(TEN Steps to Packaging a Company for Investment)
Entrepreneurs starting a new business are usually
totally focused on the definition and development of the entrepreneur’s
product idea. After all, most
businesses are started when an entrepreneur discovers a need or problem which
he/she feels has not been solved elsewhere.
The entrepreneur usually begins immediately to develop this product
concept with an intensity born out of a strong desire to be the first one to the
market with this new product.
There is no question that the definition and
development of the initial product concept is critical to starting a business,
but if you are going to build a successful business that can attract venture
capital, there are a number of additional activities which must be completed
simultaneously with the product development.
These activities together are called corporate
development for start-up companies.
With all due respect to David Letterman, the
following are the top TEN corporate development activities required to package a
company to be attractive to venture investors.
10.
Determine the Rationale for the Company’s Valuation.
Many entrepreneurs have an unrealistic idea of how much their company is worth. If the valuation is not rational, you may not get funded. Valuation is often determined by comparing your company to the valuation already given other similar companies. It is based on your company’s stage of development. It is also based on the present value of the profit and cash flows from your business plan. At any rate, get help and listen to your attorney, advisors and Board.
9.
Determine the Best Funding Approach for Your Business.
Institutional venture capital is not the ideal funding source for all businesses. Other approaches include utilizing business angel investors and corporate strategic partnerships. Angels usually provide advice and assistance along with their investment. Corporate partners can provide value added in the form of distribution channels, marketing, manufacturing or complementary technology. Each of the three approaches have positive and negative aspects. Consider all funding approaches for your business.
8.
Recruit a Credible and Well Known Board of Directors and Law Firm.
Unless your name is Bill Gates, Larry Ellison, Scott Cook or another famous Silicon Valley entrepreneur, you probably do not have the credibility and track record to get venture capitalists to line up outside your door. You need to surround yourself with credibility. Recruit the best and brightest Board of Directors you can find. These people will attract investors. As well, you must convince a top law firm to represent you. A good law firm will provide sound advice during your financing stage, and will provide introductions to investors as well.
7.
Recruit the Key Members of Your Management Team.
Starting a business these days is a formidable challenge. No one can do it alone. No entrepreneur is expert in engineering , marketing, sales, finance, etc. all at the same time. You must build your dream team by recruiting top flight professionals who bring track records, credibility, complementary skills and good chemistry to the team. Your potential investor will carefully examine the team you have put together.
6.
Move Out of Your House and Into an Incubator or Office.
I know how much fun it is working at home with no shoes on and your dog sitting on your lap, but this is not the best environment to start a business. Your need to have a facility where you can bring your team together, meet with customers and investors, and can look and act like a real business. Check out an incubator for low cost space and excellent and knowledgeable business assistance. The TEN/NASA/Ames Technology Commercialization Center and the Software Business Cluster are both superb places to start your business.
5.
Prepare a List of References and Reference Accounts.
This is obvious but your potential investor will ask for both personal references and customer references. This is also true for each member of your team. Think through who you can use for a current reference, check with those individuals and put the names and telephone numbers on paper ready to hand out.
4.
Know Your Competition. Demonstrate
Your Sustainable Competitive Advantage.
Your potential investor will question you extensively about your actual competition and your potential competition. Do your homework by obtaining products, literature, articles and write-ups on your competitors. Thoroughly analyze this information and prepare a complete market and product comparison chart indicating your strengths and weaknesses. If your investor knows more about your competition than you do, you are dead.
3.
Prepare a “Fail Safe” Demonstration of Your Product or Technology.
If you have been able to bootstrap your product development and have the product complete or in prototype form, prepare a demonstration which fully shows the sex, sizzle and benefits of your product solution. “Can it”. That is demonstrate in an environment where you know the demonstration will not fail.
2.
Develop and Practice a Passionate Oral Presentation of Your Business.
At some point you will get the opportunity to get in front of potential investors. You must be prepared to provide an oral slide presentation of your business. You must appear to be knowledgeable, articulate and passionate. If you are not enthusiastic, your investors will not be either. Practice, practice, practice.
1.
Develop a Comprehensive and Compelling Business Plan.
JUST DO IT!