What Should You Divulge When Asking for Investment Capital?



For many startups, it makes sense to grow organically. But for others, the answer is to seek capital.

So how do you get investment capital? Certainly, it’s critical to make the right presentation to investors.

Such entrepreneurs typically ask noted financial strategist Joey Tamer how much information they should reveal for venture or angel capital.

They turn to her because she’s a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices.

Joey Tamer

       Joey Tamer
www.joeytamer.com


Ms. Tamer says entrepreneurs also typically express these concerns:

  • “I’m not quite ready for a big investment until I get more early traction.”
  • “Will I weaken my position by showing how much I need and how soon I need it?”
  • “Will what I’m looking for move around the community to everyone and shouldn’t I be selective in what I say?”

What’s her response?

“The answer is to stand up and lay out your plans and your rationale,” she blogged in explaining how much an entrepreneur should tell investors when pitching for capital.  “You must treat all investors as if they will become your partners, starting immediately. If you are taking a pitch meeting, you might as well pitch.”

She astutely reminds clients that investors of all stripes do their due diligence. She warns you risk not getting a second meeting, if you aren’t candid and informative.

“It is acceptable to take a short meeting — 20 minutes maximum – or two with potential investors, to get on their radar about your idea, even before you are ready to approach them for an investment,” she explains. “You can report back on your progress of reaching your benchmarks. This establishes an early relationship with them, and allows them to watch you deliver the benchmarks you promised.”

For an example, she suggests a possible scenario:

“Suppose you are looking for angel capital now, and you are presenting to an early stage boutique venture capitalist, who invests in revenue-generating companies, but who sometimes will step down to a seed round of a few hundred thousand dollars.”

Her recommendation:

“Pitch what you want now: say $250,000, and show what you will use the funds for, and what benchmark you will reach with that seed round,” she says.  “Your potential investor might provide it and add a deal structure to his position for the next round, giving him right of first look, or protecting his investment in certain ways, even setting aside all or part of your next round.”

What’s next?

“Next you say you want to raise a Series A round after some specified consecutive months of growth,” she asserts. “You say when you expect that moment to arrive (what Quarter of what year), and what benchmark you will reach in what Quarter of what year with that Series A round.

“You can say that you will look for a growth round following Series A, once you can track the speed of your growth, and can assess competition and market conditions at that time,” she adds.

Ms. Tamer says this illustrates that you understand the big picture – that you fully grasp investors’ concerns about scalability and their likely return on their investment.

“If you look to your investors as long-term partners, this early truth telling and planning sets your relationship on the right path,” she points out.

(Note: I’m very acquainted with Ms. Tamer’s expertise. She and I are members of an organization, Consultants West, www.consultantswest.com.)

From the Coach’s Corner, here are informative resource links:

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 has proven approaches for raising money. “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,” said Ms. Tamer.

Eight Strategies to Consider Before Starting A Tech Business — So, you’ve got an idea for a tech business, but you’re unsure about your prospects. Do you know what are important strategies to consider before starting a tech business? Joey Tamer is a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices. She knows the answers.

“If you are beginning your company with Other People’s Money, it is good to have a strong relationship with the Other People and their Money.”

-Joey Tamer


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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.






How Sen. Dodd’s Financial Reform Almost Killed Financing of Startups



On the surface, former Sen. Christopher Dodd’s financial regulatory bill seemed like a good idea in 2010.

After the monstrous financial meltdown with far-reaching consequences, most Americans probably supported a strong consumer protection agency and measures to prevent systemic risk.

However, portions of the 1336-page bill, “Restoring American Financial Stability Act of 2010,” were upsetting to businesspeople — including me.

ID-100208147stockimagesIt raised red flags about startup funding.

A salient theme of this Biz Coach portal has been advocating policies for a healthy economic environment and creation of jobs.

Growth of the U.S. economy depends heavily on the formation of new businesses.

Also alarmed were angel investors, who play a salient role in the development of new firms.

Economic growth is exactly what policymakers should promote.

But the bill, supported by the Obama Administration, had provisions that would have stifled financing of startups that have the potential to attract investors.

