This morning, UITA held a breakfast meeting in Utah County with David Bradford and Fraser Bullock. David is the former General Counsel at Novell and does venture capital funding now. Fraser was the COO of the Salt Lake Organizing Committee for the 2002 Winter Olympics and is now the CEO of Sorenson Capital. The topic was "The Dos and Don'ts of Accelerating Your Funding Success."
David says that the initial impression that you have on an potential investor is the most important meeting you'll have. That meeting may be in person, or it may be the business plan, an executive summary, or a PowerPoint. Investors don't want to cull through a lot of information. The typical investor will initially only spend five minutes looking at the business plan or summary Highlight the most important points. Investors are looking for ways to say "no." What are the most important things you can do?
- Make sure you relate to a specific pain that's being felt in the marketplace. Pain is a market opportunity. David tells the story of two real companies. Company A had $21M in sales last year and an EBITDA of $3M. Company B had $250K in sales. They were both founded in 1998 What's the difference between these two companies? Company A knew that State and Municipal governments were over paying workers compensation claims. Their business plan talked about the specific problem they solved. Company B's business plan talking about why they had great founders and how they were going to solve the "homeland security problem."
- Don't over-hype your company. Leave out the superlative phrases. Lay out the facts. Let the investor judge the quality of what you're doing.
- Don't try to be all things to all people. Most investors prefer to see a focused strategy. Founders see all the ways that their company can create value, but investors want to see the focus.
- Have a sound "go to market" strategy. make sure its clear how you're going to approach to market. Don't talk about all the ways you might reach the market. Pick one and develop it.
- Don't say "we have no competition." Talk realistically about your competition and why you're better. "No competition" translates into "no market need." Anyone else who's competing for the same dollars is your competitor.
- Keep your presentation concise. Economize on your words. An ideal executive summary is one or two pages. An ideal PowerPoint is ten slides. Don't be boring. Document the details elsewhere, such as the R&D plan, the sales plan, or the marketing plan.
- Don't be too technical. Business plans written by techies tend to be filled with jargon that the investor won't understand. The technical details can be fleshed out in the due diligence.
- Get an introduction from a trusted source. Its difficult to get a meeting with a cold call.
- Understand that only cash is cash. Revenues, profit, etc. are not cash. Too many companies get into trouble with cash flow even thought the accounting numbers are OK. Slight timings of when cash comes in can bankrupt your company.
- Don't wait until its too late to go out and get your funding. Allow plenty of time to raise money. Assume that it will take 6-12 months from the time you make your first investor presentation until you have cash in the bank.
Fraser mentions an alarming statistic. In 1983, Utah's average wage was 96% of the national average. Today, the average wage in Utah is 76% of the national average. If you go through he math, any job less than $36,000 per year is a net drain on the economy. Raising money is tough work, but it creates companies that provide high paying jobs. Here's Fraser's advice:
- The ultimate success factor in your business is "is it a good business?" What are the distinctive competitive advantage that you have. This starts with the management team. They need to be tenacious. They need to have done it before. They need to know what it means to survive. Fraser recommends "Good to Great." Look at the depth of the management team.
- What is the compelling business need for what you do? For people to change their behavior, you have to have something thats ten time better. It can't just be a minor change.
- Are you better than the completion? Always look at your competitors because they're coming after you.
- What are your distributions channels? You can have the best product, but if you don't have great distribution channels, you can't sell your product. Business to business is easier than business to consumer. Strategic relationships that are real are invaluable. Form the strategic relationships.
- Executing your business plan will take longer and cost more than you think. This is a tough balancing act because you want to raise the minimum amount of money you can to avoid dilution, but you have to have enough to survive. Your funders will require that you live with your business plan. Make sure you can.
- Get a good board of directors. Large boards are ineffective. Five to seven people is optimal. Pick them carefully. Find people who can give you good guidance, can give you opinions and can network you.
- Watch every penny. A company's money is a precious resource. Don't waste it. Distinguish between "must-haves" and "nice-to-haves." Set an example from the top. Fraser recalls that the first SLOC board meeting after he and Mit came on board, they served pizza and changed the directors a buck a slice. That sends a message.