Fundraising for Your Business: Dos and Don'ts of Pitching to Your Investor

FUNDRAISING FOR YOUR BUSINESS: Dos and Don'ts of Pitching

to Your Investor

Aaron Rose

President and CEO, ROI3, Inc.

1@ROI3inc #ROI3

www.roi3.com© 2016 ROI3, Inc.All Rights Reserved

ROI3, Inc.

➢ROI3's mission is to empower people in emerging economies through innovative, technology-based solutions;

➢We achieve our mission by creating localized content, services, and applications for smartphone and tablet users in Africa, Asia, and Latin America; and

➢The focus of ROI3's products and services reside in English Language Learning (ELL), health, agriculture, small business management, and financial literacy.

© 2016 ROI3, Inc.All Rights Reserved

@ROI3inc #ROI3www.roi3.com

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ROI3's ELL Apps



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ELL Medical App Dashboard ELL Aviation

ROI3 Ventures

➢The focus of ROI3 Ventures is to provide advisory and financial support to entrepreneurs who are empowering people in emerging economies through innovative, technology-based solutions.

➢Initial focus on education and health sectors.



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ROI3’s Global Plans



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Sub-Saharan Africa

Southeast Asia

LatinAmerica

EasternEurope

China

India

MENA

So, you want to become an entrepreneur?

6@ROI3inc #ROI3


ARE YOU CRAZY?!!

7@ROI3inc #ROI3


Reasons to Become an Entrepreneur

1.Be your own boss

2.Be in creative control

3.Make a lot of money $$$$$$



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Barriers of People Considering Entrepreneurship

➢ I DON’T THINK I COULD RAISE ENOUGH MONEY – 48%

➢ I DON’T HAVE AN IDEA – 40%

➢ I’M DISCOURAGED BY THE HIGH FAILURE RATE OF BUSINESSES– 22%

➢ I DON’T HAVE THE RIGHT SKILLS – 21%

➢ I WORRY ABOUT BALANCING BUSINESS AND FAMILY LIFE –18%

➢ I’M WORRIED ABOUT TAXES AND REGULATIONS – 17%

➢ THE COMPETITIVE BARRIERS ARE TOO HIGH – 13%

➢ I DON’T THINK I COULD HIRE PEOPLE WITH THE SKILLS I NEED– 7%



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Source: Inc. Magazine, April 2015 http://ow.ly/Lbe7F

High Rate of Startup Failure

➢ Out of 10 start-ups, 3 or 4 fail completely (investors loose all their money; company liquidates all assets);

➢ Another 3 or 4 return money to the original investment;

➢ 1 or 2 produce substantial returns.

➢ The National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail.

➢ “If failure is defined as failing to see the projected return on investment—say, a specific revenue growth rate or date to break even on cash flow—then more than 95% of start-ups fail… .”



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Source: The Wall Street Journal, Sept. 20, 2012

Work-Life Balance of an Entrepreneur:

Your work is your life

Your life is your work

Passion & Sacrifice, Passion & Sacrifice, Passion & Sacrifice, Passion & Sacrifice, Passion &

Sacrifice, Passion & Sacrifice, Passion & Sacrifice, Passion & Sacrifice, Passion & Sacrifice, Passion

& Sacrifice, Passion & Sacrifice…

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Is your idea a hobby or a business?

1. Why you (your idea) and why now?2. Who are your customers?3. How will people know about you?4. How will you make money?5. How will you retain customers, while at

the same time, grow your business?6. How will you achieve and sustain

profitability?

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Ideas Are Crap Without Execution and Follow-Through

1. Ooze confidence;

2. Accept risk;

3. Define your purpose;

4. Create a plan;

5. Assemble a like-minded team;

6. Constantly build momentum;

7. Anticipate obstacles;

8. Establish a professional-personal balance;

9. Set micro-goals; and

10.Be patient.


@ROI3inc #ROI3 www.roi3.com

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Getting Naked with Your Business Partners Early

➢Founders must have a shared vision for their (1) product and (2) company

➢Define roles for you and your business partners early -- including equity ownership

➢Business structure: C-Corp, S-Corp, LLC?

➢What happens to the business when a partner (or key employee) leaves?

14@ROI3inc #ROI3


The Meeting with Your Investor

➢The first 10 minutes are the most crucial in a one-hour meeting;

➢No PowerPoint for the first meeting;*➢Personalize the pitch/conversation (i.e.,

develop a connection with the investor);➢Get to the point quickly (financials);➢Clearly articulate your Path to Success;➢Address the risks to your business;➢Present a definitive offer (i.e., Term Sheet).