Angel investors

Marianne Hudson, the executive director of the Angel Capital Association indicated her concerns:

  • Section 412 and 413, “Adjusting the Accredited Investor Standard for Inflation,” would prevent up to “77 percent of accredited investors” from investing in new firms.
  • Section 926, “Authority of State Regulators Over Regulation D Offerings,” would complicate the raising of funds from “different states, make it unclear what entities regulate angel investments, and introduce potential lengthy waiting periods for businesses to receive their capital, possibly resulting in the death of those businesses.”

Also at the forefront of the offensive to persuade Sen. Dodd to amend his financial reform bill was Joe Wallin, who was a partner at Davis Wright Tremaine LLP in Seattle (now a principal at Carney Badley Spellman P.S. He was one of two Seattle attorneys who worked feverishly to kill the bill. (Mr. Wallin’s bio.)

The other was Bill Carleton, a member of McNaul Ebel Nawrot & Helgren PLLC.

In an excerpted interview, Mr. Wallin explains his concerns:

Q: What would have been the new rules?

A: Before companies could accept money from investors they would have to file paperwork with the SEC and wait 120 days. If the SEC didn’t review the filing and conclude that the filing qualified for the federal securities law exemption, companies would have to file paperwork with the states in which the investors lived and wait for the states to determine that the sale of the securities qualified for the securities law exemption.

Q: What would have been the impacts?

A: Huge delays that will be very harmful to companies and job creation. YouTube was created from scratch and sold for billions in less time. The vibrancy of our early stage companies and their ecosystem would be destroyed.

Q: What was the motive for such legislation?

A: Federal legislators are reacting to frauds like the one Bernie Madoff committed. State securities regulators want more power to regulate early stage company security offerings in the hopes of preventing frauds.

Q: What else would you like to add?

A: A big theme for the Democrats is returning power to the states so that the states can make their own rules for businesses and not be stuck with federal rules that they might not like. This might make sense in certain circumstances but I don’t believe this is one of them.

From the Coach’s Corner, here’s more on financial reform and two articles with valuable tips from an angel investor:

Fair-Value Accounting Standards Aren’t ‘Fair’ — Stanford Professor — Transparency became a priority following all of the shenanigans that led to the financial crisis and the Great Recession. Banks drew fire because they used traditional accounting principles in order to downplay their huge losses from junk mortgages. The banks valued their financial assets on their original costs. That was problematic but reforms are unfair, according to a Stanford University accounting professor.

How to Attract an Angel InvestorNow that a UNH study indicates early stage financing by angel investors is more advantageous than venture capital money, what now? An angel investor offers seven tips.

Angel Investor: Tips for Increasing Cash Flow, Profits — A successful angel investor shares his tips for good cash flow and other profit issues. 

“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.”

-Peter Drucker

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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.

Photo courtesy of stockimages at www.freedigitalphotos.net


Why Women Receive Less Angel Funding Than Men



You’re a woman with a great business idea, but you’re short on funds. You’ve also heard that it’s tough for female entrepreneurs to get financing from an angel investor – someone who funds early-stage companies.

Ironically, female entrepreneurs receive less angel funding than men, even though they launch more businesses, according to a study co-authored by a finance professor, Dr. John Becker-Blease, at Washington State University, Vancouver.

The study is entitled: “Do women-owned businesses have equal access to angel capital?”

ID-10044310 ambroDr. Becker-Blease conducted the study with Dr. Jeffrey E. Sohl, who directs The Center for Venture Research at the University of New Hampshire, in 2007.

Dr. Becker-Blease formerly worked at the center prior to joining WSU where he researches entrepreneurship, corporate governance and women in business.

What is their study’s first insight on why women receive less angel capital? Fewer women than men actually apply for angel funds.

For those who do apply, Dr. Becker-Blease reminds us that investors aren’t interested in backing small retail-type micro-businesses.

“We found that women entrepreneurs submitted an average of nine percent of proposals received by our angel groups during the sample,” he said. “Indeed, of the proposals received, both women and men had an equal chance of receiving funding (about a 14 percent chance).”

Here is an excerpt of the interview with Dr. Becker-Blease:

Q: At what rates do women start business vs. men?

