeting responsibilities or commitments. These feelings combined may promote further procrastination. While it is regarded as normal for people to procrastinate to some degree, it becomes a problem when it impedes normal functioning. Fear = Procrastination. Procrastination = Inaction – and when do do not make a decision in Business or in life, someone else will make it for you and the outcome could be most unpleasant.

Hence, I  Must Not Fear.

Inspirational Quote: Your Conviction

The height of your accomplishments will equal the depth of your convictions.

William F. Scolavino

Writing a Biz Plan – Synopsis

Executive Summary

• Business idea, mission statement.
• Business opportunity being pursued.

 Customer Need or Market Requirements

• Define problem statement.

 Value Proposition

• What is your solution to the problem, using existing or new technology, product development etc?  Describe the solution that resolves the customer need.

 Product

• Describe product & technology; provide terminology and key terms for reader.

 Ownership & Management

• Identify Key Personnel
• Gather resumes
• Discuss the incentives and benefits to be offered to potential employees.
• Develop corporate organization chart.
• Roles and responsibilities.
• Finalize staffing needs by: skill level, job description and utilization.

 Key Initiatives and Objectives

• Define business strategy.
• Milestones to be achieved  – plot revenue, operating expenses, EBIT and headcount at each milestone.
• Proposed funding  – sources and uses.

 Competitive Advantage

• Research the direct and indirect competition.
• Identify the strengths and weaknesses of the business model.
• Explain why your business will have a competitive edge or advantage over the competition.

 Marketing Strategy

• How do you plan to promote the product?
• Understand the client’s requirements.
• Create a sales forecast.
• List all alliances, advertising mediums and distribution channels to bring product to market.

 Operations

• Product development — research, design and manufacture.
• Infrastructure set up — technology, administration, facilities etc.
• Business operations set up.

 Business Model or Economic Model

Five-year summary of:

• The Balance Sheet
• Sources and uses of funds
• Income Statement
• Staffing I headcount projections
• Financial assumptions

The Devil is in the Details: Drill Down into Executive Summary

Body of the plan:

Business Description or Company Overview

You should describe your motivation for starting the business as well as the nature of the business. Emphasize the uniqueness of your product or service offering and briefly describe why you believe this concept will be successful.  Demonstrate how a real, profitable business can be built using this plan.

Customer Need/ Problem Statement

Next, the plan must show how your company and product fill a concrete, unmet need in the marketplace. This can be accomplished by illustrating all the characteristics that set your company, as well as the service or commodity you offer, apart from competition. With this, provide a full investigation of end-users and key potential product applications (do your homework!). Describe any patents, copyrights, or trade secrets, as well as barriers to entry – show how your advantages are defensible. Much like the startup story, you should list all the major accomplishments you have achieved to date and any remaining milestones. This shows that you are not only clever, but also diligent and committed. Definitely mention alpha or beta tests (describe how future ones will be conducted, as well as previous results) and ideas or plans for offering upgrades (investors tend to shy away from potentially stagnant single product offerings).

Market Analysis

This is often what separates inventors from entrepreneurs. Investors who fail to understand the market and/or assemble the appropriate management team needed to make good on the opportunity—no matter how good that opportunity is—can hinder successful product commercialization. Take extreme care with this section. As this section will be especially scrutinized, be as specific as possible, and focus on rigorous, verifiable data. Include a thorough analysis of the industry and your potential customers. This should incorporate growth rates, market size, recent technical advances, relevant governmental regulations, and future trends. Research your customer base: give the number of potential customers, purchasing rate per customer, and decision-maker profiles. All this data should lead inevitably to your sales forecast and strategies for pricing, sales, and distribution. End by mentioning the percentage of the target market you plan to capture.

Management & Ownership

Keep in mind; you want your audience to invest in you and your team, not just your idea and your company plan. Investors will look closely at your management team’s experience and talents in areas such as technology development, marketing, sales, manufacturing, and finance. You must therefore introduce your team and describe in detail what they bring to the company in a management and ownership section (members’ detailed résumés should be appended to the plan). The typical startup management team consists of no more that a few founders with varied backgrounds and an idea. Again, you should point out any gaps in the team and discuss how you will fill them. If you avoid this step, you risk making crafty investors even more apprehensive. Also, many VCs have access to networks of proven management talent that can fill any crucial positions. You should list your board of directors, advisors, or any other key outside industry professionals or technology experts who lend your company guidance or credibility (here, you can potentially take further advantage of your investor’s networks).

