This list is designed to work as a process flow chart - if you are missing any of these items, you shouldn't, in my opinion, proceed to the next one - unless you're a proven serial entrepreneur, in which case you can reduce this list to the one thing than transcends everything else: previous success. Until then:
1. You Need: More Than an Idea
Investors rarely invest in "ideas", regardless of what it says on their web sites. The only guys who obtain funding on the basis of an idea alone are serious scientists with a history of transforming molecular structures into highly successful drugs, or serial technology entrepreneurs with a history of turning ideas into valuable products or services.
To obtain funding, you need more than an idea, you need a great, tangible expression of that idea, preferably in the form of a prototype or better still, a debugged, revenue-producing, fast-selling product.
2. You Need: More Than One Guy
It is rare for investors to find an engineer that is equally enamoured with balance sheet mechanics and shell commands, or vice-versa when it comes to marketing-based visionaries. For that reason - and for practical reasons, such as insurance against something happening to the main guy - you need a team.
As with point 1, some investors may be prepared to take a chance on a guy they know is capable of pulling together strong teams, but whereas you need to take "we invest in ideas" with a grain of salt, you can take "we invest in teams" to the bank. Investors, with very few exceptions, invest in teams.
3. You Need: An Experienced Lawyer
There are numerous reasons why it's important to have an experienced lawyer. One of the most important is that the sale of securities is a heavily-regulated activity. And although sending out a handful of business plans to VCs is okay, sending out fifty business plans to non-accredited would-be angel investors could land you in hot water. Especially if it says "LLC" or "Inc" on the bottom of the offer page and you haven't incorporated your company yet (this happens more often than you might think - see point 4).
Lawyers can also be very helpful in directing you to investors (see point 8). They can also help you make sense of offers and pre-define your thinking around valuation and structure. If you're looking for investment, get a lawyer.
4. You Need: A Corporation in Your Country of Business
Some guys gave me a pitch a few months back that I thought was brilliant. The target market was huge and their business model was well thought-out. The team was super-experienced in the space. The catch? They weren't incorporated in the US. Though their business was in the US, they would not budge on their (not so great, IMHO) idea of being incorporated in the British Virgin Islands.
Never forget that while you may think the objective when pitching investors is to obtain capital, the real objective is the sale of equity (or other rights) at the best price you can get. You can only obtain investment is you have a capital structure available in a form and jurisdiction that works for the investors.
5. You Need: Someone of the Team Who Loves Excel
Three times in this past year, I have seen balance sheets in which the assets column didn't match the sum of liabilities and equity.
And I'm supposed to believe the sales projections?
6. You Need: A Business Model Based on Solid Assumptions
I'm saying this for your own good. It is possible to get funded without a clear - or proven - business model, if your technology does unique, valuable things for people on a frequent basis (i.e. Google, prior to AdWords). But you will need to sell much less equity if you present a coherent business model early on in the funding process.
And please, while your business model preferrably needs to address a massive un-met demand, your projections will be debated much more seriously if you can justify and show detailed market research that backs your assumptions. In my experince, a surprising amount of people don't research their assumptions, and some appear to make their projections up out of thin air. Make sure your model doesn't crumble the first time someone pokes at it.
7. You Need: A Thorough Understanding of Who You Should Pitch To
Nothing wastes more time than the pitching of seed-stage idea to a late-stage VC. If your idea is early-stage, make sure you approach the appropriate early-stage investment firms. If your idea is late-stage, at least speak with an investment banker - you have more funding options available to you than you're probably aware of. Most VC firms clearly state the kind of investments they're looking for on their web sites.
Likewise, once you're engaged with the firm, if your particular innovation involves software, make sure you're talking with the software guy, not the life sciences guy. Learn about the stuff the partner has invested in. Make sure they haven't invested in your competitors, or all you'll end up doing is handing them a bunch of great intel. Take time to research the folks you'll be in the room with on the day you pitch.
8. You Need: Access to a Long List of Suitable Investors
Although there are exceptions, most VCs won't take a meeting with some guy they've never heard of before, and fewer will act on a business plan reveived by email. Many come out and say this on the "contact us" pages of their web sites - i.e. "you should contact us through one of our portfolio company executives or someone else that we know and trust".
Fortunately, there are many people who can easily assist you in hooking up with a VC partner. I've always found lawyers and bankers to be the best connected, but successful entrepreneurs usually have a long rolodex of folks and are quite often happy to share it. Avoid retained finders - that's my personal viewpoint. Any finder worth their salt - and in love with your business - will work on a success basis if they truly think you have something valuable.
9. You Need: Milestones You Can Achive During the Investment Process
I once made this mistake myself - pitched investors a business plan with revenues inked in for the next two months, then missed the targets. Including short-term revenue targets you probably won't hit is something most experienced entrepreneurs know to avoid - they know that if they do this, the first question asked by the prospective investor in the second meeting is is "so how did you guys do on your projections this month?"
There is a way you can turn this around to your advantage - if you have confidence in your numbers. A company I know recently pitched several investors and then went on to *beat* their target sales numbers for the next three months, while the investors conducted their due diligence. This created an extremely positive response from the folks they pitched. They will get their money, I've no doubt.
10. You Need: An Understanding of the Process - and Patience
I've lost count of how many times I've heard folks say they need funding in four weeks (or less!) Having an understanding of the time it takes to bring on an investor will allow you to properly stage your meetings, not try and overwhelm everyone on day one, and plot your course towards the milestones. Not having this understanding can make you appear desperate and unknowlegeable. Desperate and unknowlegeable entrepreneurs, it should be said, rarely get funded.
It takes usually three to six months for the investors to get to know you and your customers, and understand your technology enough to close a deal - even longer on some complex deals. If you're smart, you can use this to your advantage (see point 9) and hopefully achieve a great result.
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