A lot of entrepreneurs ask me what to expect. More or less, what is a typical deal like? My answer is there is no real recipe for deal soup. There is no blue print, no clear definition of it. But, in general, most deals have five really distinct categories that you can look at to evaluate and see if you have a good deal.
The first thing you want to do as a capital seeker, is be sure that you can define your market. I mean in clear terms, know your market. Know where you belong and where you fit in.
Two, you clarify your competitive advantage. That is, what gives you the one-up on the rest of the guys.
Three, be well organized. This is really important. A company is only as good as the machinery that it is running on.
Four, have a clear exit strategy already defined and keep that in mind, work towards that end.
Five, great companies that are seeking capital and get it know how to monetize their business. In other words how do we convert our business service, whatever it may be, into dollars.
Now, capital seekers who can answer these questions have a pretty good chance of getting funded.
If you've got questions, or any capital seekers out there, wish to go over some of these points, feel free to give us a call at the Capital Match Point anytime. This is what we do and this is what we are here for.

Subscribe to Videos from The Capital MatchPoint

I talked a little bit about the three-minute review that an investor would do. And having sat on both sides of the desk as an investor over the past 25 years and as a capital seeker as well, I could tell you, during that three-minute review I talk about, theres some eye catchers that are going to pop out at you and really grab your attention. And Ill tell you what, those are the deals that are gonna get in the to-do file. Heres what generally pops out during that review.

First of all, I think patents. If you see a patent, you generally know you got something there that nobody else has. Its worth taking a look at.

Trademarks are pretty good, too.

Additionally, capital invested personally. Ken Honeyman likes to call it skin in the game. and youll here it called that quite a bit. We want to see management teams that have a personal stake in the business and believe enough in it to put their own money behind it before they come and ask the capital provider to add to that.

Management? This is a huge category for me. Executive summaries reveal gems and big names and experience. Companies that have pedigrees. Things like that. If you see a management team thats well rounded, thats great. Occasionally, youll see a gem. It hits you very quickly, goes in the to-do file.

Milestones achieved. Its good to look at a company and see, have they made it to their stated goals so far? Thats a good indication of how theyre going to handle the capital infusion youre thinking about providing for the investor.

The value of the idea, or the product, or the service, as far as in a monetized basis. In other words, whats the market for that idea, product, or service look like? Is it a multi-billion dollar market or is it just pocket? A couple million here and there? Big difference.

Growing market demand versus shrinking market demand. This ones pretty obvious. Everybody wants to get in on the ground floor. Ill give you an example. If you could have got in when the first guys were lugging the big cell phones around in a box, if you could have gotten in on that stage, you were in a growing market. Look where you would have ended up.

Now, another one you look for, and this pops out right away, revenue growth year over year. Always take a look back and see what they did last year or the same quarter and look for the trend. Youll want to see that trend line steadily up. If you see it spiking up, its even better.

Strategic partnerships are also very, very important. Who is this company aligned with? Who is supporting the business model and enhancing it as well?

Lastly, intellectual property. Intellectual property is a little esoteric, but nonetheless it can be valuable. It can be booked as an asset, and it is something to take a second look at.

So, those are the things that really catch the eye of the investor. If youve got some of those things in your business plan, during the three-minute review, theyre gonna be popping out. So, be aware of those. If you have any questions as a capital seeker about how to position and package those things and present them, feel free to give us a call at the Capital Match Point at any time. Thats what were here for.

Subscribe to Videos from The Capital MatchPoint

If you’re an entrepreneur seeking funding for your company and you’ve gotten to the point of receiving a funding proposal from an investor, congratulations. Now that you’ve got it you may be asking yourself, “How do I analyze the proposal and negotiate?”

