Shoestring Advice for Technology Startups

Let’s say you’re a budding entrepreneur, you have brilliant idea for a business and that you believe in your heart-of-hearts that it's a winner, but you also know that you don’t have enough funds to bring your idea to market. So you think “Ah ha, I’ll raise the funds. There’s billions of investor dollars out there waiting for an idea like mine and I read of projects being funded all the time.” Great, that’s music to our ears and what this country is built on, but before you go rushing off to meet investors, make sure you're prepared! Raising funds for a project is practically a full-time job, so you need to be careful with your time. Also, it's very hard to get a second chance with investors, I we recommend you do everything you can to be ready for the first encounter.

We've created the following list to help you in this preparation. The goal with this list is to try to get you to understand your investment opportunity from the perspective of the investor, so you can position yourself in the best possible way and be prepared for the inevitable question(s).

1. Question: Why does an entrepreneur seek investment?
   Answer: To accelerate the growth of the startup. It is important to understand this when raising capital, as investors will want to know what you're going to spend their money on and how that will accelerate growth.
2. Although it's hard to get a second or third meeting with an investor if they've already passed on your project, they DO believe in momentum. They especially believe in sales.
3. Most investors will only invest in scalable businesses. They're not looking to invest in a mom and pop business or a business that is hard to scale up (e.g., service based, such as consulting). They usually don't look to invest in a life-style business, i.e., ones where there isn't a clear exit, therefore their payback is revenue sharing.
4. You must have financial skin in the game. You must invest money in your own project. If you have not invested money in your project, why would anyone else? I.e., if you’re not prepared to take the risk why should they?
5. Lost income and/or sweat-equity is not considered sufficient skin-in-the-game, as these are expected commitments from you. Investors expect you to have a financial commitment too. They want to know that you’ll hurt as much, if not more than them if the business fails or you decide to take a job when things get tough. (Contact KENOVA about their Concept Presentation System that can help you with this.)
6. There are a million great money making ideas out there, but what investors want are great businesses to invest in, i.e., they don't generally invest in ideas alone. So present a business, not just an idea.
7. Investors want a good exit strategy, i.e., they want their money to grow and grow big.
8. The earlier the investment money, the greater the risk to the investor so the greater the piece of the company you’ll have to be prepared to give up.
9. Investors are looking to do some good with their money, so they’re not going to bet on a losing horse. Even philanthropic investors want to invest in a viable business, i.e., they may not be motivated by an exit strategy, but they want their investment to do something positive, which it won’t if the business model is not good.
10. If your idea is your “baby” and you don't intend to sell it, don’t bother trying to raise capital. Investors are looking for a big exit strategy, which they won't get if you're not prepared to sell. Note: I know you're thinking of Bill Gates and Microsoft, Google, Facebook et al, i.e., they didn't sell. But the point is, they were prepared to and they were lucky that their big payout is an an annuity. So in other words, you need to be open and flexible with your exit strategy.
11. You need to be prepared to give up more equity than you keep. You won't get investors if you intent to keep 90% of the business.
12. It’s better to own 10% of a success, than 100% of failure…trust us on this!
13. Do not approach an investor half cocked, i.e., unprepared. You generally just get one bite at the apple, so if you don’t present your best case, you’ll probably never get the investment.
14. Always remember you are one of millions of entrepreneurs with a great idea looking for funding and although your idea may be better, the other entrepreneur may be perceived a better bet, i.e., better prepared, better team, etc.
15. The best approach is to make sure your intro paragraph, presentations, executive summaries and business plans are clear, concise and to the point. Don’t pad with fluff or use boiler plate paragraphs from a purchased business plan. Investors are very busy people, they want to invest, so make it easy for them to find the good stuff.
16. Investors are in the game of risk. Which means they don’t really read business plans, i.e., they tend to flick through them looking for facts, pieces of information they need and prove that you’ve done your due diligence. So make it easy for them to find what they're looking for. Try and put your self in their shoes.
17. Generally only one in ten investments pay off for investors, as its really hard for them to identify the winners. So what they tend to do try to avoid the losers.
18. The executive summary should be pages 1 and 2 pages of the business plan. If structured well, these two pages can get you the investment you’re looking for.