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*Brad Feld presents a good argument for not using PowerPoint in the first meeting: http://ow.ly/LjRd304WPKh

Introduction

The Anatomy of the 10 Minute Pitch

The Problem

The Solution

Sales Strategy

Partners

Competition

Traction

Advisory Board

Management

Revenue Model

{00:30 seconds}

{03:00 minutes}

{08:00 minutes }

{10:00 min.}

Financials

The Offer

Market Size

Customers

www.slideshare.net/BryanStarbuck/alliance-of-angels-pitch-deck-template

Financials

ADR NOTE: While most templates place Financials

near the end of presentation, I prefer to hear about the projected

financials early in the presentation.

ADR NOTE: Use this time to review your company’s

projected financials.

PATH TO SUCCESS

17@ROI3inc #ROI3


IDEA DEMO REVENUEPROFIT-ABILITY

SUSTAINED PROFITABILITY

SUC

CESS

High Rate of Startup Failure



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0 1044

UnderperformingFailure

CompleteFailure

SuccessfulVentures

How will you take your business from the 80% of the failure side to the limited

20% success side?

IDEA DEMO REVENUEPROFIT-

ABILITYSUSTAINED

PROFITABILITY

Investing in Your Business is About OPPORTUNITY RISK

1. Technology Risk;

2. Product Risk;

3. Market Risk;

4. Management Risk;

5. Scale Risk;

6. Capital Risk; and

7. Exit Risk.



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Financial Strategy

“If you do not know your numbers, you do not know your business”

1. Projected Profit and Loss (P&L) Statement

2. Projected Cash Flow

3. Projected Balance Sheet

20@ROI3inc #ROI3


“If you do not know your numbers,you do not know your business”

1. What are your annual sales based on a trailing 12 months, not the calendar?

2. What are your gross profit margins?

3. What are your expenses as a percentage of your gross profit? (Not a percentage of sales. You pay your bills with gross profit – not with revenue.)

4. What are your operating expenses segmented by (1) sales and marketing, (2) general and administrative, and (3) research and development?

5. What is the percentage of each segment as a percentage of gross profit? In other words, what percentage of gross profit will be spent on sales and marketing, G&A, and R&D?

6. What is your cost of revenue (sales)?

7. What is the company's timeline for operational and financial milestones including break-even point and plans for sustained profitability.


@ROI3inc #ROI3 www.roi3.com 21

Year ending Dec. 31, 2016 2017 2018

Sales and

Marketing $175,000 $ - $ -

General and

Administrative $150,000 $ - $ -

Research and

Development $175,000 $ - $ -

Total Operating

Expenses $500,000 $ - $ -

Year ending Dec. 31, 2016 2017 2018

Revenue $200,000 $ - $ -

Operating Expenses $500,000 $ - $ -

Net Income (Loss) ($300,000) $ - $ -

($400,000)

($200,000)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

FY2016 FY2017 FY2018

Financial Highlights for ABC, Inc.

Revenue Operating Expenses Net Income (Loss)

Financial Highlights

Operating Expenses

“Know Your Numbers”“When I go in to meet these new companies, I can tell within three minutes if they have any idea what they’re doing when it comes to the economics of their business.“So the first thing, more than anything, know your numbers.”--Tilman J. Fertitta, Chairman, CEO, and owner of Fertitta Entertainment



www.cnbc.com/2016/04/05/billionaire-to-entrepreneurs-know-your-numbers.html

Do I Need a Business Plan?

➢A Business Plan allows you to list your goals and plan to achieve them (i.e., a map to chart your Path to Success);

➢A Business Plan allows your team members to understand the company’s mission, vision, goals, and financial targets; and

➢Each team member should be using the same road map.

23@ROI3inc #ROI3


Entrepreneurship: Have a Plan1. Executive Summary

A. Company and Technology: Background, Goals and Strategic Direction

B. General Market Opportunity

C. Business and Revenue Model

D. Management Team

E. Investment Summary

2. Company Description

A. Mission

B. Vision

C. Goals

i. Goal #1 is to understand your customer and provide exceptional customer service;

