Written by Daniel Tautges – @danieltautges
CEO Pinpoint Worldwide
Running and advising global businesses for most of my adult life, I have found that there are common problems that most face in reaching their growth and revenue goals. In this post let’s take a look at the dreaded “Capital is Not Available”.
I’ve had the opportunity to work with some of the largest Venture Capital and Private Equity firms in the World. I have both looked at deals as a VC as well as raising capital as an early stage business. This experience has given me a unique understanding on how to put your company in the best position to engage the venture community, raise capital at a fair valuation, and make capital available to your company when needed.
Although it is true that bootstrapping a “life-style” business is a great way to prosperity, most entrepreneurs that I work with are looking to change the world. If you want to change the world, continue reading…
I’ve met with several entrepreneurs who had been turned down when trying to raise capital when they had the opportunity to pitch their business to investors. They are in a tough spot, stuck without the necessary capital to aggressively grow their business. In the Tech business, slow and steady rarely wins the race. When you have a great market opportunity, as they say in Rome, Carpe diem. With billions is capital available in the market, why were they turned down? Often the investor will tell you “their reason” but “their reason” is not always a hard rule but generally more of a guideline. “So you’re telling me there’s a chance..” Absolutely.
When discussing investment opportunities, several entrepreneurs have shared the following feedback with me after they presented to a venture firm:
“We only invest in break-even companies with $3M in trailing revenue”
“You don’t have enough customers”
“The executive team is too inexperienced”
“The valuation is un-realistic”
In reality, I have been involved with funding rounds where all of these blockers existed and the company still was able to raise capital at a favorable rate. How were they able to raise but you were not? Please read on.
They have a methodology that the investment team follows that has (if they are good) worked three out of ten times. They know they are going to miss on most but they have to hit big on a few, so there are guidelines but not rules. They know the risk. Not all the horses will win the race but a few have to. Realize that at one point Facebook, Apple, eBay, etc. were all turned down for capital (BVP Anti-portfolio).
So what when wrong? Why was the company turned down for investment? There are so many tangible and intangible factors, but there are a few deal killers that are controllable and a few that, frankly, aren’t.
Did you do your research on the firm? Does the investor fund in and around the space? Do they have a horse (competitive/or in-vertical) already in the race? Was the information presented in a professional way with the right information? Do you have a relationship with the investor? Is the CEO/Founder a winner? Will the investment make a difference? Is the market opportunity really as big as you think it is?
A large Venture firm will see a minimum of three firms just like yours, in your space, with your value prop, with your IP, so then why you? A good venture partner of mine recommends that don’t loose out because you missed the basics. Make sure that answers to the following 11 questions be clearly understood internally and presented externally in a professional way.
- Why your company – elevator pitch?
- What do you do?
- Why do you do it?
- Who will buy your prospects/customers?
- Who is on the Team -what have they done?
- Why are you better than the competition?
- What is your secret sauce/IP?
- How do you sell it?
- How much money has been raised? This round? Future rounds?
- Why invest?- Is there an Exit Strategy?
- How are you going to use the money?
Fund Health. It is not always easy to know the funds general health. The fund might look large but most of the money is already allocated to existing companies.
Timing. The fund is not ready to invest.
Working with the wrong associate. The associate is not able to sell your deal above other deals in the queue.
Lost to market competitor. Fund is evaluating several funding candidates in your space and you lost to internal domain knowledge, familiarity, lower perceived risk, higher upside, more favorable valuation.
You know your business is challenged when capital is unavailable. Realize that if you want to raise money, you can control some of the key variables that can give you an advantage in the search. Change the world. Make sure that your company is in the best position to engage the venture community, raise capital at a fair valuation, and make growth capital available when you need it.
To learn more about Pinpoint Worldwide and how we solve global company growth problems, please visit http://www.pinpointworldwide.com or contact me at firstname.lastname@example.org