The document provides guidance on raising external equity for startups, emphasizing the importance of understanding the audience and market dynamics. It outlines common misconceptions entrepreneurs hold, along with strategies for presenting a credible business case, addressing market validation, competition, financial forecasting, and the necessity of a strong management team. Additionally, it offers practical tips for effective communication and marketing strategies to attract investors.

1. Raising External Equity:Know Your AudienceRobert WarrenI.H. Asper Executive Director for EntrepreneurshipUniversity of Manitoba

2. ExperienceValuation experience – New YorkFounder of the Winnipeg Angel OrganizationFounder Prairie Centre for Business IntelligenceFounder of the Manitoba Venture ChallengeSupported over 20 equity-backed start-ups5 exits involving a combined return of over $400 million CADCurrently working with Israeli incubators to launch new ventures

3. Guy Kawasaki The TOP 10 LIES OF ENTREPRENEURSCommon Things Heard By Investors

4. An Entrepreneur Enters My OfficeWe’ll easily exceed our projectionsWhat’s conservative?Rob’s Rules – Revenue X 0.5 and Expenses X 5It’s a $50 billion USD market!Total versus addressable marketRob’s Rule - Tell me about the market you can reachAn industry leader will buy from us within a weekProject Whitecard – I’ve heard this story 5 timesRob’s Rule – Call me when you have a signed purchase agreement

5. Are You Still Here?Person X will join us as soon as we can pay themRob’s Rules – Will they leave a guaranteed job? Have they heard of you? If they love you so much why aren’t they in now and why aren’t they invested?We have no competition!Is there no market?Rob’s Rule – If it’s a great opportunity they are 10 other people in Brazil doing it and 10 in the US – China and India 30 each

6. Wishing They Would LeaveWe have other interested investorsRob’s Rule – If you’re telling me this you don’t.The big industry player is too big or too slowRob’s Rule – They are probably your customer – not to mention your biggest threat. Beware the do nothing approachOur management team is top notchRob’s Rule – 4 exits that made money

7. I Really Need a Caipirinhas!We have patents!Rob’s Rules – Can you defend them? Do you have a patent strategy?1% of the market will make us a success!Rob’s Rules – 1% of the market means the investor makes little to no money. Think big. Do you know how tough it is to reach 1%

8. What Do Investors Want?D – DisruptiveYou need to change the way things workNOVADAQ TechnologiesI – InnovativeSomething new and exciting. The iPod.D – DefensibleIntellectual property with a number of claimsIP strategy – Freedom to OperateBlackberryS – ScalableCan we produce this by the thousands with little effort?Paypal

9. But They Want MoreValidated MarketRob Adams “If You Build It, Will They Come”Talk to 100 customers – three times (Ready, Aim Fire)OpportunityCompetitive assessment – third partyRisk ReductionReal management teamStaged-Gate Approach to GrowthReturn10X minimumStrategyHow are you going to take advantage of the opportunity?

10. Validated MarketWho are your end-users? Are the end-users the customers? If not, who plays a role in the purchase process?ImrisTechnolgiesHow much are they willing to pay?How often will they buy?Who are your competitors? What are their relative strengths? Weaknesses?How likely are they to shift? What will it take?Outside validation

11. Risk ReductionMarketMarket validation – externalBeta salesManagement TeamIndustry experience – gets sales quickerExit experienceSet key accomplishmentsFirst customer or distributorFirst re-orderTied to financial requirements

12. Written Plan and PresentationsBuilding on Strengths and Weaknesses

13. Stages in the Contact ProcessReferences are the keysLawyers, successful entrepreneurs, incubator managers, mentors, bankers and accountantsCredibilityQuick PitchElevatorOne page executive summaryTradeshowVenture showcaseDragon’s DenWritten PlanFormal

14. Quick PitchGoal – Opportunity IdentificationMarketFinancial Executive SummaryDon’t focus on the product – think returnAvoid technical/industry jargonElevator PitchMax. Of 60 secondsPick 4 things you want to coverEnd - Ask for a follow-up meeting

15. TradeshowDragon’s DenGet in front of three or more potential investorsMore interactive – learn the right questionsTradeshowOpportunity to really go into depthBe prepared to switch between business and technical issues

16. Written PlanShorter is better – 10 pages maximum100 plus pages are operational plansFocus on the business and not the technicalTechnical comes in due diligence Sales brochureLimit the appendices to key financial informationKey ComponentsMarketManagementMerchandiseMoney

17. Formal PresentationBuilds on the written planFocus on issues that are better presented in-person or have a graphical componentThink of it as a 10 minute commercialKey – Question and Answer Section

18. Market

19. Who Are Your Customers?Start with a description of the needFocus on opportunityDevelop some identifying questions or attributesWill help you focus on the most likely customerWhat’s missing in the current options available?Rank in order of importance

20. Focus on Key CustomersWho are the largest customers in a segment?Where are they located?How often do they buy?What are they used to spending per unit or per purchase?Identify floor and ceiling pricesWhy is this critical to a new venture?

