| I am not writing this to create a list of things not | | | | management to be successful. If this were true, |
| to say so people can hide the facts or in any way | | | | you are either spending WAY too much money |
| mislead potential investors. On the contrary I | | | | on staff, or you do not understand the skills you |
| personally believe you must be 100% upfront | | | | will need to bring on as the business grows and |
| with any potential investors, and even volunteer | | | | evolves. This is never true and saying it is like |
| some weaknesses to be credible. I am writing it | | | | waving a flag saying I am an amateur. All |
| to help entrepreneurs and CEOs "design" these | | | | investors assume you will need to hire other key |
| issues out of their business so they never have | | | | players and set aside a stock option pool for that |
| to say them. Although there are certainly many | | | | purpose.7. We are going to sell this product to |
| exceptions to these, as a general rule there are | | | | everyone (even in a single industry), because |
| many good reasons why all of these things should | | | | everyone can use it. This worked during the |
| not be part of your company, if you are looking | | | | bubble for a while when $30 million was being |
| for outside investors. I have discussed some of | | | | dropped (foolishly) at a pop to fund some broad |
| the logic why, but this should not be considered a | | | | horizontal plays. Today, the smart money is |
| comprehensive discussion of the reasoning behind | | | | mostly funding companies going after niches, and |
| each item. You should also realize some of the | | | | maybe some verticals (with top management |
| reasons are a function or perception, of the | | | | teams, ideas and markets). Virtually every |
| market. I would never say they all make sense all | | | | company today needs a market entry strategy |
| the time. Each situation is always different.Most | | | | that is narrow and focused to establish them as |
| entrepreneurs greatly underestimate the difficultly | | | | the "go to company" for a particular problem or |
| and time required to succeed at this task. They | | | | solution. You NEED to be the big fish in a small |
| also underestimate the opportunity cost to their | | | | pond first because small fish in the ocean get |
| business while they are "away" focusing on | | | | eaten alive more often than not. You can add |
| something else. You only want to raise outside | | | | niches, products or expand to an entire vertical |
| capital, if you really NEED to have capital to grow. | | | | later after proving every element of your |
| I am recommending to many CEOs I coach and | | | | business in a single niche. By the time you get |
| mentor today that because it is so difficult to | | | | there so much can change it is usually even a |
| raise money today, and valuations are not great, | | | | waste of time figuring out what that order will be |
| it would be a far superior alternative to spend the | | | | in advance. Markets and technology are too |
| same amount of time selling, or adding value to | | | | dynamic today.8. We have no competition. This is |
| your business in other ways, than to spend six to | | | | virtually never true, as people are doing something |
| twelve months chasing investors. In many cases | | | | to deal with the problem you solve today. If you |
| spending the same amount of time and effort | | | | are a restaurant then the grocery store across |
| selling your products, or service, could generate | | | | the street is your competition. You can almost |
| just as much money and not dilute your | | | | never view a market that narrowly, unless you |
| ownership and subject you to the whims, | | | | just got the patent on nuclear fusion, even then |
| regulations and covenants of bringing in outside | | | | coal, oil, hydroelectric and solar are still competition. |
| capital. This does not, however, mean you should | | | | Besides you really can't know who else might be |
| not develop a complete business plan. This | | | | working on the problem and if it is an attractive |
| process will greatly increase your chances of | | | | market you will clearly have followers. So you |
| success whether you are raising outside capital or | | | | need to articulate how you will stay ahead of |
| not.1. I have not invested my own cash in the | | | | competition either way.9. Only our management |
| business, but have only put in lots of sweat | | | | team is qualified to develop and execute this |
| equity. Experienced investors know that a | | | | business. This is about as false, naive and arrogant |
| start-up is a roller coaster ride of both highs and | | | | a statement as anyone can make, so don't even |
| lows. They want founders to prove their | | | | come close. To say you are the only people in |
| commitment by investing their own money to the | | | | the world who can do this is not only terribly |
| point where it will REALLY hurt if they walk away | | | | unlikely, it is in FACT something you can not |
| during tough times. Skin in the game is your vote | | | | possibly know for sure, because you don't actually |
| of confidence, so don't expect others to invest if | | | | know everybody else do you? So it is always a |
| you don't. This does certainly not have to be all | | | | false statement and shows overconfidence. It is |
| your personal net-worth, but it must be a | | | | better to err on the side of saying something like: |
| significant portion. You can take out a home | | | | "we know there will be competition and here is |