19. When presenting to an investor, make sure you told them how the business will generate revenue and why you need the money. If they ask you these questions after you're presentation, you may have failed to impress them.
20. Even worse than above, they didn't understand your business value proposition and have to ask you to explain again.
21. Investors invest in great teams, i.e., hi-tech investments are a "team play". The idea needs to be compelling, but it doesn't matter how compelling it is if the team is weak. A good team is smart, creative, experienced, has integrity and is eager to learn.
22. If your idea is unique you have to validate it, i.e., prove to the investor that there is a market ready to buy. The risk for the investor is the cost of educating the market to buy your idea.
23. If the idea is not unique, i.e., there are competitors or alternatives, then you have the benefit of a validated idea, but your challenge is to convince the investor why you are different and thus why you would attract customers.
24. Most successful businesses didn't make their money on “plan A”, i.e., the first idea, they typically had to pivot and so their money is usually made on Plan B or C.
25. Bank loans and government business loans are secured loans, i.e., you have to provide some sort of asset to get the loan, like property.
26. A Catch 22 with bank loans is that investors don't like to see them on the books, i.e., they're concerned their investment will be used to pay off the loan as opposed to growing the business. If you have a loan, provide some sort of assurance to the investor that you will not simply use their money to pay it off.
27. The likelihood of someone giving you money solely on the basis that you are convinced you have a winning idea is very rare! Why? Because the road to success is thwart with a million problems and the investor knows this. You need to provide more than an idea and you especially need to show that you can pull it off.
28. Teams need to prove they can execute and are prepared to pivot if they have to.
29. Angels used to only be high net-worth individuals like doctors, lawyers or people with inherited wealth. Angles have evolved into institutions, successful business people and super angels (group of angels). Angels are more likely to invest in very early startups than venture capitalists.
30. Raising money is a full-time temporary job. You have to prepare, seek, reach and present. Preparation is very important as indicated above. Seeking investors takes time, they're hard to find, e.g., there's no investor club where they hang out. Then you have to approach them, schedule a meeting to present your idea and get yourself to the venue. Make sure you're clear how much work is involved to raise money for your project.
31. In relation to the previous point, consider the fact that raising money means you're probably not spending time on the business. So make sure you ask yourself whether you should be raising money now.
32. Make sure you are raising enough money so you don't have to raise more money in 6 months. Investors want you working ON the business, not on the fund raising circuit. 12 to 18 months is a good duration to cover / plan for.
33. Make sure the investor is a good match for your company / project. E.g., if the investor has only ever invested in say bio-tech, they're probably not a good fit if you have a hi-tech project. So make sure you do your homework, they will appreciate it.
34. Don't be afraid to ask the investor if she knows of another investor that might be interested in your project. Investors are usually very amiable and willing to help…as long as they feel your project and company is a worthy investment.
35. You must show that you are teachable and prepared to take advice and criticism. Don't take it personally, they're just trying to help.
36. You must be prepared to pivot, i.e., change direction with one foot in the current technology, if the idea isn't working. In other words, don't be so married to the initial idea that you won't try something else to make the COMPANY successful.
37. The amount you are looking to raise must be determined by facts and not a wild guess. If you can't clearly demonstrate where the money is going to be spent and why, the investor will not feel confident that his money is going to be properly utilized. This is very important for you to know, because if you are asking too much too soon you may be giving away the farm. Your goal should be to build up value in the business as quickly and cheaply as possible, because the greater your valuation, the less you'll have to give up for more money.
38. Be confident, but not arrogant. After all, you're giving the investor the chance of a lifetime…sort of.
39. Be easy to get along with. Be cooperative. When the investor meets you one of the questions running through their head is, will it be a nightmare having meetings with this person every month? If they believe every meeting will be a fight, the likelihood of them investing is low.
40. Many investors need to see that you are attacking a $billion market because of the math. They figure that if you can achieve a 1% market share, then you have a $100,000,000 idea, which is an investment magnet.

(as more facts come to mind we'll keep adding to this list)  

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