21. Know the Purchase ProcessHow long does it take a customer to make a decision?Who is involved in the purchase decision process?Understand the various roles playedWhere are they located?When is the last time they made a major change?Why?

22. BenefitsWhat’s the core problem they are looking to solve?TimeCostQualityWhat are the secondary benefits they seek?What product features will provide these benefits?Value: what is your value added benefit?

23. CompetitionDirect and indirectOvercomes one of the Top 10 Lies Told by EntrepreneursDo a threat assessment Consider all pertinent features, e.g. price, market share Who’s a likely competitor?Think similar product in a different market or ease with which they could access a competing product

24. Current ProductsAdvantage and disadvantagesRank based on severity of the threatAre your competitors doing anything that will result in new/improved products?Check patent applicationsCheck local newspaper articles and relevant trade journalsGoogle themUS publicly traded companies – 10K’sWhat’s their past history of innovation?

25. Tell Me More About the CompetitionMarket shareMajor customersRelationship with opinion leadersSalesGrowth and distributionDistributionMethods and core partnersProduction capabilities

26. Financially SpeakingResourcesCostsProfitabilityProfit trend over the last 1, 3, and 5 years

27. Sales and Market ShareTwo methods availableTop - DownBottom – UpTop – DownPro: EasyCons: Prone to error and doesn’t account for your resource constraintsLeads to another famous lie told by entrepreneursBottom – UpPro: Produces more accurate and achievable targetsCon: Time consuming and requires a better description of the target market

28. Show Your AssumptionsKeep track of your resourcesHow many customers can you realistically reach?Trends in the marketHow much of your growth comes from:Growth in the market?Acquiring customers?RepurchasesVC’s love to see recurring revenue

29. Don’t StopDescribe how you’ll monitor the marketAvoid being blindsidedCompetitive intelligence system

30. Market StructureDescribe the competitive environmentPure competition or oligopolistic?Buyers - Identify the key playersMarket power they exertTrends impacting this structureRegulatoryTechnological changesConsolidation

31. ConsiderNumber of buyersSensitivity of demandCost conditionsInformation gapsAvoid industries with these characteristics:ConcentratedPerfectly competitiveMature or declining

32. Market EconomicsGross and operating marginsProfit potential and durabilityDiscuss barriers to entryTechnological and market lead timeFirst Mover Advantage?Fixed, variable and semi-variable costsBenchmark to industry normsMonths to break evenMonths to positive cash flowWhen will you run out of cash?Asset intensity

33. Who Has the Power?Supplier powerHow many are there?Do they supply actual\potential competitorsPayment terms and structureDistributorsTerms for getting picked upCredit optionsWhy use a distributor?

34. Regulatory HurdlesRegulatory bodies involvedMarkets involvedApproval processSteps involved and documentation requiredUnderstand what can go wrong and prepareRole of consultantsTime required for approvalWhat’s the impact on your business if there’s a glitch?

35. Marketing StrategyWhat is your marketing philosophy?Who are your actual customers?Potential customers?What will you do innovatively?Where will you first introduce your lead product? Why?Will you face any seasonal trends?How can you use government contracts to provide cash flow?

36. PricingWhat will you charge?Payback time for the customer?Compare your prices with the competitionWhat’s your gross margin?Is this enough?What net will you end up with?

37. More on PricingHow will your proposed price:Help get your lead product acceptedMaintain or increase your market share as competition comes on lineProduce profitsWhat’s the relationship between price, market share and profits?

38. Sales TacticsWhat method will you use?What margins will your pricing policy allow for the other members of the value chain?What are your expected sales per rep? dealer?Discuss a potential selling schedule

39. Advertising and PromotionHow will customers know you exist?What are the key tradeshows and journals in your industry?How will you use these?Design a promotional schedule and budgetInclude expected outcomes of these activities

40. DistributionDescribe your proposed channelsIs shipping cost an issue?Do you face any special problems in distributing your product?Describe any international regulations you’ll have to addressWhat does it take to ship food products into the US?

41. Management Team

42. The BasicsThink of the team as interlocking bricksLead entrepreneurSupporting teamBoard of Advisors (can be multiple)External experts – consultants and professionalsWho are you?Where do you want to end up?Roles that need to be filledVelma Kelly in Chicago – “I Just Can’t Do It Alone”

43. Lead EntrepreneurCommitment and determinationLeadershipOpportunity obsessionTolerance of risk, ambiguity and uncertaintyCreativity, self-reliance and adaptabilityMotivation to excel

44. Commitment and DeterminationTenacious and decisive, able to recommit/commit quicklyIntensely competitive in achieving goalsPersistent in solving problems, disciplinedWilling to undertake personal sacrificeImmersed

45. LeadershipSelf-starter; high standards but not a perfectionistTeam builder and hero maker; inspires othersTreats others as you want to be treatedShares the wealthHonest and reliable; builds trust; practices fairnessNot a lone wolfSuperior learner and teacherPatient and urgent