The most powerful negotiating tool is other investment proposals. Outside of this there are other valid points for discussion that may lower the price of investment (the amount of stock you give up for a given amount of investment money). They generally center around and investors’ assumption versus your assumptions. You may want to consider:

• The return on investment the investor expects – Is this realistic and in line with rate generally accepted in your industry
• What is the investor’s valuation of your company at the time of exit? How does this compare with your valuation? It’s safe to assume that your valuation will be higher. But is it higher by a few percentage points or a factor of ten?
• What did the investor use as a price to earnings ratio? Did the investor choose the low end in a down market? Does the investor believe that the market will be down at the time of exit?
• When did the investor assume the company will be acquired or go public? Are these in lines with your expectations? Again, the investors assumption will be more conservative than yours but is it overly conservative?
• Get a feel for the investor’s perception of downside risk and why they feel this way. Is there something of which you are aware but the investor is not that may reduce this risk?
Obviously, to ask these questions and engage the investor in a reasonable and thoughtful dialog management must have conducted their own thorough analysis up front and have defendable arguments of their own. Doing this will produce a more compelling offering and just may attract multiple investment proposals and give your company the most powerful negotiating tool of all, another offer.

Subscribe to Videos from The Capital MatchPoint

Here are the eight things companies need to do in this altered financing environment to survive and raise angel funding:
1. BOOTSTRAP Companies must pinch every dollar, when possible. Get individual contributors to work for free, pay upon performance and do everything you can that does not cost real money. Work from home, barter, use stock, and look for services and/or consulting revenue to help build the product.
2. HAVE A FOCUSED LAUNCH STRATEGY - This means ONLY ONE market niche as the initial target. Startups need to be a small fish in a small pond.
3. BE PREPARED TO DELIVER ANY SIZE PITCH – It amazes me how many companies still can’t state what their company does in a few clear sentences! If you cannot articulate your deal confidently and effectively, you are not ready.

4. Cash Breakeven in 6-12 months maximum - Today it is required. Tune your plan to get to cash breakeven in 6-12 months on no more than $1 million!
5. A FINANCIAL BUFFER - I recommend a year's worth of personal expenses in the bank.
6. CORPORATE PAPERWORK - You need to get your "corporate" house in order with written agreements on ownership sharing. If these are not clean you can scare off investors who want to take a closer look.
7. NETWORK AND LEARN - Attend many entrepreneurial workshops regularly. This helps you to learn how to run business models in your head better and see how investors react to holes in plans etc.
8. GET A MENTOR - You cannot afford to learn by trial and error here. Typically, you need someone available for at least two to four hours every week to review all major decisions. This will be the best time and money you will ever spend. An hour or two a month will save you tens or even hundreds of thousands of dollars in errors, can generate sales faster, and will get you to critical milestones months earlier.
Doing all these things can increase your chances of building a successful company and getting angel financing from one in a thousand to as high as 50%. There are few guarantees in life, but hang this list on the wall and review it every month and I guarantee you will improve your chances greatly.

Subscribe to Videos from The Capital MatchPoint

Part II-Investor needs:
• Return on Investment
• Risk
• Liquidity
• Your company’s valuation at exit
• Rights in the event of an IPO
• Level of participation in management of company
• Rights in future rounds of financing
• Opportunity to provide future rounds of financing

Subscribe to Videos from The Capital MatchPoint

A term sheet is a document written early on between the entrepreneur and funding source such as venture capital firm or angel investor. The term sheet is much like a letter of intent, in that it is pre-cursor to due diligence but with more detailed information about terms of financing and rights and privileges.

Term sheets are non-binding except for confidentiality and exclusivity in negotiation. Nevertheless, the term sheet is complex and should be negotiated vigorously before signing as it is difficult to materially change during the construction and negotiation of the final agreement.

The structure of capital transactions such as those that involve venture or angel capital are less dependent on boiler plate stipulations and more reflective of the needs and preferences of the parties involved. Many legal and financial vehicles can be employed to balance the needs of both parties’ individual and mutual concerns. You should consult your attorney to get guidance on which suits you best. However, we can offer some food for thought when considering a term sheet.

