Thoughts on raising capital

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Thoughts on raising capital

  1. 1. THOUGHTS ON RAISING CAPITAL
  2. 2. Raising Capital is Multi-dependent <ul><li>Government </li></ul><ul><ul><li>Business codes </li></ul></ul><ul><ul><li>Laws </li></ul></ul><ul><ul><li>enforcement </li></ul></ul><ul><li>Culture </li></ul><ul><ul><li>Risk-taking </li></ul></ul><ul><ul><li>Saving vs debtor </li></ul></ul><ul><ul><li>Interest friendly </li></ul></ul><ul><li>Business type </li></ul><ul><ul><li>Product vs service </li></ul></ul><ul><ul><li>Key asset </li></ul></ul><ul><ul><li>Large vs small </li></ul></ul><ul><ul><li>Risk level </li></ul></ul>
  3. 3. Multi-dependence (con’t) <ul><li>Business climate </li></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>economy </li></ul></ul><ul><li>Size of deal </li></ul><ul><li>Investor type </li></ul><ul><ul><li>Family/ friends </li></ul></ul><ul><ul><li>High net worth individuals (“angels”) </li></ul></ul><ul><ul><li>Other businesses (e.g., partners) </li></ul></ul><ul><ul><li>Professional investors (e.g., venture capitalists) </li></ul></ul><ul><ul><li>Lenders </li></ul></ul><ul><ul><li>governments </li></ul></ul>
  4. 4. The Forgotten <ul><li>Three factors are frequently overlooked by those raising capital, and weigh heavily on investor decisions: </li></ul><ul><ul><li>Risk </li></ul></ul><ul><ul><li>Threshold amount </li></ul></ul><ul><ul><li>Liquidity </li></ul></ul>
  5. 5. Risk versus Value Specification Product Development Alpha Test Beta Test First Customer Ship Marketing Risk Value Expense Predictability
  6. 6. Threshold Amount <ul><li>The threshold amount is that sum which is needed to fund the company until it can either: </li></ul><ul><ul><li>Raise more capital </li></ul></ul><ul><ul><li>Ensure liquidity </li></ul></ul>
  7. 7. Liquidity <ul><li>Liquidity is necessary for an investor to profit from an investment </li></ul><ul><li>Liquidity events could be: </li></ul><ul><ul><li>From profits </li></ul></ul><ul><ul><li>From the sale of assets </li></ul></ul><ul><ul><li>From the sale of the business </li></ul></ul><ul><ul><li>From becoming a Public company (allowing the sale of an individual’s stake in the business) </li></ul></ul>
  8. 8. Deal Structure <ul><li>Can alter risk, threshold amount and liquidity </li></ul><ul><li>Should be specific to the investor audience </li></ul><ul><li>Thus, multiple versions of a Business Plan may be appropriate </li></ul>
  9. 9. Decision Process <ul><li>Investor decision making is primarily a process of “due diligence” </li></ul><ul><li>Due diligence is often an investigation of why a business will NOT succeed. It is a hunt for “horribles” </li></ul><ul><li>Your role is to provide independent evidence that “bad things” will not happen </li></ul>
  10. 10. Managing Due Diligence <ul><li>Do not emphasize your own convictions. These are opinions. Investors want evidence. </li></ul><ul><li>Use research and analysis, the more independent, the better. </li></ul><ul><li>Keep a record of all possible concerns </li></ul><ul><li>Respond only when prepared </li></ul><ul><li>Follow up on all concerns (thoroughly) </li></ul><ul><li>Admit risks or unknowns </li></ul>
  11. 11. The Decision <ul><li>Remember, investors decide to invest when “they” conclude the business will succeed, not when “you” conclude it will succeed. </li></ul><ul><li>Focus on the “lead” </li></ul><ul><li>Follow up aggressively, but not obnoxiously </li></ul><ul><li>Be flexible </li></ul><ul><li>Be prepare for a long process </li></ul>

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