Dave Levinsky at Growthink’s 8 Secrets to Raising Capital
Link to radio blog http://www.growthink.com/node/1635
1. Target the right types of Capital.
VC might NOT be for you. VCs want large growth, scalable, money to spend on huge growth. Normal Businesses are not great for VC.
Most firms seek 1 type of capital – there are 40 types of capital to raise
Google raised from all VC, FFF, Credit Cards, Bank Loans, Angels
2. Avoid raising wrong amounts of Capital
Identifying how much you need to determine who to raise from (source of Funds).
Too much equity – give away control
Too little – not great
Where to access Source of Funds is important. For example: a VC will only invest > $1m, an investment of $500k not appropriate. VC manage massive funds – fewer deals – bigger amounts
Short term cash for long term growth – not great
3. Develop a strong Business Plan
Don’t make mistakes in your business plan….
Make the plan SIMPLE and easy to understand….. Make the pitch simple and compelling. Make the investors/lenders “get” what you do.
Don’t say that you are so unique –
Don’t define the global market size – “we are investing in the trillion $ health area” rather do the relevant market size… what is the opportunity for the company if they get 100% market share.
Define “specific Market” Health, Medical Devices, Stent Market
4. Prepare a detailed Financial Forecast
Make it compelling and believable…..
5 key elements in financial plan
1. Revenue Streams –
2. Where it comes from need to be detailed
3. Projected P&L – future based on past – Income Statements, Balance Sheets and Cash Flow Statements. Numbers need to flow from rest of plan. Marketing, Employees. Summary in text and in appendix full financial data. Existing company – why you are projecting what you do for next 5 years.
4. Validating Assumptions – penetration rates, head counts etc – Make your assumptions feasible.
5. Exit Strategy and Payback Potential. This vision needs to be crystal clear. People are investing because they want a return on their investment. Describe comparable firms that have achieved liquidity events from M&A or public offerings. Ability to get a liquidity event is clear.
5. NETWORK and RELATIONSHIPS offline and online – investor will invest with the CEO who is introduced by a close friend. TRUST , NETWORKING and RELATIONSHIPS are Key. Industry events, forums, trade shows, linked in, facebook….
6. Be CREATIVE and INNOVATIVE – when it comes to finding finance.
a. Give me $500 now and I will give you $1000 worth of Product
b. Convertible Notes
c. Free equity with stapled loans
d. Anything that will compel the investor and make him comfortable that the investment is compelling and there is a strong likelihood for the investor to get an ROI
7. GOAL IS TO HAVE A FACE TO FACE MEETING WITH INVESTORS
Best investors and lenders are inundated with business plans and difficult to get the attention. Most VC have forms that can submit there business plan. Seldom followed up… collected for research – for competition, for markets etc…. do a teaser email first… then exec summary –
a. Goal is a face to face meeting… .looking you in the eye – you will be using their money to generate profits and creating successful businesses
b. Meetings result in financing
8. Use Advisors to help you raise capital and help you with your business
get a board of Advisors – to help you. Use people who can assist. Compensate with success fees, equity. They need to have expertise in your field, functional expertise, marketing expert, technology expert, financial expert.
a. Practice and Pitching to Investors to lenders. If you cant pitch an adviser to spend time on your business, you won’t get someone to invest money in the business.
b. Advisors have connection to capital.. They can invest direct (Angels) or have contacts as they have been successful in the past. A successful person lives among successful people.
c. Credibility in eyes of Investors and Lenders… if you can get a key adviser – you have something… having a brand name quality adviser gives you credibility
d. Operational Success – Entrepreneurs think they know it all… they DON’T !! Successful advisors have been there and can help you through operational issues.