Raising Capital – Contact and Business Plan Readiness
Updated 6/1/09! A business plan alone will not help you achieve your fund raising goals. Please read all prior blogs on “Finding Funding for Your Venture” to obtain the bigger picture. This article was intended as an addendum to the previous blogs.
In prior articles, I have discussed and commented on the Do’s and Don’ts of preparing your new venture to raise capital. This article is a brief summation of the issues that Business Advisors or other professionals run into when asked to assist people raise capital. If you have additional or different information to share please comment. If you are someone seeking to raise capital, perhaps you will find a reason listed below that is preventing people from talking to you.
· Fund raising is about relationships. Introduce yourself, your company, your vision (briefly).
· Include in your contact that you have a completed business plan or equivalent. If you do not have a business plan no one will take you seriously and will regard your email as spam. If should come as no surprise that over 90% of request for fund raising assistance do not have this information ready.
· Discuss your goals and objectives. Recognize that raising capital costs money and understand that less than 4% of all ventures that have completed business plans and are able to present their idea, will achieve funding. Therefore, you should not expect someone to assist you for free or “sweat equity” only. You should be able to pay expenses and probably more.
· A professional will want to see your business plan in order to assist you in raising capital. If the person you contact has no interest in the actual plan – it should be sending a huge red flag up. Reviewing a business plan takes time. Expect to pay for this service time. Do not expect to pay large upfront fees.
Business Plan Issues: As previously mentioned, my prior articles explained business plans and their components. This next section pays attention to the Marketing Plan and building your financials. These are critical sections and require further comment. Your business plan should be able to demonstrate the following:
· Demonstrates that you have thought your idea through (not a $250 to$ 1,000 cookie cutter business plan)
· Details your vision and why your idea will fulfill a need.
· Demonstrate that you are not doing this all alone and have advisors, management and staff willing and able to take part.
· Details a thorough marketing plan. The market plan is used to explain how you will achieve your revenue goals. It explains who you will hire, when you will hire them, what their role is and how they will be measured for success. Example: Sales rep hired in June, target goal of 100 units per month, marketing will be conducted by XXX, using tradeshows and print media etc.
· Shows that your venture will be built upon solid business applications and are its construction is from the “Ground Up”. Never assume a % market share or the number of sales units. You must explain how you will achieve them. This applies to ALL ventures. Tangible products (medical devices, food, manufacturing etc.) are easier to visualize than internet sales. Talk to sales professionals in your industry and understand the sales cycle. Detail how you will get clients and when.
Building the Financials: Budgets, revenue and expense forecasts are built from the information that is contained in your Marketing Plan section. “Ground Up” building means that you have mathematically modeled your financials based upon the staffing, objectives and resources available. Your 3-5 year projections are based upon identified parameters of growth, sales and risk assumptions. When reviewed you will be able to explain the following:
· Why you need the money you are seeking to raise
· How it will be used
· How will the investor achieve their return
· How you will make money
Make sure to apply common sense. Know how many sales and how long will it take to achieve a positive cash flow? If you are seeking $1,000,000 in start-up capital and your average sales price is $1,000 – it will take more than a thousand sales to earn this amount back, pay interest, pay wages, other expenses. Once your forecasts are done, you will need to do an Income Statement, Cash Flow projections and a Balance Sheet all reflecting the amount of capital being sought. Finally, when you think you are done, cut your revenues in half and double your expenses.
Subsequent Contact: If everyone gives the plan a thumbs up, negotiate services and compensation.
Hopefully I have given entrepreneurs some insight as to what is necessary to start a new venture by raising capital. There is never a guarantee that you will be successful in raising capital. However, to increase your chances you need to be prepared.
If you need assistance in getting your venture going, contact The Entrepreneur’s Advisor®. We are the elite yet modestly priced to fit most budgets. Our advisory and implementation services range from simply having someone to talk to, business plan assistance and review, setting up operations and infrastructures, raising capital and mentoring.