Competition

We’re getting there. The next step is a discussion of competition. Even if you manage to be the first-to-market company, you still have to explain how the market’s need was previously met and why your offering is necessary to compete against this pre-existing solution. As for concrete adversaries, investors will, of course, be very interested in how you intend to succeed. So, you must mention all forms of competition, listing product-relative strengths and weaknesses. You must present projections of what you anticipate the competition will do in response to your offering. Also, if possible, include any direct comparisons, such as price, quality, warranties, product updates, features, or distribution strategies (don’t forget to document your sources, too).

Marketing Plan or Market Strategy

Begin to get into the concrete details of what you have in store with your market plan. This is needed primarily to show that your target market can be developed and penetrated (not just how). Your projections will drive the rest of the plan by estimating rates of operations and required financing growth. First, we deal with pricing. The intended strategy behind service/commodity pricing is to provide the investor with an idea of how to evaluate your overall strategy. So, explain your decisions about image, competition, gross margins, and discount structure for each of your distribution channels or means of promotion; and, again, be sure to include consideration of future development.

Next, we deal with the distribution channels. These should be very clearly defined and must identify either how the product will reach the end user (in the case of commodities), or how the end user can access the service. For commodities, direct sales (including mail order, direct contact salespeople, and telemarketing), original equipment manufacturers (OEM) in the case of integrating the product into other manufacturers’ products or distributors /wholesalers /retailers can be used. The strategic and financial advantages or disadvantages of each of these methods and, potentially, their compatibility must be explored thoroughly in the plan. Include a projected schedule of prices, with the appropriate discounts and commissions as part of sales estimates; remember these estimates must provide support for your decisions.

Lastly, we must deal with promotion. This section should include product sheets, potential advertising plans, Internet strategy, tradeshow schedules, and any other possible promotional venues. You have to convince the audience that you have the expertise to get your product to market. A rigorous promotional strategy will set you apart from the competition, and you should not be afraid of explaining the thought processes behind your decisions.

Business Economic Model

Finally, we come to the operations section of the plan. In this section you should describe the location and size of your facilities. As always, explain your decisions—include factors such as availability of labor, accessibility of materials, proximity to distribution channels, and tax considerations. Discuss your equipment and facilities. If you anticipate increases in production demand, include your plans for financing and expansion. Will your operations facility provide the necessary support for, say, international distribution? Also, address any outsourcing you plan to do in order to eliminate the need for expansion. Remember, your audience will be scrutinizing your plan for any inconsistencies. So, include budgets and timetables for product development. You will need to keep your plans as flexible as they are efficient. Address any and all of the big questions like how your facility plans allow for expansion in accordance with your sales growth projections, how you can supply necessary materials, and whether there is an educated workforce available. And whatever you do, make sure everything here is in accordance with your market strategy! Most investors would like to see detailed financial statements with five-year projections. Your business must show a steady growth and positive trends. It may not be a bad idea to hire a professional accountant to build the business financial analysis for you which basically includes the income statement, balance sheet, cash flow estimates, graphs and charts that visually depict the companies growth as well as a list of financial assumptions that you have made to arrive at the economic model. Investors can identify the inconsistencies in your financial projections and it also enables them to notice the amount of research you have conducted.

Things to remember

Keep it brief! Try to keep the executive summary fewer than three pages and the body of the plan under ten pages. Include all the key business and financing issues and decisions, while saving all the thick financial information for internal plans or later meetings. Mention early what type of business the company is and what your objectives are (though this may seem obvious, many entrepreneurs assume too much and fail to mention these things until far into the plan). Also, state concisely the strategy and tactics you intend to employ in order to reach your goals. With this, cite how much money the company will need over time, and what the funds will be used for. Provide a clear explanation of investors’ exit strategy. Avoid overly technical jargon in descriptions of product, processes, operations, etc.   Be realistic in your estimates of the market, your company, and other potentials; use concrete and specific terms, numbers, and details, and cite the sources of your information. Don’t be afraid of discussing risks – avoiding potential gaps can damage your credibility. Your internal budgets should be clearly summarized and properly structured for the benefit of outside party audiences. Lastly, be prepared with extra copies and enclose your documents in simple, but stylish covers.