46. Opportunity ObsessionIntimate knowledge of customers’ needs and wantsMarket drivenObsessed with value creation and enhancement

47. Tolerance of RiskCalculated risk takerRisk minimizerRisk sharerManages paradoxes and contradictionsTolerates uncertainty and lack of structureTolerates stress and conflictAble to resolve problems and integrate solutions

48. CreativityNon-conventional, open-minded, lateral thinkerRestless with the status quoAble to adapt and change; creative problem solverQuick learnerNo fear of failureAble to conceptualize and “sweat details”

49. Motivation to ExcelGoal and results oriented; high but realistic goalsDrive to achieve and growLow need for status and powerInterpersonally supporting (versus competitive)Aware of strengths and weaknessesHas perspective and sense of humour

50. Lead Entrepreneur: Desirable AttributesCapacity to inspireValuesEnergy, health and emotional stabilityCreativity and innovativenessIntelligence

51. Avoid Being . . .MachoPerfectionistImpulsiveAuthoritarianKnow it allInvulnerableOuter controlDependent on others

52. Management CompetenciesAdministrative Law and taxesMarketingOperations/ProductionFinance

53. Administrative Problem solvingCommunicationsPlanningDecision makingProject managementNegotiatingManaging outside professionalsPersonnel administration

54. Law and TaxesCorporate and securities lawContract lawIP lawsTax lawReal estate lawBankruptcy law

55. MarketingMarket research and evaluationMarketing planningProduct pricingSales managementDirect sellingService managementDistribution managementProduct managementNew product planning

56. Operations/ProductionManufacturing managementInventory controlCost analysis and controlQuality controlProduction scheduling and flowPurchasingJob evaluation

57. Finance Raising capitalManaging cash flowCredit and collection managementPublic and private offeringsAbility to read and prepare financial statements

58. The TeamCohesionTeamworkIntegrityCommitment to the long haulHarvest mind-setCommitment to value creationEqual inequalityFairnessSharing of the harvest

59. Building a TeamBuilds Off the Lead EntrepreneurRelevant industry, market and technological know-howContacts and networksLook for “A” team playersPeople that will sacrifice and commitRisks and rewardsDefine roles

60. Rewards and IncentivesLead – you’ll have to give up some of the pieRewardsDifferentiationPerformanceFlexibilityTiming

61. Determining ValueIdeaBusiness plan preparationCommitment and riskSkills, experience, track record or contactsResponsibility

62. Board of DirectorsFill some of the gaps still in existenceNetworksExperience raising cashBe objective and take your timeUsed as part of an investment packageDefine expectations and minimum requirements9-10 days of time per year are required

63. Other IssuesTechnical board of directorsReviews your scientific progressInformal board of advisorsGood place to look for potential board membersLiabilityHarassmentBeware unsophisticated investors and their expectationsTime and riskYou’ll need lots of director time and offer plenty of risk

64. Merchandise

65. MerchandiseWhat is it?Discuss the key features and their importanceHow is it used?Primary and secondary usesWhat pain are you addressing?Where do you derive value?What differentiates you from the others?What’s the customer’s payback period?

66. Ups and DownsWhat are the downsides of your product?What is your current state of development?How long and how much will it take you to complete development?Do you have any type of technology lead?How long is it?What is your IP?

67. Development Status and TasksWhat competencies or expertise is needed to finish development?List customer involvement in the product’s developmentWhat’s the greatest risk in your product development process?How will you lessen this risk?What will it cost if your product is delayed?Airbus 380 – a costly wiring problem

68. Proprietary IssuesIPContractual agreements giving you exclusive rightsWhat happens if these disappear?Costs Business impact – Will you still have a business?

69. Operational IssuesOperating cycleLead/lag times impacting your businessSeasonal variationsPotential impact on revenues, costs, profitsIs geography an issue in your business decision process?

70. Facilities and Equipment What do you need to produce your product?Purchase or lease Impact on profitabilityIs there a tipping point?Describe the production processDiscuss how costs and inventory levels vary over different sales figuresQuality issues

71. Money

72. Money - RequirementsHow much do you need?When do you need it?What’s it for?When will I get it back?How will I get it back?

73. Money - ReportingCash FlowTiming issuesTie to your financial requirementsIncome StatementBalance SheetImportance of industry normsPrepare under a variety of conditionsRealize the investor has their own ideas

74. ValuationKnow your comparablesWhat value will produce the needed return to an investor?Typically looking for a minimum of 10XPortfolio management issueUse a couple of methodsFree cash flowMultiple of sales or earningsProduce a range of values – back to comparablesBe prepared to negotiate – value is in the eyes of the purchaser

75. Questions and CommentsRobert WarrenI.H. Asper Executive Director for EntrepreneurshipStu Clark Centre for EntrepreneurshipUniversity of ManitobaWinnipeg, Manitoba, Canada R3P 1E3Robert_Warren@Umanitoba.ca