A: The rate of increase in the number of businesses in which women were at least 50 percent owners is quite a bit higher than the increase in men-owned-businesses. The National Foundation of Women Business Owners reports a 17 percent increase in the number of women-owned firms between 1997 and 2004, compared to an overall increase of only nine percent in the total number of firms.

Fewer women than men actually apply for angel funds.

Q: Why do fewer women seek capital than men?

A: Three possible answers. 1. Women entrepreneurs are not interested because the kinds of businesses they tend to start such as retail and service businesses are not the type that most angel investors care to fund. 2. Women entrepreneurs do not know who to ask or how to go about seeking capital. This is a by-product of their network composition. Most angel investors tend to be men (roughly 90 percent) and since women entrepreneurs are not typically part of their network, women do not know how to contact these angels. 3. There is discrimination, or perceived discrimination, in the angel capital market against women and therefore only those women with the best networks or those with the most promising business ventures will find it worth their time and effort to seek angel funding. I should note that we do not find evidence of discrimination.

Q: Why are women likely to seek funds from women angels?

A: It is not simple for the average entrepreneur to find an individual or group of individuals who are willing and able to provide two or three hundred thousand dollars worth of equity capital. Instead, angel investing appears to occur primarily within fairly closed networks.

Homophily is the tendency of individuals to interact with others who are similar to themselves, and sex-based homophily can be particularly strong. We do find strong evidence of homophily in the seeking of angel capital; men appear to seek funds from angel groups comprised disproportionately of men and women appear to seek funds from angel groups comprised disproportionately of women.

Q: How do women entrepreneurs fare compared to men in receiving funds?

A: The data suggest about the same. We have some evidence that angel groups that invest in a relatively high proportion of women-owned-businesses tend to invest more funds than other angel groups. This may be due to the kinds of businesses these groups fund, the stage of the investment, or just a quirk in the data.

Q: Why is so little known about women receiving private equity investors?

A: From the supply-side, since angel investors are not organized around a formal market, researchers have difficulty identifying them and even when we do, many angel investors are reluctant or have such heavy demands on their time that they cannot participate in academic studies. From the demand-side, identifying serious aspiring entrepreneurs, especially those in the kinds of industries that angel capitalists tend to invest in (that is, high growth) is perhaps even more challenging.

“… angel groups comprised disproportionately of men accept a higher proportion of women-sponsored proposals than do angel groups comprised disproportionately of women.”

Q: What other data did you uncover?

A: As an interesting aside, in a current project that Jeff and I are working on together, we find evidence that angel groups comprised disproportionately of men accept a higher proportion of women-sponsored proposals than do angel groups comprised disproportionately of women.

Q: What questions did your research leave unanswered?

A: We need to examine much more carefully the demand-side of the market. Why are there so few women entrepreneurs who seek funding? For a given level of quality of proposal, are men and women equally likely to receive funding?

Q: What advice would you offer women entrepreneurs seeking funds?

A: There is a growing awareness that women entrepreneurs may face added challenges in acquiring early-stage equity financing. This has led to the creation of women-focused angel groups such as The Women’s Investment Network in Portland, Oregon, which is part of the Oregon Entrepreneurs Network, www.oen.org, or the Seraph Capital Forum in Seattle, www.seraphcapital.com. Make use of their resources and any forums offered.

Well put.

From the Coach’s Corner, here’s more angel-funding advice from an expert who warns that many novice women entrepreneurs underestimate the marketplace:

“Tell women entrepreneurs they’ll encounter major competition,” said Neil Delisanti, who retired as a counselor with the Small Business Development Center in Tacoma, WA, and as a business professor at University of Puget Sound. “Advise them to assess their strengths and weaknesses to determine their competitive advantages, and to develop operating strategies.”

Mr. Delisanti said he’s observed some women are too empathetic to customers, but are more organized than men in financial and other administrative matters.

For information on raising capital in turbulent times, visit: What No One Tells You about Raising Investment Capital

“Being a CEO still means sitting across the table from big institutional investors and showing your leadership and having them believe in you.” 

-Christie Hefner


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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.





Photo courtesy of Ambro at www.freedigitalphotos.net

Seattle business consultant Terry Corbell provides high-performance management services and strategies.