ii. Goal #2 is to build a product or service of the highest quality

iii. Goal #3 is to build shareholder value24



Entrepreneurship: Have a Plan

3. Products and Services

A. Include the company’s intellectual property strategy:(1) patents, (2) trademarks, and (3) copyrights

4. Market Analysis (including Competitive Analysis)

5. Marketing, Sales, and Distribution

6. Management and Organization

A. Management

B. Executive Team

C. Advisory Board

25@ROI3inc #ROI3


Entrepreneurship: Have a Plan

7. Risk FactorsA. What are the risks to your company?

B. What are the risks to your business sector?

C. What are the risks to doing business in a particular geographic area (e.g., China)?

8. Financial PlanA. Projected P&L Statement

B. Projected Cash Flow

C. Projected Balance Sheet

26@ROI3inc #ROI3


Entrepreneurship

HAVE A PLAN

HAVE A PLAN

HAVE A PLAN

HAVE A PLAN

DID I SAY: “HAVE A PLAN”?27



You Cannot Do It Alone

1. It takes a team

2. Surround yourself with people smarter than you

Intelligence of ROI3’s Team

Aaron Rose

Rest of ROI3 Team

28@ROI3inc #ROI3


ROI3 Team

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Expectations for ROI3’s Team Members

➢Understand and support ROI3's mission, objective, goals, and business model;

➢Be willing to learn new ideas and concepts;

➢Be willing to teach new ideas and concepts;

➢Be willing to express your opinion and support it; and

➢Be willing to make mistakes and learn from each mistake.



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You are here

7 Qualities Every Entrepreneur Should Look for in a Co-Founder

1. Cooperative, not passive;

2. Pedigree of success;

3. Complementary skillset;

4. Strong networker;

5. Plenty of time;

6. Passion for your idea; and

7. Honesty and trustworthiness.



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www.entrepreneur.com/article/254171

Leadership

1. COMMUNICATION;2. Coachable;3. Lead by example;4. Know your strengths and

weaknesses;5. Always improve your skills;

33@ROI3inc #ROI3


Leadership

6. Take responsibility for your actions;

7. Do not micromanage: Trust your colleagues;

8. Give credit where credit is due;

9. Avoid criticizing, condemning, or complaining; and

10. EXPECT RESULTS!!

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Due Diligence Checklistfor Investing in a Business (1 of 6)

1. General Corporate Compliance/Organizational InformationA. Review the articles of incorporation and bylaws of the company, and any/all

amendments;B. Review the minute book of the company;C. Verify that the company is duly incorporated and in good standing in the

state of its incorporation;D. Verify that the company is qualified to do business in all states in which it

transacts business;E. Review all stock certificates and determine the number and type of the

authorized and issued shares of stock of the company and the registered owners of the issued and outstanding shares;

F. Determine whether there are options, warrants, or other rights to acquire shares outstanding;

G. Review stock transfer records of the company;H. Review all agreements between the company and its shareholders; andI. Review securities law filings under state and federal securities laws.

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2. Financial and Tax InformationA. Review the financial statements, balance sheets and income statements of the company, including all

profit and loss statements for the current year and the past five years;B. Review all budgets, business plans, projections and management reports prepared by the company within

the past five years;C. Review the company’s accounts payable, including their quality, aging and composition, and determine if

there are any disputed accounts;D. Secure credit reports;E. Review any forecasted income statements and balance sheets, if available, for both the current and

following fiscal years, or for such periods as forecasts have been prepared, and the assumptions upon which the forecasts are based;

F. Review company’s pricing policies and compliance;G. Review company’s inventory valuation, turnover and obsolescence review;H. Determine whether the company has any secured financing, including accounts receivable or inventory

financing, and review all documents associated with that financing;I. Review and create a list of names and locations of all banks utilized by the company including full

information on the types of accounts and the names of persons authorized to draw thereon;J. Review all bank loan agreements;K. Review all federal, state, and local income tax returns of the company for the past five years;L. Obtain copies of property tax assessments for the past five years;M. Communications between the company and the IRS, including, without limitation, audit and revenue

agent’s reports (federal, state and local); settlement and consent documents and correspondence; and agreements waiving statute of limitations or extending time; and

N. Copies of documents relating to IRS or state tax proceedings, deficiencies assessed, or audits commenced.

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3. Employment and Labor MattersA. Obtain a list of the company’s employees, their job classifications, compensation, and length of

employment;

B. Review all employment agreements;C. Review all indemnification contracts or similar arrangements for officers and directors of the

Company;D. Review all of the company’s employee benefit plans, including retirement plans, pension plans,

profit-sharing plans, deferred compensation plans, health insurance, and other employee health and welfare plans;

E. Review all documents relating to employee stock option plans, incentive stock option plans, employee stock purchase plans, stock bonus plans, salary bonus plans and any other benefit plans or arrangements;

F. Review the company’s personnel manual and all documents furnished to employees in connection with their employment;

G. Review the current and proposed organizational structure of the company;

H. Determine whether there are any claims by employees or government agencies, or investigations, pending against the company arising out to employment matters, including discrimination claims, grievances, arbitration cases, workers’ compensation cases, OSHA cases, labor disputes and similar matters;

I. Review the company’s relationship with independent sales agents and other independent contractors with whom the company deals on a regular basis;

J. Review all collective bargaining and union agreements to which the company is a party; andK. Review any copies or schedules of contracts, plans, or arrangements regarding election or

termination of directors and officers.

