October 20 2010
by Thanasis Delistathis

5 checklist items to raising money

I know this is a somewhat mandane subject, but yesterday someone sent me a one-pager “executive summary” of a business, and after reading it I couldn’t really tell what they do.  So I read it again, and still couldn’t figure it out.  The summary was fully buzzword-compliant: you know!, it had all those fancy words that made it sound like their were doing something important.  But it was devoid of real content and could have meant anything: e.g. ‘cloud-based software platform leveraging unstructured enterprise data to create actionable intelligence around business process flow’ (just in case you were worried that I was spilling some business’s secrets, I just made this up).

So how can it be that smart people blow it when it comes to raising money.  Of course, experience has something to do with it. So, for those who are masters of this process, no need to read further.  But because we meet with first time entrepreneurs and because some of the most successful businesses of all time (e.g. Apple, Microsoft, Facebook) were started by first-time entrepreneurs, here is a practical list that everyone should check through when prospecting for investors.  Because I deal with clunkiness like the story above, I am also including a link to this post in my email signature.  Here is the list:

  1. Prepare a short powerpoint presentation that describes your business and its potential to investors.  In order to get a first meeting, always send the deck to investors.  In my opinion, one-pager exec summaries are a waste of time.  In the trade, they call those ‘teasers.’  Except, instead of getting teased, I, and I think most investors, tend to get annoyed.  That’s because, professional investors get inundated with business proposals.  So we triage.  Time for meeting is limited, so we need to only meet with the companies that would really be a good fit.   An executive summary has necessary, but almost never sufficient information to make a judgement.  At the same time, never send a long business plan, because we don’t have time to read it.  A detailed analysis of the plans of the business is only appropriate after an initial meeting.
  2. Apply the “mother-in-law” test.  That is, try to describe to your mother-in-law (if not married try your mother; I picked mother-in-laws because they tend to be more critical and honest) what your business does.  If she doesn’t get it, go back to the writing board and try rethinking how you describe your business.  If you are not good at language, find a literature major to help you.  Once your mother-in-law understands what you do, put that in writing and use it to first introduce the business.  I have written another blog post on this subject specifically here.   Using buzzwords doesn’t really help you.
  3. Get properly introduced.  We tend to look at things that come ‘over the transom,’ but most other investors don’t.  Finding someone who knows the right investors is not as hard as it might seem.  With a little networking you can always find the right person to make a warm introduction.  Here is a starting point: to incorporate your business you need a lawyer.  If you pick the right lawyer, one who works with startups and is well connected, he/she can make introductions.  Then study each investor’s website and write a short intro that is tailored to that investor.  We have a lot of information on our website for example about what we invest in, but we still get lots of plans that are obvious non-matches; because they didn’t bother to even look at what we do.
  4. Tell a story.  The first pitch meeting, is about getting the follow-on meeting.  First meetings are usually screens: “is this something we should spend more time on?.”  In order to succeed, you need to tell a story  about why your started this business, why it can get big and why it is a good investment.  My partner Todd has more eloquently dealth with this issue, and we have put a link to it on our website under “resources,” here.
  5. Ask for feedback and make sure you follow up.  You should try to learn something from each meeting.  For starters, you should learn about what the investors think at first blush.  We tend to give entrepreneurs unsolicited feedback, but others don’t.  You should ask for it.  Chances are you will be able to quickly find out what the key issues will be.  Then you can respond to them later.  Even if we don’t invest, you have a chance to learn something to improve your pitch for the next investor meeting.  Also, you took time away from your business to come and visit us.  I think we at least owe you something back.  Advice and feedback is the easiest thing we can give back.  Finally, make sure you follow up.  We are all busy, and we sometimes forget.  You should always try to understand the process and follow up promptly with questions and data to refute objections.

I realize that the above may seem obvious to some of you.  In my experience, however, few apply them well; even entrepreneurs that have raised money before.   And good luck!  Our whole society benefits from more funded startups.  Let’s make it happen.

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