The Funding Guru

This has got to be in the top ten questions I get asked by those entrepreneurs who are kicking off their first serious and committed attempt to raise money.  I know when I first went through this process, I went out and asked different people…

“What do I need to do to raise money for this business? I haven’t got much in the way of a track record yet but I’ve managed to get a prototype and some commitments from would-be customers…”

A few people shrugged without much of a clue, but one or two had done it before and began to point me in the right direction…

“As this is very early stage you should approach either family and friends or angels…”

Well, my family and friends are the best but at the time, neither group had much disposable income and also, if I’m honest, I felt a little weird about asking them – part of me wanting to make it on my own. Well, on my own with a real investor rather than a family member who has taken pity on their crazy nephew, brother or cousin….

So – Angels it would be then…

“So, what are angels looking for?” I asked.

“They’re investors – so they’re looking for a significant return on their money…and most of them are looking to invest in companies where they understand the space…where they can help the entrepreneurs and open doors.”

Sounded good to me…

“And what do I need to show them so they’ll consider investing?”

The person thought for a few seconds, smiled and said, “…more progress on your business and an executive summary would be good places to start…”

After reading various sources, writing different executive summaries and bouncing them off a few people – I used a format similar to the one below to raise my first $250K ever…and as that was about 15 years ago, it was a decent little angel round. Since then I’ve raised a good seven figures from angels and venture capitalists and helped others to do the same but you have to start somewhere right?

One consideration is there is NOT a locked in, inflexible template that you have to use – the idea is to allow the angel investor to get to the meat (i.e. why they should invest in your business) as quickly, simply and impactfully as possible…it’s really that simple.

Executive Summary:

Introduction:
2 0r 3 sentences that impactfully outlines what your business does and how it addresses a key demand or need. This is the place to succinctly hook the reader by addressing how big this business or idea can be with as little hyperbole as possible.

NOTE: I’ve seen entrepreneurs getting really carried away here on how unique their business is or how it leverages some really innovative technology – businesses started by technologists tend to fall into this trap way too often.  An angel investor isn’t usually focused on the ‘how’ but rather on the ‘why’. Leave the ‘how’ to either the business plan or an appendix (if you must include  it at all). But on this point (and all the points), consider your audience – if you are meeting with an angel with a heavy tech background (Example: The Chief Technology Officer at Microsoft) then maybe  briefly address the ‘how’ but the problem to be solved is usually the emphasis of this section – its where the imagination takes off … “With our product or service customers will never experience this problem again…”

Example: Product X will address the need for internet connection on airplanes by offering internet without interfering with airplane communications through a stratospheric band of wireless internet.

Now – I made up this product on the cuff but the hook here is definitely in the ‘why’ – it’s not – ‘Product X leverages 301.1b technology developed to be used on the following bandwidth and doesn’t interfere with airline radio types  X,Y, Z…yadaa yadda yadda’. You get me?

So - Introduction - 2-3 sentences on the big idea, the value proposition, and how huge it’s going to be and how it will revolutionize the  market as we know it. This is a great place for the passion you have for your business to come out – starting businesses is tough – without passion you will probably fail. So, angels keep a strong lookout for people that have passion, commitment and skin in the game.

Background:
This area is to flesh out the key points in the introduction with supporting data / research if you have it.  So, taking the above example – I’d go into how many airlines fly each day, how many business users would need the service, ongoing trends to give a perspective on opportunity and market.

NOTE:
Don’t get caught up in too much data thinking it makes you the expert – you are NOT trying to be the expert but to show the investor a) there is a big money making opportunity b) that you ‘get’ the space and c) you’ve done your homework. Try not to bore the angel – they’re busy people and no one is going to be as passionate about this idea as you – keep it succinct but impactful.

Market:
How big is your market? This is a natural follow on from the background above.  If you create a business how can you protect and grow your slice of the market? Who are the competitors?

NOTE:
On competitors – one tendency and this is a trap I fell into with my first angel presentation 15 years ago was to say “There are no competitors – this is SO new that we don’t think we’ll have any competition – the market is wide open”

BEWARE!  BEWARE! BEWARE!

There are always competitors, even if peripherally, even if it’s just for your customers share of wallet and Competitors show there’s a market in the space you are going after. Competitors are a GOOD thing (as long as they’re not dominating 80% of it – if so, really consider if starting a business in this space is a smart move…)

Financial or Business Model:
How are you going to make cash? The days of putting something out there and seeing what happens have gone along with Madonna being at the top of the cd charts (Cd’s – what are they?). If its a product – what and who will you charge? If it’s a service – what and who will you charge and how often do you expect to do so.

In the Business Plan you’ll need to flesh this out with a balance sheet ad cashflow forecast for the next 3 to 5 years – not so for the executive summary (*Whew* isn’t that a relief?!?!)

Team:
Who’s going to create and build this fantastic business and why the angel should have confidence they can get the job done. A paragraph on the key team members is fine.

NOTE:
If you have gaps in your team – spell them out – let the angel know you realize where you have gaps and you have a plan to address them as a first priority.

NOTE PLUS:
Don’t ever try to gloss over what you don’t have or don’t know – a relationship with any angel is based on trust – you get caught lying or exaggerating once and that’s it…game over!

Capital Requirements:
This section should focus on what you need and why you need it.  Plush offices are not a good reason.  Spell out how this cash will help the business achieve specific milestones – and be careful, you and the business will get assessed against your ability to meet those milestones – especially when you come back to raise money for the next round.

Assuming you have written a kick ass executive summary and have a business which is attractive – the next stage you’ll need to get up to speed on should be How do I negotiate an angel investor deal and what will the  angel investor want from the deal.

Let me know if you’d like me to cover that subject next in your comments or emails.  They are always welcome and thanks for the notes you all sent to my last post.

Stay tuned for a set of tools I’m creating to help you all in this process.

Andrew

PS: Any more questions?  Reach out via the contact page above and join my mailing list by adding your name and email in the box to the right. I’ll also send you some valuable downloads to help…

PPS. want to supercharge your angel fund raising? (Supercharger) – just released and available in this format for a short time only

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