JumpStart: IdeaExchange Blog

The challenges of raising investment capital for your business and how to best prepare for an investor have been well documented by many industry experts. Yet having witnessed scores of presentations over the years I find that many entrepreneurs routinely miss a few key areas. And while there are certainly no guarantees or full-proof plans that will automatically result in successfully raising capital, the following suggestions should help you along the journey:

1. Present your business with energy, enthusiasm and confidence –- if you’re not excited about your business endeavor you’ll have a very difficult time getting an investor excited.
2. Know your business and industry cold – take the time to really understand and segment your chosen market. Know the trends, and consider doing a SWOT analysis on your chosen market (Strengths, Weaknesses, Opportunities and Threats).
3. Know your competition cold –- don’t make the mistake that so many have in assuming that “No one else is doing this”. If your investor discovers a recognized competitor that you should have discovered, you have instantly damaged your credibility.
4. Consider a comparison chart that demonstrates your unique advantages versus key competitors.
5. Clearly articulate your Value Proposition and what “makes your business so special’, and further explain how your unique competitive advantage represents both a significant barrier for your competition as well as a real benefit to your client.
6. Do your homework on the overall size of your market both domestically and internationally. That includes both consumer and commercial applications if applicable (overall market size or potential should approach $1 billion or better to really get the attention of investors).
7. Explain why you or a designated team member are the best candidate to serve as CEO.
8. Secure or “tee up” a deeply experienced management team. The people you surround yourself with are often the key deciding factor in securing investment capital.
9. Present a clear and “executable” plan to exceed $30 million in annual sales potential within 5 to 7 years. Remember that investors have options; they can choose to invest in any number of opportunities from traditional stocks and bonds to other high growth businesses. If you’re going to convince an investor to support your vision, you have to paint a large enough and clear enough picture that makes choosing your plan worth the risk.
10. Make sure the “assumptions” that drive and support your financial projections have been reviewed by experienced personnel so that such key items as unit sale prices and costs per unit have been thoroughly vetted.

As stated previously, in the journey of raising capital there are no magic bullets or guarantees. By incorporating these 10 tips however, you’ll be well on your way to dramatically improving your chances for success!

Darrin is Chief Economic Inclusion Officer of JumpStart and President of JumpStart Inclusion Advisors. He founded and ran his own strategic planning and management assistance firm and spent 16 years in the commercial banking and finance industry. Darrin has an MBA from Baldwin Wallace College and an undergraduate degree from Mount Union College. He has led a series of workshops and seminars on matters of economic development and diversity.

All serious daring starts from within – Eudora Welty, American author

Entrepreneurs who have already had one smashing (job- and wealth-creating) success and want to create another one are in short supply everywhere. To my mind, that’s a good thing. It avoids the creation of an aristocracy of entrepreneurs, a conceptual paradox if ever there were one. If, by definition, not every entrepreneur can be a seasoned entrepreneur who has already grown their company to create thousands of jobs, then most entrepreneurs have simply gotta be given their big break. So, the key thing for the entrepreneurial community and its supporters is to have a handle on some good, observable signs that an entrepreneur could be that next high growth, high potential, entrepreneur whose idea and skills are so great that they will grow a company that creates hundreds, even thousands, of jobs. If the signs are there, then holy cow – it’s our job to give them their break (says the preacher to the choir)!

What are those observable signs? How about greasy hair, a geeky disposition, propensity to drop-out of college, and a willingness to crush anyone who stands in the way of their dreams – is that good measurable criteria for excellence in entrepreneurship? How about high testosterone? Not only are most venture-backed companies male-led (for brevity, I won’t go into a full blown discussion of this topic), but it has been posited (perhaps unreasonably) that the world’s youngest ever billionaire, Facebook’s founder, Mark Zuckerberg, started Facebook to meet girls. 

Alas, the reality of most first time entrepreneurial successes is slightly more prosaic to such hormonal poetry. Top entrepreneurs first and foremost demonstrate excellence. Whether they are young or old, if they do something — sports, clubs, jobs, hobbies – they do it well. If they’re young, you can’t see their rising-to-the-top tendency within a company, but you can see this rising-to-the-top attitude at their school or in their hobby. If they majored in Computer Science in college, they didn’t just do their work — they wrote new programs and won contests or made money with the programs. If they played football, they didn’t just play — they were captain of their varsity team. They didn’t just do volunteer work, but they started a small non-profit doing something in a way that they believed no other non profit was. If they’re not college-aged and actually have a career history to look at, you can see how this excellence plays out in their career. They don’t just work at a company, but they do their job with excellence, achieving results, growing business units, and gaining increasing nationally significant influence as they move through their career. 

Secondly, top entrepreneurs’ excellence is observably adaptable. This proven flexibility/adaptability is a signature trait of entrepreneurs. Myself, I always look for three points of adaptable excellence. Why? One point is just a point; two points is better — it’s a line; three points is best because it makes a plane. Three points of excellence shows not just excellence but adaptable excellence. So, can you look at their accomplishments and see three points of adaptable excellence? I have found this rule of thumb to be surprisingly predictive, and in fact we did a pretty deep analysis at JumpStart that bore out that this rule of thumb is worthwhile. However, I also believe that everything’s contextual. So, for instance, if I come across a college-age entrepreneur, I am definitely willing to take just one or two points of excellence and extrapolate that there’s good adaptability there. If I weren’t, then my fabulous theory would, I think, have me miss out on Bill Gates, Michael Dell, and hundreds of the world’s most successful entrepreneurs. Similarly, if I come across a first generation immigrant, I give them one point of excellence simply for being a first generation immigrant. 

