Thoughts on raising capital

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THOUGHTS ON RAISING THOUGHTS ON RAISING CAPITALCAPITAL


Raising Capital is Multi-Raising Capital is Multi-dependentdependent

GovernmentGovernment Business codesBusiness codes LawsLaws enforcementenforcement

CultureCulture Risk-takingRisk-taking Saving vs debtorSaving vs debtor Interest friendlyInterest friendly

Business typeBusiness type Product vs serviceProduct vs service Key assetKey asset Large vs smallLarge vs small Risk levelRisk level


Multi-dependence (con’t)Multi-dependence (con’t) Business climateBusiness climate

CompetitionCompetition economyeconomy

Size of dealSize of deal Investor typeInvestor type

Family/ friendsFamily/ friends High net worth individuals (“angels”)High net worth individuals (“angels”) Other businesses (e.g., partners)Other businesses (e.g., partners) Professional investors (e.g., venture Professional investors (e.g., venture

capitalists)capitalists) LendersLenders governmentsgovernments


The ForgottenThe Forgotten

Three factors are frequently Three factors are frequently overlooked by those raising capital, overlooked by those raising capital, and weigh heavily on investor and weigh heavily on investor decisions:decisions: RiskRisk Threshold amountThreshold amount Liquidity Liquidity


Risk versus ValueRisk versus Value

0

20

40

60

80

100

Ris

k V

alue

Specification

ProductDevelopment Alpha Test

Beta Test

First Customer Ship

Marketing

Expense Predictability


Threshold AmountThreshold Amount

The threshold amount is that sum The threshold amount is that sum which is needed to fund the company which is needed to fund the company until it can either:until it can either: Raise more capitalRaise more capital Ensure liquidityEnsure liquidity


LiquidityLiquidity

Liquidity is necessary for an investor Liquidity is necessary for an investor to profit from an investmentto profit from an investment

Liquidity events could be:Liquidity events could be: From profitsFrom profits From the sale of assetsFrom the sale of assets From the sale of the businessFrom the sale of the business From becoming a Public company From becoming a Public company

(allowing the sale of an individual’s (allowing the sale of an individual’s stake in the business)stake in the business)


Deal StructureDeal Structure

Can alter risk, threshold amount and Can alter risk, threshold amount and liquidityliquidity

Should be specific to the investor Should be specific to the investor audienceaudience

Thus, multiple versions of a Business Thus, multiple versions of a Business Plan may be appropriatePlan may be appropriate


Decision ProcessDecision Process

Investor decision making is primarily a Investor decision making is primarily a process of “due diligence”process of “due diligence”

Due diligence is often an investigation of Due diligence is often an investigation of why a business will NOT succeed. It is a why a business will NOT succeed. It is a hunt for “horribles”hunt for “horribles”

Your role is to provide independent Your role is to provide independent evidence that “bad things” will not happenevidence that “bad things” will not happen


Managing Due DiligenceManaging Due Diligence

Do not emphasize your own convictions. Do not emphasize your own convictions. These are opinions. Investors want These are opinions. Investors want evidence.evidence.

Use research and analysis, the more Use research and analysis, the more independent, the better.independent, the better.

Keep a record of all possible concernsKeep a record of all possible concerns Respond only when preparedRespond only when prepared Follow up on all concerns (thoroughly)Follow up on all concerns (thoroughly) Admit risks or unknownsAdmit risks or unknowns


The DecisionThe Decision Remember, investors decide to invest Remember, investors decide to invest

when “they” conclude the business will when “they” conclude the business will succeed, not when “you” conclude it succeed, not when “you” conclude it will succeed.will succeed.

Focus on the “lead”Focus on the “lead” Follow up aggressively, but not Follow up aggressively, but not

obnoxiouslyobnoxiously Be flexibleBe flexible Be prepare for a long processBe prepare for a long process

Thoughts on raising capital

Economy & Finance

Transcript of Thoughts on raising capital