Raising capital is a complex process that depends on many interrelated factors. These include government regulations, business laws, culture, risk tolerance, and the type of business. The type of investor being targeted also influences the process. Three often overlooked factors that weigh heavily on investor decisions are the risk threshold, the amount of funding needed, and liquidity. The deal structure can impact these factors and should be tailored to specific investor audiences. The investor decision making process primarily involves due diligence to identify potential risks or reasons why the business may not succeed. It is important for capital seekers to provide independent evidence that risks will be mitigated and not emphasize their own convictions. The decision ultimately lies with investors, so capital seekers must focus

1. THOUGHTS ON RAISING CAPITAL

2. Raising Capital is Multi-dependent Government Business codes Laws enforcement Culture Risk-taking Saving vs debtor Interest friendly Business type Product vs service Key asset Large vs small Risk level

3. Multi-dependence (con’t) Business climate Competition economy Size of deal Investor type Family/ friends High net worth individuals (“angels”) Other businesses (e.g., partners) Professional investors (e.g., venture capitalists) Lenders governments

4. The Forgotten Three factors are frequently overlooked by those raising capital, and weigh heavily on investor decisions: Risk Threshold amount Liquidity

5. Risk versus Value Specification Product Development Alpha Test Beta Test First Customer Ship Marketing Risk Value Expense Predictability

6. Threshold Amount The threshold amount is that sum which is needed to fund the company until it can either: Raise more capital Ensure liquidity

7. Liquidity Liquidity is necessary for an investor to profit from an investment Liquidity events could be: From profits From the sale of assets From the sale of the business From becoming a Public company (allowing the sale of an individual’s stake in the business)

8. Deal Structure Can alter risk, threshold amount and liquidity Should be specific to the investor audience Thus, multiple versions of a Business Plan may be appropriate

9. Decision Process Investor decision making is primarily a process of “due diligence” Due diligence is often an investigation of why a business will NOT succeed. It is a hunt for “horribles” Your role is to provide independent evidence that “bad things” will not happen

10. Managing Due Diligence Do not emphasize your own convictions. These are opinions. Investors want evidence. Use research and analysis, the more independent, the better. Keep a record of all possible concerns Respond only when prepared Follow up on all concerns (thoroughly) Admit risks or unknowns

11. The Decision Remember, investors decide to invest when “they” conclude the business will succeed, not when “you” conclude it will succeed. Focus on the “lead” Follow up aggressively, but not obnoxiously Be flexible Be prepare for a long process