When you add in this contextual element, then this concept of adaptable excellence sounds brutally obvious. I mean, who’s looking for adaptable mediocrity? Don’t we all look for adaptable excellence when we financially back someone, partner with them, work for them, or hire them? What I would say is that when you actually put it to the test, the quest for true nationally significant excellence (true rising to the top at whatever someone does) and proven, multi-point adaptability takes one along a narrow and non-obvious path. Along this narrow and non-obvious path, what you discover is that great entrepreneurship may show itself in a variety of forms, contexts, and phenotypes — immigrant, school teacher, child genius, college drop-out, periodic wife, charming geek, and more. But, true to Eudora Welty’s quote, its inner drive is always initiative and daring. And if you were to translate this initiative and daring into a resume of these individuals and most great entrepreneurs, then nine times out of ten, it would very early on — before the successes truly started rolling in — look like the more boring but eminently more observable concept of adaptable excellence. 

So, adaptable excellence, it matters. Because those people who show adaptable excellence (e.g., Sergey Brin, Pleasant Rowland, Thomas Edison, Michael Dell, Estee Lauder, and Bill Gates) build great companies, like Google, American Girl, GE, Dell Computer, Estee Lauder, and Microsoft. They constitute the constantly replenished meritocracy of great entrepreneurs, and in turn, the constantly replenished growth and wealth of our nation and in these trying times, hopefully, our world.

Becca Braun is COO of JumpStart. She founded and led a number of early-stage companies and organizations, as well as worked as a private equity investor and management consultant. She received her MBA from Harvard Business School and her BA in Linguistics from Harvard University. She is keenly interested in the intersection of wealth creation and broad-based regional economic growth.

I have coached a number of entrepreneurs during my time at JumpStart and TechLift, and presented to a number of investors while raising venture capital for my company during the worst venture funding climate ever (yes, much worse than today!). From those experiences, it has become apparent to me what most investors do and don’t want to see in the presentation about a potential investment. Although some companies hit the mark (and probably attract funding), it often amazes me how many entrepreneurs miss the opportunity to tell their story in a way that will get an investor interested.

Although there are a lot of “dos” in making your presentation, at the risk of being negative, here are some of the top mistakes that I have seen entrepreneurs make (or have made myself) and how to avoid them:

Going into excruciating detail on the technology - Investors do want to know about your technology. They don’t however, want to do so at the molecular level, or hear about the technology for two thirds of your presentation. Although most VCs are technically competent, they don’t often have a physics or engineering background. You should find a way to describe your technology, products and benefits in a “Discovery Channel” format - simple, clear, yet accurate and truly descriptive in a concise way. Nearly every technology can be described this way; it just takes work and taking a fresh look. 

Failing to tell them how you make money - Otherwise known as your business model, investors need to know how the business makes money, how you get to market and how you entice customers to come your way. Software and internet companies often struggle with this. If you have a SAAS model, are depending on internet advertising, are planning to sell direct, or use distribution - tell them! If the particular model you are using gives you a unique advantage- tell them. Even if your model brings some difficult challenges, talk about them. If the investor feels the need to ask you “How do you make money?”, things are already going badly.

Giving detailed five year financials - Do entrepreneurs really think that investors believe their projections for travel costs in the year 2011? Not only do they not believe that, they are heavily discounting your revenue forecast! Investors want to know the high level financials - your projected revenue, your projected gross margin, how much cash you need to develop the business. Leave the detailed, unreadable spreadsheets out - there will be plenty of time for them in due diligence or later. 

Not bragging - Investors generally feel that the management team is the most important factor in a venture investment. Despite this, many entrepreneurs are reluctant to tell them why they are the best people possible to bring their great idea to fruition. I once coached an entrepreneur who had an MBA from a top ten school, and didn’t want to include it in his presentation, because he thought it would be pretentious! Tell investors about your educational background, your market experience and definitely your entrepreneurial background. You are the only person who can possibly brag about your accomplishments, abilities and potential - don’t be shy about doing it! 

Not describing the “special sauce” - If an investor says “good idea, creative, but easily copied”, the deal is gone. You need to convince an investor that your approach is unique, or that your advantage is sustainable over the long term. They would like to know how you can protect their investment with patents or trade secrets. If it is easily copied, they want to know how you can “run faster” than the competition, based on savvy, unique capabilities or other factors. If it is “me too”, venture investors aren’t interested. 

Failing to create the “Oh wow!” moment - If you can get an investor to say to himself or herself “Wow - if they can do that, this is significant” or “I LOVE this idea”, you are well on your way toward a potential investment. You have to create a story that does this for the investor. Paint the picture of the problem you solve, how your product solves it better than any other alternative, and how the revenue potential is huge. 

Avoiding these mistakes won’t guarantee you an investment, but making one or more of them will certainly prevent you from getting an investment. Don’t make the same mistakes I and many other entrepreneurs have made. Learn from the mistakes of others - and make that killer investor pitch!

Chris Mather is President, JumpStart Entrepreneurs-in-Residence. Previously, he managed a number of technology initiatives in Northeast Ohio for NorTech. Before entering the economic development world, Chris ran a number of technology companies in Northeast Ohio and New England, including Ion Optics Inc., where he raised $6.7 million in venture capital, and Apsco Inc. and Gould Instrument Systems. Prior to that, he spent 13 years in sales, marketing and management roles with Hewlett Packard after graduating from Worcester Polytechnic Institute with a BS in Electrical Engineering.