Asking for money can be like a debut performance in the theatre.
No matter how bright the idea, blow a few lines and the entire deal may be lost.
“Raising capital is methodical and needs to be well planned,” said Cam McNaughton, a lending consultant who helps companies find capital for fast-growing ventures.
“You only get one opportunity,” he said during a workshop that explained how to recruit investors when building a new business.
It is worthwhile to hire professionals to design a plan and do extensive market research. It can take between 600 and 1,000 hours to write and research a proper business plan, which may only be about 20 pages.
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“The first paragraph should communicate what the business is all about,” McNaughton said.
The person presenting the plan needs to be well rehearsed. The written plan must be concise and focused on investors.
It should explain how much money is wanted and for what purpose.
The entrepreneur must also reveal how much he is investing. Asking for 100 percent financing is not advisable.
The investment community is relatively small and if the deal has been taken to several sources for financing, it is sure to be rejected by all.
Armand Lavoie, of the venture capital firm Foragen, provides business plans and advice. His company is willing to invest as much as $2.5 million in seed money to get a company started.
Lavoie said out of 10 companies, two may go bankrupt, six muddle through and two pay off. The windfall from a few companies is enough to keep investors interested.
Investors will look at a good product concept that meets a need. It should be patented technology and the company should have several products rather than hinge the business on a single idea.
Investors evaluate the management team and whether the people can work together. They are open to adding expertise to the team and may recommend hiring a chief executive officer or other professional who can keep the company focused.
Management drives everything in a company. New entrepreneurs are often so focused on one aspect of what they are doing that they fail to see the larger picture of what the company is trying to accomplish.
Venture capitalists want to know cash flow and budget plans. They want a company analysis, financing strategy, intellectual property position, product development strategy and return on investment.
A lack of constructive communication between company owners and investors can undermine a business.
The company may have oversold its goals and its ability to meet timelines. It may have an inaccurate sense of how well the new product will be received because it did not assess the market, potential customers and product price.
New companies should get an accountant early. There may not be any income, but there are expenses that must be accounted for.
