How to convince investors to back your startup – expert tips

You only have one shot. Make it good and make it count.

That’s the advice of three venture capital experts to entrepreneurs seeking start-up funding.

If you’re not ready to make a presentation before potential investors, hold off the meeting and wait for the proper time, said Scott MacCannell, president of Troy Inc. a boutique investment organization based in Woodbridge, Ont.

“It’s your one chance to make a good impression. Don’t rush it,” he urged attendees at a seminar on how to secure capital investment organized by the Innovation Synergy Centre in Markham (ISCM) yesterday.

The seminar, titled Rules of Financing for Growing Companies was part of a series of investment forums dubbed Money Chase 2008.

The ISCM is a non-profit business advisory hub based in Markham, Ont. that provides workshops, training courses and vital links geared toward helping start-up companies build their business and employment base.

Finding sources of capital and convincing investors to fund their projects is often very difficult for entrepreneurs because most of them are not trained for this activity, according to Catarina von Maydell, director of investment network for ISCM.

“A majority of business owners are focused on their product or service, but have very little knowledge about raising capital.”

A recent ISCM survey of technology-based firms in Ontario revealed that while 98 per cent of the companies reported obtaining financing within 12 months, as many as 82 per cent of respondents admitted they didn’t have the knowledge to access necessary funding, von Maydell said

Business owners must impress upon investors that their company is going to make money, said Dushyant Sharma, one of the panelist and president and CEO of Paymentus Corp. an electronic payment services network in Richmond Hill, Ont.

“It’s not enough to tell investors that your product or service will solve a problem. They’re interested on how your company will make money and how they can earn profit on their investment,” he said.

There may be other companies that have the same idea as you, but it is essential to convince investors that you’re the one who “can make it happen,” said Robert Koturbash, managing director of Maple Leaf Angels, a group of private investors based in Toronto.

“We’re probably the most jaded audience. If you can sell yourself to us, you can sell to your customers.”

Startups seeking funding must provide evidence of viability, panelists said.

Before going into a meeting with investors, they said, business owners must have documents and materials covering four key areas that most investors check when they conduct their due diligence:

  • Organizational information
  • Financial information
  • Contracts
  • Intellectual property

Organizational documents can include: incorporating documents; company charter; bylaws and amendments; minute books; capitalization tables; restrictions; liens; encumbrances; asset purchase agreements; partnership of merger agreements; and all stock related agreements such as options and bonuses.

Financials will include: financial statements for the past five years; projections; letters from accountants; agreements; loans; tax returns; insurance details; estimates of differences between book value and fair market value; as well as details of pending suits or threatened litigation.

Contracts may include: all employee contracts; consulting and retainer agreements including secrecy agreements; agreements on sales, distribution and royalties; agreements on purchases, suppliers and sale of assets; and agreements with brokers and finders.

Intellectual property documents include: details on patents and trademarks; and details on ownership of intellectual property.

“Investors will check out these documents and look for ‘must haves and can’t haves’ – vital disqualifiers which help them determine if your business is worth the risk,” said MacCannell.

“There will always be risks, your job is to prove you can handle it and know how to minimize it.”

The investor is looking for indicators of the business’s financial state, the potential of identified sales and revenue drivers, potential legal impediments and competition, he said.

All three experts said businesses should not make the mistake of eliminating competitors from the equation.

“The presence of competitors can actually bring home the message that you have chosen a viable market. The idea is to convince investors that you can compete or do better,” said Sharma.

When it comes to presenting all this information to investors, Koturbash said it is important to keep the presentation brief and clear.

For example, entrepreneurs planning a PowerPoint presentation would do well to follow the 10/20/30 rule of Guy Kawasaki, managing director of Garage Technology Ventures an early-stage venture capital firm in Palo Alto, Calif.

Koturbash said the rule essentially means: limiting the presentation to 10 slides; taking up no more than 20 minutes; and using 30 sized fonts for the text.

The 10 slides must contain the following:

1. Title
2. The problem or pain point you are addressing
3. Your solution to the problem
4. The business model – how you will make money from the venture
5. Why you are the one with the competitive advantage
6. How will you market your product or service
7. Competition – who else is out there
8. Team members – quick blurbs or the experts working with you
9. Financials – a summary of your company’s financial state
10. Conclusion, update on what your company has done so far and what you intend to do with the money

Sharma of Paymentus said the 10/20/30 is a good model but he favours a more aggressive approach.

“I play by gut-feel. If I sense the audience can take it, I’ll talk about the problem and how I can solve it and my advantage right away. Why waste their time.”

In presenting, Koturbash said, companies must ensure that they put their best presenter forward. This would be someone who knows the business and also is a good public speaker.

One disastrous presentation that he remembers involves a company he used to work for as the vice-president of finance. He said their key player was supposed to do the presentation, but instead the founder took over.

“Unfortunately, he was not a good speaker and the presentation was a total disaster.”

Not being an expert presenter may be handicap but it does not necessarily mean that your company won’t get any funding said, MacCannell of Troy Inc.

He suggests that before heading for the real thing, presenters conduct practice presentations with non-investing audience who can give honest feedback.

“Some investors can still see the merits of company even if the presentation goes bad.”

In some instances, investors may go ahead and provide funding but they might demand some key personnel changes to the company or ask for a greater degree of control, he said.

This is one of the primary reasons why entrepreneurs should consider potential investors as potential partners, said Sharma.

“If you don’t like them, don’t deal with them.”

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