| equity loan, borrow or withdraw from retirement | | | | how we will be cheaper, different, better and/or |
| funds, or just invest personal savings. In the end | | | | faster."10. Our projections are very conservative. |
| this will pay off, if you do it right, because it will | | | | This is the most overused expression of the lot |
| make you more efficient with capital usage and | | | | and I would guess it gets said in more than |
| allow you to bring in investors later, after you | | | | ninety-percent of investor presentations. The fact |
| have created some value and increased your | | | | is that entrepreneurs are always optimistic; they |
| company valuation. Ultimately, if you are | | | | wouldn't be entrepreneurs if they were not, as |
| successful, you will likely own more of the | | | | they are certainly fighting the odds. Any good |
| company as a result.2. This (or that) market | | | | investor is going to make their own judgements |
| research firm said this market will be a $2 billion | | | | on the ramp rate of sales and expenses anyway, |
| market in five years, so all we need is 5% of | | | | so this is better left unsaid. The fact is you never |
| that market to build a $100 million company. | | | | know because you never know if there are fifty |
| Counter institutively this is basically saying you | | | | other companies working in stealth mode on the |
| have NOT done your homework, and do not | | | | same idea. According to research 32% of angels |
| really know who your customers will be. This is | | | | site "unrealistic financial projections" as the number |
| "top-down", not "bottom-up" market research. | | | | one mistake made by entrepreneurs.11. We don't |
| Besides most of these analysts firm's lost huge | | | | know how much money we need, or we can do |
| credibility when the bubble burst and people | | | | it on anything between $500K and $10MM. |
| realized some projected numbers beyond what | | | | Investors want to know you have a solid plan. |
| the population of the entire planet for Internet | | | | They also all have a certain amount they want to |
| users. You need to describe, if not actually list, the | | | | invest. Do your homework and understand |
| exact customers where you can win in most | | | | exactly who you are talking to. You should know |
| cases and why. Research says that 32% of | | | | exactly what you are asking for before you go in |
| angels site weak market analysis and analysis of | | | | and have a business plan with a financial plan that |
| the competition as the most critical mistake | | | | matches this. Asking for the wrong amount is as |
| entrepreneurs make in their business plan. You | | | | good as blowing the presentation entirely. |
| must design your launch strategy around a | | | | Although you may be able to execute a business |
| particular customer profile and offer something | | | | plan more slowly, yet successfully on less capital, |
| that that customer cannot get elsewhere. Smart | | | | and you may have a couple of scenarios figured |
| investors would prefer an unfair advantage in a | | | | out (you should), you can really only show one |
| smaller focused market, because the marketing | | | | plan to any particular investor.Level of |
| and selling costs will be lower (concentrated) and | | | | Management Team NeededGetting investors |
| the sales close rate higher. This also shows you | | | | today requires a strong team, idea and market |
| know what you are out to accomplish and are | | | | (not the same as idea). What level of team do |
| focused on a smaller market you understand well | | | | you need to have a good likelihood of obtaining |
| and can win.3. My spouse (or any immediate | | | | angel financing? Here is a chart of the level of |
| family) will be our other senior officers. - Or we | | | | management team you will likely need and you |
| are going to use my brother's company for | | | | can interpolate between these levels. Currently, |
| distribution (or anything else). Investors do not like | | | | you will likely need to reach level five to bring in |
| nepotism and also know that a divorce could | | | | any angel investors and probably a level 8 to get |
| destroy the company. They are taking enough | | | | any money from VCs. This also assumes you |
| risk already, so why should they add another | | | | have an attractive, and large, potential market, |
| layer of risk with the divorce rate at 50%? Why | | | | some barriers to entry and a good head start or |
| should they believe out of all the management in | | | | patent protection.ConclusionYou need to pull out all |
| the world your brother is the best qualified? Also, | | | | the stops today to obtain angel financing. This |
| there can be no conflict of interest issues with | | | | means getting further on less money than ever |
| "deals" that could be perceived as favored or the | | | | before. Which in turn means better focus and |
| result of nepotism. This allows for shifting of | | | | using virtual company techniques to get much |
| costs and revenue in ways that are totally legal, | | | | further on your OWN personal resources, and/or |
| but at the same time unfair to the investor due | | | | friends and family money. It also means pulling |
| to subjective factors. This is fine in a wholly | | | | together a team of people that address all the |
| owned private company owned by a single | | | | major risks in the business. This requires creative |
