Raising capital to fund your business plan is arguably one of the most difficult and trying experiences you will ever experience as an entrepreneur, as an officer, and as a board member. On any given day there are literally hundreds, if not thousands of other entrepreneurs competing with you for capital. After all, it is a zero sum game.
As passionate about your business as you are, and as convinced as you may be that you have the inside track on a solution that the world needs, today, the fact is that the chances are pretty high that your conviction is not obviously clear to most investors that you will pitch. You will need to make a convincing case as to why you are deserving of their risk capital, as opposed to literally hundreds of other equally passionate entrepreneurs that have also knocked on their door.
Let’s assume that you are right. You have a tiger by the tail, at least conceptually. You have identified a target group of investors that you believe have the capacity to write a check, and will likely do so, if only you have the opportunity to make your case.
Keep in mind that most investors that are qualified to put risk capital in play are busy folks. They see a lot of deals. They have sat through enough presentations to have sharpened instincts about the entrepreneur’s pitch, the level of risk accompanying the pitch and ultimately, whether they want to pursue the discussion into diligence or whether then need to cut the conversation short. Your preparedness is mission critical to extending the conversation.
This is where investment packaging comes in. Don’t assume that your idea or plan in raw form is going to be sufficient to win over target investors into your deal. If you do, they will almost certainly write you off, at best, as too inexperienced to lead an early round of investment and at worst, as a cowboy.
Take the time and commit the resources, to be prepared to present your value proposition effectively. We say this all of the time, and it cannot be said too much:Companies that act like public companies attract investors more efficiently, attract better investors, and achieve more favorable valuations in the process.
Public companies are compelled to transparency, timely financial reporting and best practices in terms of corporate governance. They are faced with the challenge of increasing liquidity in their stock and therefore, how best to increase and evangelize their investor base. They understand, if they are going to be successful and sustainable in the pursuit of establishing and maintaining investor support, that messaging is as important as execution.
As an operator of a private company, you will be ahead of the game if you take these lessons and implement a coherent and defensible messaging strategy from the outset. If an investor is considering whether to write a check to (a) the entrepreneur that comes prepared with a well-thought out and realistic financial model and plan, compelling investor materials that demonstrate a clear and differentiated value proposition, a well-organized due diligence data room, a reasonable capital structure and proposed “ask” in the form of valuation and a commitment to best practices in terms of transparency, oversight and corporate governance, or (b) the entrepreneur that is deficient in this regard, which entrepreneur do you think the investor will choose to work with? Which one will be considered less “risky”? Which entrepreneur will likely be able to capture a more attractive valuation?
Taking, and making the time to get your house in order before you begin the solicitation process should be a given. But it is surprising to see how many entrepreneurs hit the road without having checked these boxes. In turn, it isn’t surprising to see how many entrepreneurs wind up unfunded, or terminally underfunded.
There is never a guarantee to winning investor support. But going to market prepared, with an attention to investment packaging will maximize your chances.