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4. Business Contracts and CommitmentsA. Obtain a list of the company’s major suppliers, the goods or services supplied, and annual

dollar volume of business with the company;B. Review copies of all agreements between the company and its major suppliers;C. Obtain a list of the company’s major customers, the goods or services supplied, and annual

dollar volume of business with the company;D. Determine whether there are currently, or have in the past been material disputes between

the company and its suppliers or customers;E. Review all agreements pertaining to the marketing and distribution of the company’s

products or services, including all agreements with independent sales representatives, distributors, marketing companies and franchisees;

F. Review all material agreements with customers, including warranties provided to customers;

G. Review all installment sales agreements;H. Review all forms of sales invoice, purchase order, receipt, agreements, and other sales

documents used by the company;I. Review documents describing the company’s products or services such as promotional

literature, brochures, and newsletters;J. Review copies of any license or royalty agreements;K. Review any sale-leaseback arrangements; andL. Note any membership agreements or other relations with trade associations.

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5. Intellectual PropertyA. Review all material license agreements relating to intellectual or intangible property

running to and from the company;B. Create a list of all patents, trademarks and copyrights held by or licensed to the

company;C. Review all documents relating to patents and trademarks including filings with U.S.

Patent and Trademark Office;D. Note any policies and procedures relating to identification and protection of trade

secrets and other confidential information developed by the company and/or disclosed to the company under a covenant of nondisclosure;

E. Review the technological infrastructure of the company, including: proprietary hardware, software systems, and networks; all leased, purchased, or shared hardware, software systems, and networks; all interconnecting hardware, software systems, and networks’; environmental systems, including vaults, alarm systems, elevators, and telephones; and

F. Review sales contracts for hardware and software systems, including warranty provisions, licensing agreements, operating agreements, maintenance and service contracts, consulting agreements and other strategic business relationships pertaining to data processing and information technology.

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6. Equipment and Personal PropertyA. Obtain a list of all machinery, equipment, furniture, and fixtures

owned or leased by the company and depreciation schedules and leases;

B. Review any installment purchase agreements;C. Review service contracts on tangible personal property of the

company;D. Obtain an inventory list, including category and aging information;E. Review the company’s accounts receivable records, including age,

composition and write-off history;F. Review information about the company’s trade secrets and evaluate

the company’s trade secret protection program; andG. Obtain a search of appropriate state and local records for U.C.C.

financing statements and other evidence of liens or encumbrances.

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Entrepreneurs Need to Stop…1. Building companies with no revenue;

2. Following shiny objects (opportunistic);

3. Lying to yourself or others about your traction;

4. Focusing on too many things at once;

5. Using the word “I”;

6. Asking investors to sign non-disclosure agreements;

7. Thinking that you are the only company in your space; and

8. Calculating the future value of their stock.



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Entrepreneurs Need to…1. Fix a problem;2. Tell a story that people will understand;3. Hire for ambition;4. Get to know your customers;5. Make informed decisions;6. Understand time has the same value as

money (and manage both wisely);7. Become a shameless self-promoter

(without becoming obnoxious);

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Entrepreneurs Need to…

8. Project a positive image;

9. Be accessible;

10. Master the art of negotiations;

11. Get and stay organized;

12. Follow-up constantly;

13. Have a business plan; and

14. Focus.43



News Sources➢ Solutions for a Sustainable World

(http://blog.roi3.com);

➢ The Economist (www.economist.com);

➢Nightly Business Report (www.nbr.com);

➢ PBS NewsHour (www.pbs.org/newshour);

➢ China Law Blog (www.chinalawblog.com);

➢Mobile World Live (www.mobileworldlive.com); and

➢ Tech in Asia (www.techinasia).

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THANK YOU

Aaron Rose

+1 (206) 650-8004

[email protected]

www.roi3.com





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Fundraising for Your Business: Dos and Don'ts of Pitching to Your Investor

Business

Transcript of Fundraising for Your Business: Dos and Don'ts of Pitching to Your Investor