Your personal needs:
• Capital
• Maintain Control of Company
• Dilution of personal stock
• Stock re-purchase in the event of retirement or termination as manager
• Operational support and guidance that investor can offer
Investor needs:
• Return on Investment
• Risk
• Liquidity
• Your company’s valuation at exit
• Rights in the event of an IPO
• Level of participation in management of company
• Rights in future rounds of financing
• Opportunity to provide future rounds of financing
Mutual Needs:
• Retention of key management
• Forum for conflict resolution among investors
• Health of post investment company
• Tax consequences of investment

Subscribe to Videos from The Capital MatchPoint

Okay, so you have spent countless hours building the best business plan you know how; maybe even 100 or 200 hours researching and compiling information into a presentation. But, I have to tell you something. There really is no perfect business plan. So, during a presentation, here is a strategy you want to adopt. You want to highlight the strengths of the company and you want to down play, but acknowledge and make the investor aware, of any weaknesses that you perceive in the company. Have a compensating strategy for them too. Now, a good example would be, you have a good business. It is in a great growth industry. You have stellar management, but maybe you are a little weak on the financials. Well, it is your job now to make the investor impressed with your strengths.

Subscribe to Videos from The Capital MatchPoint

Over the years, I have seen, and participated in, a lot of presentations for funding. I often get asked, Dave how do you add sizzle to a presentation? To make it something that they will remember. That is a great question. I think the key to it is be meticulous with all the aspects of your presentation and be professional, be high end. Ultimately, the investor wants to be involved with a high end company.
Now, let us start with the business plan, just a couple key points. Add color to your business plan. Nobody likes reading black and white all day long. Now, there going to drill down the black and white information, make no mistake about it. But, a little color adds some pizzaz to it, makes it interesting. You need a professional logo. Make sure you spend a little bit of money on that. And, [you need] a bound copy. I cannot tell you how many folders I have received over the years where the things just fall out, and frankly, I do not know where the financials went, but here is the executive summary and some brochures. So, make sure you use a bound copy that is professionally done. And listen, absolutely never make this mistake; no typos. Not one single typo in that business plan. Do whatever you have to do to ensure that.
If you really want to add something that will make your company stand out, make it something to remember. power point these days, it is kind of dull. An option would be a power point with some embedded videos, some fly-in, something like that. Remember keep it short. But, a better option, is to use a professional video. Remember the ultimate goal here is to set yourself apart so when that meeting ends, our investor remembers your company.

Subscribe to Videos from The Capital MatchPoint

I get this question a lot, which is right for our company, debt or equity? Well, there are two really distinct types of financing and you need to understand the benefits and the implications of each.
Now, debt is an infusion of capital into your company. The expectation is that there will be a periodic re-payment, in the form of principal plus interest. The end result is the ROI for our investor, or the return on investment.
A good example of debt funding would be loans or bonds. There are some pluses and minuses. The biggest one for debt is positive, you do not have to give up ownership. The down size is this, you must have sufficient and reliable cash flows and collateral to back it. So, it is really not a good option for most new companies.
Let us take a look at equity. Equity is an infusion of capital in exchange for stock representing ownership in the company. Common examples would be: a common stock, a preferred stock, warrants, which are the right to buy the stock at a future date at a given price. The positives here are you have an infusion of cash and no debt service attached to it. The downside is this really is a high price, or high cost of financing. You may ask the question, well why is that? Well, it is like this. Equity investors take on a high degree of risk, and their expectations are for a higher ROI.
If a capital seeker has questions trying to evaluate the benefits of going with equity or debt financing, we welcome their call at the Capital Match Point. That is what we are here for, to help you get your company funded.

Subscribe to Videos from The Capital MatchPoint

I would like to address the subject of competitive advantage. For those of you seeking capital out there, you need to know if you have a competitive advantage and you need to know how to portray that to our investors when you are seeking capital.
Warren Buffet, arguably the worlds best and most successful investor, boils it down to just one thing when evaluating a company that he want's to invest in. That is competitive advantage. So, ask the question, does your company have one? Here is how you portray it to the investor. There is a formula to it. Take your business name, add to it what you are the best at, and then, why?
I'll give you an example. We are the Capital Match Point. We are the best at matching quality capital seekers with quality funding providers. The reason why is, we take the time to use our propriety matching process in order to put our capital seekers in front of our investors [who] are interested in their opportunity. We do it with pin-point accuracy.

Subscribe to Videos from The Capital MatchPoint