Looking for Investment – Thought Swarm

I need somewhere to collect my thoughts and collate my notes from the workshop on obtaining investment which I attended at the IITPnz Conference.  I figure if I attempt to put them into a post I might even manage to make some form of order to them.   Well that is the plan at least, the following content will be a mixture of content provided and thoughts based on the workshop.

Note: By no means is this an exhaustive commentary of the information gained from the workshop, and should not act as a replacement for seeking professional advice in this arena.

First Five Minutes:

The first five minutes after meeting a potential investor may be critical to success or failure.  During this first five minutes, it can be easier to give an investor a reason to say ‘NO’ than a reason to say ‘YES’, so it is important to nail this first 5 minutes.

It will also help if you have chosen to go for “smart” money, do your homework on any potential investor.  Software start-ups require an “ideal” investor, someone that you can build a relationship with, and whom understands the software industry, or at least can gain an understanding of it.

1. First impressions count, and an authentic visual communication helps.  The key here is authenticity, i.e. it may not matter to an investor if you have long hair, wear board shorts and sandals if this look is authentic to your person.  There is no point attempting to be someone you are not, as this will eventually become apparent anyway.

2. What do you do?  From an investors point of view this first question if answered well is a good thing.  Your answer needs to be short and to the point, it needs to have a BANG to it.  You need to be compelling.

3. Does the investor understand what you said?  You need to ensure the investor really understands what you have said.  Investors are not unintelligent people so ensure you are not patronising with any explanations.  This is where the earlier point of picking the right investor will be advantageous.

4. Strategic Vision for High Growth.  Do you have one?  There is a differentiation between a Start-up and a Business, a Start-up should always be poised for high-growth.

Business Plan:

This guide available from Sequoia Capital highlights some of the key points for preparing a well-documented business plan, however this may be more extensive than what is required for the NZ market.

Business Plan Key Points:

  • Problem – What is the problem you are trying to solve?
  • Solution – What is the proposed solution for the problem?
  • Team – Who is going to provide the solution to the problem?

Vital points:

  • What do you DO?
  • What do you HAVE?
  • What do you NEED?

If you really, REALLY know your trade you should be able to summarise it.

Know your numbers, not your accountants.  Try to avoid ‘if’ statements, i.e. “if we sell X number of items we will make Y amount of money”.  Always quote the source, cover yourself.  Know your assumptions and hopefully the investor will agree.

Be wary of forecasts, these can be inaccurate, especially for start-ups in an industry where there is no direct competing product.  Forecasts can sometimes be dangerously close to being defined as “showing me your dreams”.

It’s okay to have “Some” of the answers.

It is okay to say “I don’t know”.  If you have all the answers, why not take on the world by yourself.

  • Do you understand The World?
  • Do you understand People?
  • Do you understand Yourself?
  • Is there a market?
  • Why are you doing this?
  • Ignore interest and find demand.
  • How many customers can you get? (Specific Numbers)
  • How long will it take to get customers? (Specific Numbers)
  • Don’t spoil demand, don’t be just good enough, be compelling.
  • Make it easy to sell.
  • What is your exit strategy?

Form a relationship with the Investor:

To achieve success, communication needs to work both ways.  You need to ask specific details about the investor’s exposure and understanding of your project’s needs.  You may also need to ask the investor if they actually have money to invest.

Investors can say “No”, so we need to act as mature entrepreneurs, it is important to ask why.  While the investor may not be willing to part with funding, they may be willing to form a relationship and provide other opportunities.

10 Items to consider for the Pitch:

1. Name your baby

  • Give your project a name.  You need to be passionate about your project.

2. What is it all about?

  • Explain in a generic way.
  • You should be able to explain it in a single sentence.

3. Why are you better than others?

  • How do you differentiate from them?
  • What are your assumptions?

4. Are you ahead of the others?

  • Is your project a paradigm shift?
  • Can others reverse engineer it?  How long would it take them?

5. Applications

  • Who need this?
  • Why?
  • Have you asked them?
  • Will they pay for it?
  • Can you name 3 industries waiting to solve the identified problem?

6. How do you plan to do it?

7. Who will be doing this?

  • Do you have a team?
  • Don’t wait to have funding to hire people.
  • Are they committed?
  • Why would employee #20 join you?

8. How much money do you need?

  • This is different to how much you want.
  • This is also different to how much you think its worth.
  • What for? (i.e. Development, prototyping, salaries, travel, marketing, overheads)
  • Are you paying yourself?
  • Remember, competitors can eat into your customer base.

9. Time – How long will it take…

  • To become established?
  • To become operative?
  • To generate revenue?
  • To become profitable?
  • For a competitor to eat part of your new customer base?
  • To reach your death valley? (become profitable)

10. How big will this business be?

  • Do you want 95% of the swimming pool, or 5% of the ocean?
  • What is your ideal exit strategy?

About Anthony Dowling

Founder Sjones Limited, focusing on developing ID and Security Card Solutions. Long time Delphi Developer. @AntDowling
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