By Howard Fletcher
Are you an entrepreneur raising capital for your new or growing business? If so, consider this quote by Guy Kawasaki, Managing Director of Garage Technology Ventures, who in his book The Art of the Start stated, “Think of investor’s deal flow as a funnel. Two thousand business plans enter at the top of the funnel. Two hundred are moderately credible. One hundred are interesting enough to read. Forty undergo due diligence. Ten get funded. One makes a bundle of money.”
Most Submitted Plans Fail
Imagine that, only five percent of all business plans submitted are interesting enough to read, two percent get to the due diligence stage and only one-half of one percent are actually successful at raising capital. Those odds are incredibly long indeed. But the two percent that actually get to due diligence represents thousands of companies each year, so the effort is worthwhile.
So how can an entrepreneur or owner of a growing business improve the odds of being in that two percent that raise capital? By understanding who, when, where and how to approach the capital markets and preparing to engage potential investors in a manner that sets the entrepreneur or business owner apart from others pursuing the same goal.
How Do You Beat The Odds?
- Ensuring that the value proposition is credible and offers an obvious opportunity to potential investors. Whether or not a value proposition is attractive depends on who’s looking, so be sure to view your value proposition through the eyes of your prospective investors or lenders.
- Understanding how the capital markets function, the roles played by the various participants and how to approach them. Being able to identify the right lenders and investors and engage them in an informed and knowledgeable manner will save time and frustration and improve your odds of raising capital.
- Creating a compelling story that will grab the attention of potential investors. If a company has a strong value proposition and an ability to execute, the ingredients of a compelling story are present. The challenge is then how to package it in such a way as to be easily explained and understood in both verbal and written form.
- Learning how to tell the story in a way that calls the potential investors to action. Research your intended audience, organize your presentation, create slides that reinforce your verbal presentation, and then practice, practice, practice.
- Learning to avoid simple mistakes that can turn off potential investors.
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