How to raise your chances for acquiring finance: get ‘investor ready’

In practice, it is not easy to acquire a substantial investment in your venture when assets are lacking. You desperately need funds to finance your growth plans, to expand or sometimes even to survive. How to act?

The investor casino, a 1% chance to get funded.

As banks become more and more strict and reduce their risk portfolio you have to find money with risk investors for example Business Angels or Venture Capitalists. On average only around 3% of the business plans that investors receive are considered of such quality that the company owners are invited to present their plans. And it gets worse. Only 1% will receive funding, and not always the amount they asked for. This is an amazingly small percentage. The question is now: are the other 99% of the plans really of such bad quality or are investors missing good ideas and opportunities here?

Investors receive a ton of business plans every week. They only take a very quick look at the plans. If the business plan is presented not in line with their standards, has an incomplete business model or an insufficient financial analysis, it doesn’t meet investor criteria and it disappears in the bin.

How to get better dice in this casino game?

Step one is to get face-to-face with the investor.

You do this by sending him or her professional written teaser or executive summary with the right content. This is the investor’s first impression of your venture. If written correctly with the right content, the investor will ask for more information and might invite you to a presentation.

Reading the teaser will raise the investor’s interest and whet his appetite. Questions like: What business is it, how much do I have to put in, what do I get in return (Internal Rate of Return), what is the exit strategy and what are the risks involved? need to be answered.

You need to create an urge on the other side: ‘I must know more about this opportunity and I want to see these guys!’ Investors look at the following criteria:
– unique opportunity
– idea protected by patents
– proof of concept
– winning team
– paying customers
– clearly articulated, sustainable competitive strategies
– scalability in product or service
– realistic, achievable financial projections and a clear exit strategy

Step two is to give a presentation at the investor’s premises.

Now the focus shifts to the details and how you present yourselves and perform as a team. Everything comes together: the team, the content and the presentation. In general, this is a 10 minutes pitch in which you give a 10-15 page powerpoint presentation. You have to be fully prepared. No mistakes or inconsistencies are allowed. Keep in mind financial people have very little time! Investors need to trust your plans. Therefore, giving the impression that you know your market and your product, and showing confidence are essential. What also helps a great deal is having paying customers. Or having a seasoned entrepreneur in the team, somebody who has done it before and knows the market.

Finally, remember that you will get only one (!) chance in the investor’s office…

 

The myth of the Generation Einstein

Conventional wisdom suggests that Generation Y, also known as Millenials and widely known in Holland as Generation Einstein following the book of Boschma and Groen, are among other things Media Smart: “Since they were babies, they have been confronted with the media – they understand advertising and have become the ultimate experts. They only need to see the advertisement to know what the marketing strategy of the company is”.

I do not know where such ideas are founded on but my impression is that they are based more on fiction than on facts. For sure the millennials have grown in a media-dominated society but they media smartness is limited since they are heavily exposed to one medium only, namely the Internet: they watch much less TV, read almost nothing on paper (except maybe their school textbooks) including newspapers and they listen much less to the radio than their parents.

This one-sided exposure can never make them experts in advertising as the above quote claims. In fact on this point I would rather argue the contrary: Their almost blind faith to everything published online as the absolute truth makes it sometimes impossible to make a distinction between reality and commercial messages. I do not have any hard evidence to support this argument, maybe some research on this would be useful.

However there is some evidence already that the Millenials despite their reputation as Media Smart do in fact very superficial and limited use of even the Internet and more specifically of the Social Media: A recent study of my M&G colleagues van Velzen, Bondarouk and Klerks indicates that most of the Generation Y online users are passive information consumers.

A recent study we conducted among VWO 5 and 6 children confirms this findings, pointing also to the fact that the vast majority of this segment is using the Social Media for entertainment rather than anything else. The percentage of these children who are actively creating and contribute content online is negligible.

My conclusion is that often the reality can be different than the perception. Again I would argue for more research in this area and a consistent follow-up of the trends here in a longitudinal study. As about the term Generation Einstein we should use Einstein’s name more carefully!

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