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.

I’m back from New York with a whopper flu bug (not swine, don’t worry…), a faux orange Goyard bag and a working knowledge of Twitter. Using Twitter has been interesting, though based on my usage I can’t figure out how the company is ever going to make money. It’s free to sign up. There are no ads on the web page. There are no ads embedded in the tweets that come to my Blackberry. (I signed up for unlimited text messaging from T-Mobile in order to receive all those tweets, so I know they’re making money from me. But how is Twitter, the company itself, going to make money?) If anyone can think of a revenue-generating business model, please share . (NOTE: I realize that Twitter has raised a bunch of venture funding which gives them the luxury of time before they have to show revenue, but they’re in the minority for sure. Here’s a great post from Charlie O’Donnell of Path101 that speaks to the current funding climate and how it’s imperative for startups to figure out their revenue models quickly.)

I’m continuing here the theme of my last blog in which I mentioned a great article featuring “lessons learned” from a failed startup. That blog resulted in folks sending me some similar stories that I’m sharing here. I’m not trying to focus on the negative but, as most people say, there is much to be learned from adversity, perhaps more than from success. This article by Mark Goldenson of PlayCafe features great advice as well as tons of great click-throughs to even more relevant content; this article by Roger Ehrenberg highlights the seven deadly sins that brought down Monitor110; and this blog post discusses the story of Meetro, a failed location-based social network. Maybe Twitter’s management can find some useful info in these insightful pieces, as can you. And if you’re an active Twitterer (Tweeter?) let me know what you think of the service. Better yet, send me a tweet! (@lagries)

Lynn-Ann Gries is the Chief Investment Officer of JumpStart Ventures. She previously worked in the investment banking departments at both McDonald Investments and Smith Barney (now part of Citigroup), and in the sales and trading area at Morgan Stanley. She received her MBA from New York University’s Stern School of Business and her BA in Economics from Smith College. She currently serves on the board of the Fund for the Future of Shaker Heights, the Great Lakes Science Center and Summer on the Cuyahoga (SOTC).

One of the key attributes of many startups focused on an online offering is that you really can make it a long, long way towards your actual customer offering on very little money. This presumes you can either do the technical work yourself or have a close, understanding friend to help out. The other alternative is to get outside help (an individual contractor or firm) but this costs real $$ unless you can craft a way to do it in exchange for equity, presuming you have your company, cap tables thinking and documents far enough along to be able to do this formally. But that’s for a different post! My post today deals with the timing of seeking investment when you are developing this kind of startup.

So, you’ve been able to get your idea down on paper and have at least an outline of a project plan to work against. And, you’ve found that very understanding friend to help at night and during the weekend. Next stop — quit your job? Write a business plan? Fundraising? You’re excited enough about the idea, as are your friends and family — at least enough to convince you to “go for it”. Can that excitement and some mock-ups in PowerPoint get you in front of investors?

Maybe. But that would be a mistake, in my opinion. Given the stage the business is in (really still at the concept stage), most savvy investors outside of friends and family will see a lot of risk still inherent in your deal. My advice would be to keep your day job and get the product underway — as far along as you can while still garnering an income. By this I mean get your web offering developed and in front of real customers so you can both test its appeal as well as test your business model. Google analytics provides a great facility to better understand what visitors are doing as they come to your site. As you gain knowledge from this data and elsewhere (through things like focus groups), you will need to make iterations to your code and site and do it quickly. If you have the bandwidth from a development standpoint, you should be updating your site at least weekly.

These iterations should allow you to connect with your audience in such a way that you can either charge them, charge advertisers, or both in order to begin to see some revenue. If you’ve gained enough traffic to do either, then you may be at a point to be able to secure funding. As I stated earlier, since investors will want as little risk as possible, showing an increase in traffic and your vital metrics will give them hope. One thing that has drastically changed recently, for the negative, are advertising based models. Since the economics of these are such that HUGE traffic is needed to show viability, sites that count on advertising as their only source of revenue will take longer to gestate. I don’t say this to discourage anyone — just to get the point across that it may take more time for these kinds of sites to be ready for an investor to see the growth curve they want in order to be comfortable.

If you can stay lean while you iterate and find that growth curve (it took YouTube a while, after all, before they found their “hockey stick” of growth trajectory), you can make it in the long run. Any time you have an audience that is large, growing and enthusiastic about your idea, advertisers will come around eventually, as will revenue. Twitter is another great example of this, i.e. no real revenue yet but they still manage to garner great support from investors as they work out their revenue model.

It’s all about the product offering — make it compelling, prove it with metrics and with even a small amount of revenue that proves the model, you should be able to find an investor attracted to your “near-proven” idea. These basic statistics will help take a lot of risk out of the deal for them.

John Dearborn is the Chief Development Officer of JumpStart and brings experience as an entrepreneur, founder and CEO at companies across the US and Europe over the last 25 years to the pursuit of economic transformation in Northeast Ohio.