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How To Raise Capital For Your Business

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Best Time of Year for Fundraising

On the day of December 31st, 2009 there were 22 times more funds raised than the daily averages the rest of the year.?

Interesting!

Although it was fund raising and not capital raising it shows that when friends, families and fans put their hands in their pocket timing is essential.

Consider:

• In the last week of the year (from December 25th – December 31st), Convio clients processed 4.9x the number of donations than they did in an average week.
• The amount raised was an even larger lift (7.7x the amount raised in an average week) indicating that the average gift size was also larger (57% larger).
• In the last week, the top 10% of organization saw >10x increase in number of donations and >15x increase in funds raised.

While every day in the final week of the year (including Christmas) saw an increase in average donations, the last 3 days of the year showed the most dramatic increases:

1. December 29 = 5x donation count and 7.8x in funds raised,
2. December 30 = 7.5x in donation count and 11.5x in funds raised,
3. December 31 = 13.2x in donation count and 22.5x in funds raised).

Bottom line is the last week of the year and in particular the last day of the year is huge for online fundraising.  About 90% of organizations take some advantage of this phenomenon with the top third of organizations raising 10x or more in the final week when compared to an average week.

Read the full article by Dan Brown here.

When friends, family and fans are the target for capital raising the approach needs to be at the “right time”. By using a capital raising platform like ASSOB, approaches and investor meetings can be planned as part of a capital raising process. Seeds can be sown long before a formal approach is made so it doesn’t come as a surprise. And the right date? For some it may be Christmas! All depends on what time period you have targeted for your own friends, family and fans.

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Construct an Avatar for your Niche Investor

If your seeking investment and your investment opportunity is in an attractive niche then building an avatar may increases your chances of receiving venture funding.

Couple of definitions first

1. Attractive niche? One that has passionate fans. Examples of attractive niches with fans are: Enhanced Beverages, Special Needs Foods, Biotech and Healthtec, Senior Products and Services, Anything Green, Home Automation … there are hundreds more.
2. Avatar? A typical fan in the attractive niche.

Sometimes you may already have a mailing list of these “typical fans” but you may not have thought of creating an Avatar for them or profiling them in any way.

By creating an Avatar you will be able to make a mental connection to this “typical fan” when you prepare marketing materials for your investment opportunity. This can be when you write copy for the elevator pitch,investment summary, offer document or video. You will know exactly who you are pitching them to as you have created an avatar for this investment niche and fan.

To create an avatar here are the steps …

1) Relax and imagine the “typical fan” thinking about what they are passionate about.

2) Use these thoughts to complete the following …

Are they a Man or a Woman? _____________

NAME your “typical fan” ______________

How old is this person? _____________

What do they look like? If you were to tell me to look for this person in a crowd, what would I be looking for? ____________

What does this person do for a living? _______________

What is an amount they would be comfortable investing? _____________

What other identifying traits does this person have? (Married, Kids, Past Bankruptcy, Green Organisations etc) ___________

What is a “story” that reflects their passion? ________________

3) Now, using what you have written above, fill in the blanks below and read this aloud:

Hi, [THEIR NAME] , it’s [YOUR NAME], I know it’s not easy being a [THEIR AGE] year old [THEIR GENDER] who is [THEIR IDENTIFYING TRAIT] who is trying to find an investment in [ATTRACTIVE NICHE] for around [INVESTMENT AMOUNT] especially when you spend most of your time working as [THEIR JOB]. I know how passionate you are about [ATTRACTIVE NICHE] because I heard that you [STORY]. I know how you feel. I once did something very similar and felt I should do something remarkable here in Australia.  It wasn’t easy for me to find the perfect opportunity in the [ATTRACTIVE NICHE] for around [INVESTMENT AMOUNT] but I’ve found something to be really passionate about.

4) So after this you should have a very good picture of …

• What size the investment parcels are best to be for this type of investor
• A very clear picture of who you are targeting your marketing materials at.

5) I’ve called my Avatar “Martin”. As an example if I was promoting an investment in Wind Power I might complete the exercise as follows …

Hi Martin, it’s Paul, I know it’s not easy being a 55 year old male who is married with two kids and is passionate about alternative energy production who is trying to find an investment in Wind Power for around $20,000 especially when you spend most of your time working as an Accountant. I know you are passionate about Wind Power because you went 1000 kilometers out of your way when you were in Europe to visit a village where all their electricity came from Wind Power. I know how you feel. I once did something very similar and felt I should do something remarkable here in Australia. It wasn’t easy for me to find the perfect opportunity in Wind Power  for around $20,000 but I’ve found something to be really passionate about.