| individual (a lifestyle company), but should not | | | | deals to bring people in and probably not be |
| really ever happen with outside investors. Enron, | | | | paying them, certainly not full-time, while you are |
| Adelphia, Worldcom and Tyco are perfect | | | | creating real value in your business. Investors |
| examples, and these have made everyone more | | | | want to invest in something that already has |
| aware of how easy it is to abuse executive | | | | value built in, not an idea or business plan with a |
| positions. It is even possible that in the future | | | | "one-man show" today.The most common |
| institutional investors who allowed this could be | | | | mistake made today made by entrepreneurs is |
| perceived as violating their fiduciary responsibilities | | | | going out looking for money before they are |
| and have liability. After the fact, if something | | | | ready. The competition is fierce out there, so |
| went wrong and the company shut down, the | | | | don't burn your best personal contacts by |
| perception could be that things were done | | | | approaching them with an incomplete or |
| improperly. The room for interpretation on the | | | | undeveloped business plan or company. If you |
| dissolution of assets could easily be perceived as | | | | have not successfully raised money before, get |
| improper, even when it is done right, due to the | | | | help from someone who has. C-Level Enterprises |
| wide room for judgement on the value of the | | | | offers a complete financing review and critique |
| remaining assets of any company that is closing. | | | | that is guaranteed to improve your chance of |
| Since this is effectively a fire sale prices will be | | | | obtaining financing. Go to for further information. |
| well below "fair market value". In short, avoid any | | | | Also see for audio courses on raising investor |
| and all conflicts of interest, whether real or | | | | capital.Mr. Robert Norton, is an author of four |
| perceived.4. I am going to also be doing some | | | | books, speaker and President and CEO of C-Level |
| consulting to cover my expenses because of my | | | | Enterprises. He has over 15 years as full-time |
| low salary. Or I have other businesses to run also. | | | | President and CEO of numerous successful |
| Or anything else I invent I will personally own the | | | | companies. Two grew to over $100 million in |
| rights to. These are all variations of the same | | | | annual sales while Mr. Norton was there and one |
| theme. You are not fully committed to the | | | | grew from $0 to over $1 billion in revenue today. |
| business you want them to put their money in. | | | | His experience spans all key disciplines needed to |
| This might work for Donald Trump, but for | | | | start, grow and exit businesses in several |
| anyone who has not made his or her first $25 | | | | industries. He can provide a breath of experience |
| million don't expect that kind of latitude. Investors | | | | and perspective across all disciplines that only |
| want and deserve your full-time attention as soon | | | | experienced CEOs can.He founded and run the |
| as they invest. This might be OK while you are | | | | exclusive CEO & Entrepreneur Boot Camp - The |
| pulling together your plan and don't have outside | | | | Art and Science of Business Design. See 22 total |
| investors yet, but investors are buying YOU lock, | | | | years experience, including former positions as |
| stock and barrel and want your full-time attention | | | | Senior Software Architect, VP Engineering and |
| and focus. This not only means your time at the | | | | CTO, Mr. Norton can understand both deep |
| office, but as a CEO, or any senior executive | | | | technical issues and strategic management issues. |
| really, it also means they want to own your | | | | So often operations, product development, sales |
| thinking in the car and shower, and all your ideas | | | | and marketing issues are deeply interwoven, |
| that are a result of your work.5. We have it all | | | | requiring multidisciplinary experience to effectively |
| figured out. The fact of the matter is that the | | | | solve problems. Mr. Norton's breath of experience |
| only guarantee you can make is the plan will | | | | allows for complete validation and/or |
| evolve and change and the business plan is pretty | | | | improvement of entire business models for |
| much guaranteed NOT to happen. Only naive | | | | maximum growth and profit. He is also a specialist |
| investors would think you are going to do | | | | at designing long-term competitive advantage into |
| everything that the plan says and not make | | | | businesses so profit margins can be maintained |
| changes as you go. If they really believe this, you | | | | and stockholders build sustainable revenue and |
| probably do not want them as investors anyway. | | | | profits that can justify high multiples on exit.He is |
| If you say this, you are basically saying you are | | | | also the author of The Startup Manual, the first |
| wet behind the ears or unrealistic. Besides, if you | | | | roadmap to starting and growing any business to |
| really had it all figured out and proven, you | | | | $100 million in sales, available at complete |
| probably would not even need their money, you | | | | biography is available at a resource for CEOs, |
| would be "bankable" and pay prime rate instead of | | | | entrepreneurs and C-Level executives at |
| twenty to fifty percent per year to get equity | | | | early-stage companies. |
| dollars.6. We have everyone we need on board in | | | | |