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Bill McCready
If I Only Had $50,000!
Entrepreneurial success. What does it take?
”If I only had $50,000 (or $250,000, or $5 million)”, I’d be
successful in my new business. There’s no question that the need
for capital can be THE major consideration in starting or
expanding a business.
The following suggestions and questions can help you speed up
the process of obtaining funding. While answering these
questions for yourself, you will also be preparing answers to
the type of questions potential investors will ask.
You get One Chance
Once you identify a potential investor, you usually get ONE
CHANCE to present your venture. And, he or she will initially
spend only 5 minutes with your business plan. So make it very
compelling.
If you get through the 5 minute reading, then you will get a
more in depth review of 30 - 60 minutes. Make sure that you have
proof-read your plan, and that all the numbers have been
cross-checked. Nothing will kill a deal faster that typos or
balance sheets that don't.
If you get to the interview stage, dress for success and be sure
to have practiced your presentation, including answering off-the
wall questions designed to rattle you. If you don't know the
answer say so, but do not try to finesse the question. This is
an integrity check, more than a business plan check.
Are you asking for enough?
Are you asking for enough? Have you calculated the amount you
will need to take you through each stage of business
development? A growing business will continue to need expansion
and growth capital. This is only the first of many rounds of
financing you will need.
It can take as much time and effort to raise the $50,000 you may
need for seed capital as it would to raise the $5 million you
might need for your entire venture. Since, in most cases, you
only get one chance, it pays to have all your information ahead
of time. And to be prepared with your timeline of milestones and
estimates of capital required at each milestone.
How much can I make?
Remember that investors are seeking maximum capital growth with
medium risk. Tha means your plan is competeing with other
investment risks and rewards. In the process of structuring your
business plan from a financial perspective, you will have answer
these questions more that technoology questions.
1. How much can you make? Is your venture competitive with the
returns of the other plans being reviewed?
2. How much can you lose? (including loan guarantees,
opportunity cost, and non-financial considerations)
3. What is unique, innovative or technologically different
about your product?
4. What is the perceived value of your product versus what
your product actually does?
5. Why will everyone want or need your product or service?
"Missionary Marketing", while exciting to you, is extremely high
risk for investors and very expensive to fund.
6. What will happen to your customers if they don't buy your
product or service? Did you create a solution for which there is
no problem or market?
7. Who says this is a good investment? What have others said
about your business?
How Do Investors Read a Business Plan?
Your potential investor will evaluate the following areas,
devoting little more than a minute to each one.
1. Determine the characteristics of (1) the industry and (2)
this particular company
+ What other publicly held similar companies are there?
+ Is there a larger company that is extremely successful?
+ Is the company in a "glamour field" (important to ensure a
good public offering)?
2. Determine the terms of the deal
+ How much of the company is being sold for what price?
+ What is the form of debt or equity being requested?
+ How will the funds be used? Retire old debt (not a good
idea)? Undertake new activities that will, in turn, increase
profitability?
3. Review the bottom line with special emphasis on years three
through five. Either the projections or the past history of the
company. The earnings are reviewed to determine the company's
valuation.
4. Determine the caliber of the people in the deal (The single
most important aspect of the business plan.)
+ What is the track record of the founders and managers?
+ How much management balance and experience does the inner
management team posses?
+ How long have the members worked together?
+ Who is the banker and accountant and what are their
credentials?
Venture Planning Associates, Inc., http://www.ventureplan.com
Tel. 858.457.3434 / efax 425-955-7531
capital@ventureplan.com
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