I’d prepare an additional elevator pitch and  investment summary especially for Martin and ensure that Martin is especially catered for in the Offer Document. In the Offer Document I would also ensure that it is still attractive to Professional and Sophisticated Investors.

6) Looking back through some recent capital raisings and venture fundings I discovered one with a list of 10,000 “fans” that yielded no investors from the fans list. After doing this exercise the INVESTMENT AMOUNT expected from Private Equity funders who were “fans” came out at $2000. The actual offer had a lot larger parcel size and got no traction from their “fans” list. A hybrid offer with a small scale offering of say $25,000 for Rounds One and Two, initially, followed by a Prospectus Round Three issue with a minimum parcel size of $2000 would have suited Martin and the company much better!

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Adapting Investor Presentations to Funders

In the current climate attracting investors is a very competitive undertaking.

But there are things you can do to be more competitive.

For every business seeking capital there are lots of others with similar risk profiles and opportunity. It also doesn’t make things easier when many investors tend more to the speculator end of the spectrum and have no real interest in long-term company fundamentals. They just want to make money from short-term price movements.

If you are part of a process like the ASSOB Capital Raising Platform then marketing, one of the 5 Timelines an ASSOB matter travels, will be carefully mapped out as an essential part of the process.

Marketing theory and practice are essential tools to use to effectively raise capital or to obtain  venture funding. For a company that is raising funds in the private equity space it needs to:

1. Through a “Discovery Meeting” with the founders the most appropriate source of funding for the company needs to be determined. No point wasting time chasing funds from sources that are not appropriate.
2. The company then needs to adapt its elevator pitch, investment summary and offer document to ensure that each funder or investor is met with a presentation that matches what the investors values and what the investor is seeking.
3. The company needs to clearly show that it has the ability to deliver on the promises it makes in the documentation it communicates to prospective funders and investors.

The easiest way to do this for a large mailing list of prospective investors is to use the “Avatar” approach detailed here.

Family and friends are well aware of how the approach from the entrepreneur is specially tailoured for them. Often though the entrepreneur doesn’t use the same creativity for funding sources outside of the family. That is why a proven capital raising platform can be so effective in early stage venture funding.

To take full advantage of its funding sources a company needs to make the most of sound  marketing practices. With sound marketing, especially when coupled with an independent, proven and transparent capital raising  platform the chances of success increase considerably.

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Investor language raises more capital

Having investment document after investment document passing across my desk each day gives me a good insight into the ones that talk the right language.Investor Language.

Most are full of Product or Company Language.

This is the language we have traditionally used when we portray our company or products to the market. You know the talk. Features, benefits technical specs and of course all the verbage the marketing department produces. This language is company-centric not investor-centric.

In addition there is often a lot of techno speak, terminology, industry language and marketing “fluff” on page after page of the Offer Document or Information Memorandum.

Most prospective investors become confused and are turned off when they read an abundance of “Product” or “Company” based language. They perceive the document seeking investment is out of touch with reality.

“Product” or “Company” based language also has a tendancy to sometimes be selfish and egotistical meaning it extols the greatness of the entrepreneur seeking to raise capital rather than profiling the investment opportunity. Any form of bragging instantly creates resistance and disbelief in the mind of prospective investors

Investor Language clearly communicates …

1) What pain or problem does this investment opportunity solve?

2) How will it make money?

3) How will I get my money back

With in the document it clearly describes things the investor is looking for. Negative outcomes, barriers, risks, constraints, sticking points and pain points. The document communicates how these issues will be met and resolved within an investment context.

Investor language resonates with the reader. It doesnt require them to go through complex mental gymnastics to figure out if this investment opportunity would fit well in their investment portfolio.

Investor language can make an investment decision obvious.

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Listbuilding and Storytelling essential with Early Stage Capital Raising

When have you needed money before?

Think back to when you were a kid and you needed money. First you worked out how much you needed. Then you worked out who your targets were. Maybe Mum or Dad or a relation or perhaps an older brother or sister. You made a plan.

1. You worked out how much you needed
2. You made a mental list of who might help
3. Then you worked on your story and when you would tell it.

Its basically the same when raising capital but with an independent and proven Capital Raising Platform you can usually do a lot more than you could with you and your accountant, meaning …

1. You can raise more money
2. Your “list” can be larger
3. Your story can be told by other story tellers as well

However lets start with an activity you did as a kid.

