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How to be Prepared for Investor Questions When you Present your Business Investment Opportunity

June 24, 2010 by Frank Goley, Business Consultant

By understanding what investors are looking for in a business opportunity and what their potential questions about an opportunity can be, will help you tremendously when looking to raise private equity finance and venture capital. I was in the private equity business for several years and learned a few things along the way in attracting private capital. Here are some of those crucial things I learned about investors along with some suggestions from a venture capitalist, which I agree to 100%.

Review your original Business Plan Questions for possible Investors Questions (please see my Business Plan Workbook for a list of Business Plan Questions).

Know your Product Development Plan, Marketing Plan and Strategic Plan cold.

Answer these Five Key Questions about the opportunity before the meeting:

§  Why is this a viable opportunity?

§  Why I am doing this venture?

§  Who I talked to in a similar business?

§  Have I tried out the Product or Service in the Market?

§  Has my Plan been critiqued by Accountants, Attorneys, Bankers, Consultants, Key Business Influences, Business Mentors and other Professionals?

From the VC Insider Section of the January ’09 Entrepreneur Magazine, Venture Capitalist, Brad Feld, has an Article, “Perfect your Pitch”, which lists eight common mistakes entrepreneurs make when pitching for Venture Capital:

§  Not Knowing Your Audience:  Understand the Venture Capitalist’ niche areas of investment.

§  Asking the VC to Sign an NDA:  And we quote Brad Feld directly on this one:  a Non-Disclosure Agreement “is a stupid idea perpetuated by lawyers.”  Most VCs won’t sign an NDA so why try? Present your Business Plan and supporting materials in a way that protects your interests. If a VC gets serious, then you can discuss Confidentiality issues at that time.

§  Sending a 74 page Business Plan in the mail:  Instead send a short email directly to the Venture Capitalist, personalized to him and his firm, introducing yourself and your Company.  Send him a 3 page Executive Summary and a 2 page Investment Overview if the VC shows an interest to your initial email.  The VC will let you know the steps and info needed from that point on.  For a detailed information on VC Funding, please see these articles:

·         Funding Sources for Your Business

·         How to Analyze Business Funding Sources and Strategies

§  Spamming 150 Venture Capitalists with a “Dear Sir” Email:  This is the kiss of death.  Don’t shop your deal; personalize your email; and do proper research, only targeting 1-3 strongly matched VCs at a time. 

§  Name-Dropping other Venture Capitalists:  This will result in an unsuccessful contact.  Let the VC lead, and he / she will ask you who else has looked at your deal, and who else maybe potentially interested.  VCs by their nature aren’t impressed with name dropping or pressure tactics.  However, it is good business to use other Venture Capital Firms to refer you to a VC which they feel will fit well with your opportunity.  The best referral you can get is VC to VC.  Please refer to my Business Planning Guide for tips on how to leverage a “no” from one VC into a “yes” from another.

§  Listing 27 Advisors but only one Co-Founder:  And I quote Mr. Feld again, “advisory boards, especially at the very early stages of a company, are generally useless”.  I can’t argue this point.  Strategically placed, highly engaged Advisors, numbering 3 to 5, is much more credible than having a bunch of well-known names that have little to do with your business.

§  Using the Wrong Materials at the Wrong Stages:  As a Business Consultant, I preach this to clients all the time.  It is important to have an “arsenal of presentation materials to go.  However, dumping it all on the Venture Capitalist with one big thud is rarely effective”, says Mr. Feld.  I completely agree. I suggest you have ready:

·         Executive Summary (one long version of 5-7 pages; one short version of 3 pages max)

·         Investment Overview 

·         Funding and Comprehensive Business Plans

·         Due Diligence Package

·         Product  / Service Demo

·         Power Point Presentation

·         Marketing Plan

·         Strategic Plan

·         Loan Package

§  While it is important to have all these before mentioned documents prepared and ready to go, you should always proceed slowly and provide the VC what he/she wants, when asked.  VC likes to have access initially (upon request) to a Demo or Power Point Presentation, reviewing it at his option and talking with the Entrepreneur, rather than being aggressively pitched. 

It is important to keep two key things in mind when sending VC information on your Company:

·         Let the VC lead and tell you what he or she prefers.

·         Customize all your materials to the particular VC’s objectives, background, history, track record, current portfolio, outlook, etc.

§  Thinking There are Rules that Apply to all Situations:  As Venture Capitalist, Brad Feld, says “…tune your approach to each Venture Capitalist.”  Research and a well developed Financial Strategy customized for each VC is critically important.

When researching Venture Capital Firms, be sure to find one that will bring valuable connections, experience and resources in your Industry.  Venture Capital isn’t just about investment of monies in your Company, but also a potential, valuable resource to tap for your Company’s Future Success.

Need help with your Funding Business Plan? Please see our Business Plan Packages

Posted in Business Finance.

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