Shopping Your Deal
By Sarah Halstead
…many entrepreneurs would receive more serious consideration from investors and financial angels if they realized they are selling a package to the financial marketplace rather than their product or service to a consumer.
It depends on who you’re talking to: entrepreneurs say there’s not enough money; venture capitalists say there are not enough viable deals. West Virginia’s venture capital and angel investment infrastructure is maturing, but funding does exist for great ideas. Richard Ross, executive director of the West Virginia Jobs Investment Trust Board sees mostly deals that lend themselves to venture investing in companies typically thought of as being in the gazelle class, growing at an annual rate of 20% or more. Most of WVJIT’s investments have been in software, high tech and advanced sciences, but there have been investments made in low tech, high quality product manufacturers, too.
According to the VCs at Venture Planning Associates and advice offered in Derby Management’s Web-based Knowledge Center, many entrepreneurs would receive more serious consideration from investors and financial angels if they realized they are selling a package to the financial marketplace rather than their product or service to a consumer.
Every business plan should address upside potential, downside risk, management, potential dilution, and liquidity issues. Investors are constantly comparing one investment against another and ranking them in numerous categories.
Advice to Entrepreneurs
- Understand capital raising strategies
- Build a strong management team
- Develop a dynamic business plan
- Conduct venture capital market research
- Gain access to targeted venture capital providers
- Shop your deal
- Always have a back-up plan
Soft Skills
Learn to sell your product or service and vision face-to-face. Buy a financial calculator and become proficient in all aspects of finance for startup companies—weakness in the financial area will drastically reduce your chances of funding. Build a quality team. Build your network in sales, finance, and management. Take a public speaking course and learn to give tight presentations to tough audiences. Try Toastmasters, Rotary, or Junior Achievement, Sales and Marketing Executives, etc. Learn to do due diligence on financial resources. Attend investor-oriented meetings such as a local venture capital association meeting or the industry meetings for your business type.Angel investor groups are more difficult to find; however, they are worth researching. Or find a local business incubator to assist you with your startup.
Rates of Return and Investment Periods
Plan to raise capital in stages. Each stage has a set of funding criteria and specific group of individuals who work in that field. The earlier the financing stage, the greater the risk, the greater expected return, and the greater percentage private investors and venture capitalists will request. Sometimes the investor will require control of up to 80% of the company.
Investors usually give entrepreneurs the opportunity to earn back controlling interest if certain milestones and performance standards are met. Also, the earlier the stage, the more difficulty will be encountered in raising the initial capital. It may take six months to a year to locate the proper partner for your business.
General guidelines for venture capital investment returns are:
- Start ups, 10 to 12 times return in five to seven years.
- Existing early stage companies, five to seven times investment in four to five years.
Among West Virginia venture capital and lender resources are West Virginia Jobs Investment Trust, Mountaineer Capital, and the Natural Capital Investment Fund.
The Federal Reserve Bank of Richmond will present a free post conference workshop titled Seed Capital Matchmaking at the Create West Virginia Conference, 1:30 p.m. Wednesday, October 22.
Special thanks to Richard Ross, WVJIT, Venture Planning Associates of Hawaii, Derby Management of Boston, MA, and David Boland of Sun Mountain Capital, NM.