How to Write an Executive Summary

Executive Summary

Let’s begin by discussing the most important part of the plan: the executive summary. This should present the plan in the form of a clear and concise document (5-6 pages) that captures the essence of the idea and sparks the interest necessary to engage the audience. It must grab the reader in a confident, yet concise, manner in order to convince him or her to continue reading the proposal attentively. As such, it should be written after the rest of the plan; this will insure that it is well targeted and contains only the most vital and provocative information. It is just a fact of life that fewer than five percent of all business plans get reviewed past the executive summary, and it is usually because it is lacks clarity or it simply is not convincing. Thus, you’ve got to be noticed. You have to call attention to the growth and profit potential of your idea and to the relevant experience you and your team possess. Another important note on executive summaries is it’s targeting. After all, before you can even hope to convince an investor, you must make sure that the executive summary must be aimed such that the investor’s preferences are appropriately considered. Naturally, our purpose with the executive summary is to inform: concisely and quickly.

Executive Summary Outline:

Corporate Mission

One of the most powerful ways to capture the attention of the investor is to create a mission statement, your vision, and philosophy that govern the organization. Such a statement should capture the essence of your business, the idea you want to pursue and why. As before, make it brief. The investor needs to know what product you offer, the market you intend to target, what you’ve done so far about it, and what you intend to do in the future.

Customer Needs

Define the problem or need in the marketplace that you are trying to satisfy? Why do you believe that your idea will resolve an inherent inefficiency in the market? Be factual and conduct research to validate your point.

Value Proposition

In this section describe how you will solve the problem or customer need. Explain the value being created by your business and state the benefits the target market will receive once implemented.

Market Research

Next, you should use recent market data and analysts’ estimates to describe your intended market. Note what percent of the market you plan to capture and name your largest, most renowned customers who have purchased your product or have given you letters of intent. 

Management & Ownership

List your key players: management and technical advisors. You’ve got to emphasize everyone’s relevant, proven track record by mentioning his or her age, qualifications, and work history. Also, you should list any key open spots and note how you intend to fill them.

Service Offerings or Product Differentiation

As for your product, provide a short description of the services or commodities you intend to offer by discussing why they are unique. Mention direct or indirect competition, as well as any barriers to entry that potentially inhibit further competition. Space permitting, you might want to mention future product development plans, such as upgrades, product line extensions, etc. This will illustrate your idea’s adaptability.

Competition

Conduct a detailed analysis of the players already in the market and those potential new entrants. You do not want to be surprised by the fact that the idea you believed to be singularly unique was actually already introduced or is in process by a number of competitors. Get a firm handle on your competition. Understand their product ranges, price points and segment of market share they command. Just as in a battle, know your enemy’s strengths and weaknesses to devise a strategy that will make you victorious in battle and successful in a business endeavor.

Marketing Strategy

Discuss who will buy your product and why, and note contemporary distribution and selling strategies while explaining which ones you will use (and, of course, mention why yours are the best). What are the channels of marketing you wish to employ in order to create brand awareness. After all even the best ideas may be utterly useless if no one is aware of their existence.

Business Model

Pull it all together by stating the amount of money you require and how you intend to use it.  Summarize your key financial projections through break-even. Make sure to list projected revenues, net income, assets and liabilities; and it couldn’t hurt to mention additional rounds of funding.

CFO Inspirational Quote – Wayne Dwyer

There is no scarcity of opportunity to make a living at what you love; there’s only scarcity of resolve to make it happen. – Wayne Dyer

Quote by Kahlil Gibran – Inspiration

 

Your living is determined not so much by what life brings to you as by the attitude you bring to life; not so much by what happens to you as by the way your mind looks at what happens.

Kahlil Gibran

Success Quote: Abraham Lincoln

 

Always bear in mind that your own resolution to succeed is more important than any other. – Abraham Lincoln