Starting with a pen and paper, make a list of the people who are impressed by your business. Every good business has fans! Afterwards they often are very grateful that you thought of them as part of your company’s future.

Friends and family typically provide smaller amounts of capital on the basis of relationship rather than on the basis of financial rewards. Larger amounts though depend on many of the pointers in this article.

In addition to Friends, Family and Fans, look outside your business sphere of influence to people such as prominent identities and professionals to develop an idea of who might be interested in investing in your business.

Once you have a list of say 200 friends, family, fans, employees, customers, landlords, prominent identities and professionals, categorise them. The majority of funds raised in early stage funding comes from these categories. There needs to be a fit between them and your funding requirements. By now your advisors should have agreed with you the amount of capital you need to raise. Note beside each name the size of share parcel they could possibly take. Start at $10,000 then $25,000 and over $50,000. But don’t approach them yet. A Capital Raising Process has many steps and they must be done in the right order.

Once you know how much capital you need to raise, and you have a list of those that can help you start on this journey, the next thing you need is a credible and convincing story. Here are some definitions:

1. Capable of being believed; plausible.
2. Causing one to believe the truth of something; “a convincing story”
3. Worthy of confidence; reliable.

Words associated with a “credible and convincing” story are reliable, honest, dependable, trustworthy, sincere, trusty, believable, possible, likely, reasonable, probable, plausible, conceivable, imaginable, tenable and thinkable.

To achieve all of these a good story needs substance and it needs to be articulated well. For an early stage capital raising there are a number of things you can do to make your story more credible and convincing.  The following help!

• Gather a good Board of Directors. They strengthen the story as they are responsible for shareholder monies being invested.
• If your business is attractively valued investors will be more easily convinced. Most entrepreneurs over-value their business in the early stages. Early investors will grow the “Story” by saying “I got in early at a great price”.
• Secure your assets. Your IP should be the investors IP.
• Show proof your concept or business works through testimonials, figures or first hand experience. “Show Me The Proof”
• Make sure the business is attractive.Things to strive for.  Quality management team, attractive sector, sound and well researched business plan, strategy for delivering value growth.
• Demonstrate you have made progress to date.
• Be passionate and likeable.
• Produce credible collateral. This is also integral to the success of an offer. No point creating a convincing story if you don’t have the materials to promote it. A wealth of materials and links can be promoted through the ASSOB Capital Raising Platform. Videos though are especially powerful. ASSOB research has proven that the use of Videos delivers a 62 percent more capital rasing.
• Tell them how the story ends! Remember “Flick the little Fire Engine”? One day I’ll be big and strong and FIGHT every flame, When there is a fire, they’ll say “quick!” Call the little engine, call the little engine, call the little engine “FLICK. If you envisage a trade sale, say it. A listing on a Stock Exchange add that to the story. Every one wants to know the ending and how they will get their money back.

To prepare for story telling find a decent writer! This is essential as your story and the offer need to be presented in a compelling manner to attract potential investors. A good writer can also help prepare a few things that are essential to the capital raising process.

1. An elevator pitch, which is a well-rehearsed description of why you should invest, in language anyone can understand and be delivered in the time it takes to ride an elevator.”
2. An Investor Presentation. For the development of an investor presentation I recommend you follow the steps outlined by Guy Kawasaki in “The Art of the Start”
3. A Video script so that a convincing video can be made.

“The “Storyteller” or spokesperson presenting the offer should ideally be the company founder, nevertheless, whoever is going to present the opportunity at investor meetings needs to practice until perfect and should be able to maintain communication momentum.” This list is longer than Mum and Dad.

A good Capital Raising Platform, like the one at ASSOB.com can assist you through these processes to a successful capital raising. By applying the tips above, your business will be able to maintain investor interest while you and them take part in the capital raising journey.

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Crafting an Elevator Pitch to Entice Investors

In Geoffrey A. Moore’s book “Crossing the Chasm” he gave a method for creating an Elevator Pitch for your business.

The idea is that you should be able to explain your product or service in the time it takes to ride up in an elevator.

It’s the same story when you are seeking capital. If you can explain why someone should back you in the time it takes to ride up in an elevator then  you are well on the way to getting your first investor.

Here is how to get a great “elevator pitch” (EP) in two short sentences.

Just fill in the blanks ….

