By Terry Corbell
The Biz Coach
What No One Tells You about Raising Investment Capital
Investment capital is available during all economic cycles, according to leading consultant Joey Tamer.
Ms. Tamer consults to capitalized start ups and in-house ventures within the Fortune 500 to launch, build and expand technology companies. She advises product and service companies on their growth and profitability. She has consulted since the early days of the PC through to her Web 2.0 and Web 3.0 clients of today.
Her clients have included: J.P. Morgan Capital, Sony, IBM, Apple, Hearst, Blockbuster, Technicolor, Harper Collins, NEC, Time-Warner, Agfa and Scitex, and many early stage ventures such as Earthweb (IPO 1998), and iSuppli.
As you might expect, she’s regularly invited to chair venture and investment panels in technology sectors.
“In good times, risk capital is available from all sources, and they compete and sometimes share hot deals with each other; the practice is termed syndication. In downturns, venture money is available from venture capitalists who have raised their funds recently, in the past year or so, and have not yet deployed all the capital,” said Ms. Tamer. “In bad times, funds that are near the end of their seven- to-10-year cycle will use their capital to safeguard existing portfolio companies and will commit to fewer, if any, new investments.”
Ms. Tamer has proven approaches for raising money.
“Capital strategies allow the CEO to know what kind of money – private, angel, VC, strategic corporate – to take at what time to drive up the company’s valuation, and to keep control of the board,” she said. “These strategies are sensitive to economic times as well. I do not find capital for companies – that’s the job of the CEO. Another major strategy I prefer involves identifying sources of non-equity capital – strategic alliances and alternative revenue sources, bringing in early revenue rather than giving up equity at a low valuation.”
She graciously answered questions about raising funds:
Q: Regarding your five strategies for raising investment capital, you suggest creating a “unique product or service in an empty space.”
A:I often help my clients define and present their unique value proposition (UVP) – the special technology or service offering or business model that makes their company different, more valuable, and more likely to succeed than their competitors. CEOs are often too close to the business to do this easily.
During one “down” year, I defined one company’s UVP and wrote its pitch piece for its first round of outside capital, and with these documents they sold the company within eight months during a difficult investment year. Sometimes the right pitch to the right audience works regardless of the economic conditions.
Q: You warn about defensibility.
A: The product or service must be defensible from “copy cats.” Companies must beware of “proving the market,” only to have a large company duplicate their efforts and take away their market share.
Q: What do you mean about scalability?
A: The product or service must grow quickly enough (scale) to offer institutional investors a 10-times return on their investment in the first five years. Private investors are sometimes more patient or expect a bit less of a multiplier.
Q: What is your thinking about management?
A:Investors trust management teams with a proven track record of prior successes. First-time entrepreneurs should gain commitments from experienced players and advisors.
Q: How much capital should be requested?
A:Companies asking for too-little capital often are dismissed as naïve. Capital strategies should define the current round and the subsequent round that will be needed to reach break-even and to predict profitability. Also, CEOs must understand the criteria required by each kind of investor – private, angel, boutique VCs, tier-one VCs, corporate strategic money, and when it is best to engage each kind.
Q: What do you recommend to get investors’ attention?
A: Here are four strategies:
- CEOs must master a 30-second sound bite of their unique value proposition and the potential return on investment (ROI) for investors. CEOs must be able to speak and write this sound bite in one or two sentences. For investors, this is the uniqueness that will result in a significant return on investment.
- Write a pitch piece – a business plan in sound bites. The secret sauce of this pitch piece is to tell the story addressing the investors’ interests in clear powerful language. Use text (3 pages maximum) or PowerPoint (10 slides maximum). Tell the value story to the investors, not the whole story. Have full financials prepared. Investors read a summary, then the financials. Then, if they are interested, they read more or ask more. Long business plans are rarely read these days. Even 10-page executive summaries can be ignored.
- Don’t apologize. Tell the plain truth. CEOs should not aggrandize their company or UVP. An investor will discard the offer if he or she needs to verify the truth of the presentation.
- Take a power position when asking for the investment. Don’t be shy. CEOs should say what they have, why it is unique, why it will create an ROI, and what they need for capital, simply and with confidence.
Q: What techniques are best for presenting an opportunity?
A: I suggest three:
1. CEOs should explain the amount of the raise they are seeking at the beginning. Investors want to know this as soon as they understand the opportunity. This should be part of the 30-second sound bite, and stated in the first couple of slides or paragraphs of the presentation.
2. Early in the presentation, the CEO should define the projected ROI, to keep the attention of the investor.
3. CEOs should then back up their request with their pitch, in positive language and a slow, confident tempo. In the first few minutes, the CEO should define the UVP, the amount of the raise and projected ROI, and the company’s defensibility and scalability. Then, be ready to back up these assertions. At this point the investor may ask questions rather than listen to the pitch. Often CEOs get only a few minutes before being interrupted – these minutes need to make the company’s case.
(Disclosure: I write with utmost confidence about Ms. Tamer, www.joeytamer.com. I’ve had the opportunity observe her and her expertise on numberous occasions. She and I are members of Consultants West, www.consultantswest.com.)
From the Coach’s Corner, here are more of Ms. Tamer’s insights:
- What Should You Divulge When Asking for Investment Capital?
- Downturn Survival
- Leadership — The 10 Characteristics of a Successful CEO
- Eight Strategies to Consider Before Starting A Tech Business
“An investment in knowledge pays the best interest.”
Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.