- FOR (your target customers – tighter the niche the better)
- WHO ARE DISSATISFIED WITH (the current market alternative)
- OUR PRODUCT IS (new product category)
- THAT PROVIDES (key problem -solving capability)
- UNLIKE (the product alternative),
- WE HAVE ASSEMBLED (key whole product features for your specific application)

As an example, Silicon Graphics has claimed a large share of the computers used for post film production. (Read Lord of the Rings & Avatar just to start).  Besides raw computer power Silicon Graphics have all the physical connections film editors seek for the specialised film equipment they use.

So if they applied the Elevator Pitch Method above then it could be as follows …

EP – Silicon Graphics
- FOR post-production engineers
- WHO ARE DISSATISFIED WITH the limitations of traditional film editors
- OUR workstation is a digital film editor
- THAT lets you modify film images any way you choose
- UNLIKE workstations form SUN, HP or IBM,
- WE HAVE ASSEMBLED all the interfaces needed for post – production film editing

If we were to use this technique for ASSOB (Australian Small Scale Offerings Board) we would get an elevator pitch as follows

EP – ASSOB
- FOR high-growth companies wanting to raise between $200k and $10 million
- WHO ARE DISSATISFIED WITH the banks and lack of SME fundraising
alternatives
- OUR alternative is Australia’s Most Successful Capital Raising Platform
- THAT mentors clients economically through a proven compliant capital
raising process
- UNLIKE paid advertisements in magazines, banks and other funding channels
- WE PROVIDE the information, people and process you need to give you the best chance at raising capital at an affordable price.

Now on to yours … and if you need to raise capital complete the form at capitalunderdogs.com

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Are you Investor Ready?

Are you Investor Ready?

You could answer, well it depends on who is investing!

However there are some basic guidelines that can assist you in checking how investor ready you are.

An investor needs to be certain they are getting exactly what they are expecting for the money they are investing. They need to be assured that the business will grow successfully.

At a minimum a prospective investor needs the following questions answered.

1. What problem is your business solving?
2. Is there a large growing market that will pay for your solution?
3. What proof do you have that your solution works and who said so?
4. How exactly does your business make money?
5. Is your team capable of successfully implementing the business plan and managing the company’s operations?
6. How much money do you want, how will you use it and how will I getpaid back?

Each of these questions can be broken down further but I’ve found that Investors questions are often focussed around three areas.

• Accountability. Who will be accountable for the funds invested and is there a framework in place to monitor progress.
• Clarity as to your strategy, how it will be marketed and how you and they will make money
• Transparency of the business as to accounts, contracts, IP, conflicts, achievements to date and how founders loans and funds invested have been handled to date.

Lets take them one by one

Accountability

• Is there an experienced, stable and committed management team in place who are capable of successfully implementing the business plan and managing the company’s operations
• Have realistic, achievable financial projections been prepared for the next 3 to 5 years that have full management buy-in?
• Has a Business Plan been completed that has sign off from the management team?

Clarity

• Have you got a convincing “Elevator Pitch”?
• Do you have a clear understanding of the market segment you will be operating in?
• What problem are you solving and what pain will be relieved for the customers?
• What are the barriers to entry that will give you an advantage and keep competitors away from you?
• Who are your competitors?
• Do you have customers already?
• Can you prove there is a large growing market that is eager to purchase your product?
• How exactly do you make money?
• How long will it be until you start making money?
• How have you valued your business?
• How much of it are you willing to sell?
• Do you have an easy to read one pager like an “Executive Summary”?
• How scaleable is the business?
• How do you see me getting my money back?

Transparency

• What has actually been achieved to date?
• Do you have accounts for the previous year or years?
• Have you tidied up any debt that is in the company?
• Are there any outstanding conflicts or conflicts of interest?
• Do you have efficient internal accounting systems?
• Are Debtors and Creditors tidy?
• Is there minimal debt financing?
• Have you a breakdown of all money invested so far?
• Are the patents, trademarks and IP owned by the entity I am investing in?
• Have all complicated contracts been cleaned up?
• Do you have a file of all the contracts the business has entered in to including shareholder agreements, supplier and customer agreements.
• What do industry experts think about your business?

Naming Your Startup Well Can Assist Capital Raising

Great article here about naming your StartUp.

Maybe you spotted in the new “FaceBook” movie “The Social Network”  that magic moment when the guy that founded Napster said … mmm drop the ‘the’ from “The Facebook” and just call it “Facebook”.

From that moment on the new name was etched in stone.

I’ve summarised the main points below but before diving in to it … have a check first to see if the name you have top of mind before reading the article is still available.

Check your name here …  http://namechk.com/

The 18 Mutable Suggestions Of Startup Naming

1. Make sure it’s legal!

2. Hint At What You Do:

3. Make it easy to remember:

4. Make it unambiguous when spoken:

5. Make it unambiguous in Google:

6. Start early in the alphabet.

7. The “.com” has to be “gettable”.

8.  The twitter handle has to be available.

9. The facebook page should be available:

10. Keep it short.

11. Don’t leave out vowels or add punctuation.

12. Try to get your main keyword into the name.

13. Start with an uppercase letter.

14. Don’t name your company after yourself.

15. Don’t Use An Acronym:

16. Have a story.

17. Pay attention to character sequences in multi-word names:

18. Seek timeless instead of trendy:

Now … how good is your name now?

It’s well worth reading the full article at the OnStartups.com blog as each of the above points is explained in detail.

16 Steps to take for a Successful Small Business Capital Raising

Success leaves clues!

While not the definitive guide to raising capital these 16 steps certainly include raising capital secrets that have been learnt the hard way.

I’ve split the 16 SME raising capital steps in two …

1. How to make your capital raising a high quality one … and
2. How to market your capital raising.

How to make your capital raising a high quality one! (Quality)

1) Write a good Story. You need create a good story. Every week  I see application after application and the ones that jump out have a good story. That means that the fundamental business or idea is presented in a compelling story. As someone said long ago “He who has the best story wins!”

2) Locate a good Board. Gather an experienced Board of Directors. Investors want to know who is going to be responsible for the money they are investing.

3) Work hard on getting a realistic Valuation. Get advice on this. Of course your company is worth millions but if you want to attract serious investors it must be priced to get investors.

4) Security your assets for investors. Things like patents and IP need to be secure for the investors to invest.

5) Prove the concept. Ideas are great but a proven concept is worth more. OK maybe it takes longer but the payoff is bigger.

6) Get realistic numbers. Work hard with your accountant to get good realistic numbers that can be defended. Accountants will extrapolate the future on whatever you give them but you must brief them that you want them to challenge you on every figure. Even as a Start-Up you can get useful figures. Clearly state the assumptions behind the figures.

7) Choose a clear exit. Investors want to see that there is an event in the future that they will gain a substantial reward. Maybe you build your business to be sold to a strategic buyer. Perhaps it is a listing on a stock exchange. Again speak to your Accountant and gain clarity around this event.

8)  Question your Scaleability. Is your business really scaleable once you get funds. Double check the premise that makes you believe your business is scaleable. Could it be done without you?

How to market your capital raising! (Execution)

9) Build an investor list. Take out a blank piece of paper and start writing down names of people that you know think you are doing a great job with your business. You’ll be surprised how many of them have had the thought, wow I wouldnt mind owning a business like that! Dont stop at families and friends. Look wider. Note down prominent towns folk, suppliers, customers, professional and anyone else one degree or two degrees out from you in your own circle of influence.

10) Find a good writer. The Story and the Offer need to be articulated  in a way that makes it compelling.

11) Get an “Elevator Pitch“. An “Elevator Pitch” is a concise, carefully planned, and well-practiced description about “why people should invest” that your mother should be able to understand in the time it would take to ride up an elevator.

12) Get good collaterals. Considerable time needs to go in to getting good selling tools. We have found Offers on our website that include videos are 62% more successful at raising funds.

13) Build anticipation. Every big movie or music release does this brilliantly.  Long before your offer appears in capital raising publications and your offer document is “live”  you need to hold events, investor meetings, discussions with the prospective investors. You need to build good “Social Proof”. Find a Capital Raising Platform like ASSOB which has in-built anticipation tools.

14) Practice your presentation skills. Whoever is going to present the opportunity at investor meetings needs to practice until perfect.

15) Keep communicating. Throughout the Capital Raising process people will keep putting up their hands and say “I’m interested”. Make sure you keep them interested. Communicate when you get new investors, win awards, gain a new big customer etc.

16) Keep the momentum going. You probably have a business to run as well but need to keep the momentum going. This is done by regular communication with your prospective investor list.

By Paul Niederer,  C.E.O of the Small Scale Offerings Board an organisation that has assisted SME’s or small to medium businesses to raise over $100 million in the last few years.