• They have a limited amount of time they can devote to looking at new opportunities because they are very busy people.
• They often receive dozens of funding requests per month. 
• Every entrepreneur has a business plan and a private placement memorandum, but the format and quality of these documents vary wildly.  There is little consistency, and as a result, it takes longer to find and digest the key information they are looking for. 
• Investment decisions are rarely made without first developing a personal level of trust with an entrepreneur.  When starting from scratch, this takes valuable time. 
• Business valuations and deal terms offered by entrepreneurs are rarely what
• After investing all the time to sort through and finally find an attractive deal and develop a level of trust with the entrepreneur, it may take another 40 hours to conduct proper due diligence on a deal. 
• Due diligence also costs money for background and credit checks, legal review and document preparation, and much more.   
• After funding a deal, the statistics for success are not encouraging.  5 out of 10 businesses invested in will fail.  4 out of 10 are likely to survive but provide little return on investment.  Only 1 deal in 10 is likely to be a home run.  That home run has to make up for all the other losses incurred, and still provide a reasonable overall return.
• A down economy adds a whole new layer of risk, as successful exits through acquisition or public offering become fewer in number.

Even with all of these challenges, accredited investors still invest in deals.  Smart entrepreneurs recognize that the key to capitalization success is making it easy for investors to address all these challenges.

When raising money for your business, you have control over the truths you tell, and therefore the ability to earn trust from investors by demonstrating integrity.  But there is at least one truth that’s difficult for entrepreneurs and investors to candidly discuss, even though it’s a vital factor in the decision-making process of most investors. 

Investors won’t write a check to your company if they don’t like you or find you credible. 

Some may tell you to your face (particularly if you live in New England), but most will either simply stop communicating with you, or will offer a less offensive reason for not investing.  In either case, it can be difficult to know what really went wrong.

The best way to address this problem is through preparation, presentation materials that invite discussion, honesty, and humility.  Here are several tips for each of these issues that can help increase your likeability, credibility, and capital raising success.  They’re not meant to be comprehensive, but rather to point you in the right direction.

Preparation Highlights

• Be thoroughly familiar with the way you have developed the financial projections for your business.  Build your revenue model not on capturing some percentage of the market, but rather on specific activities that should result in the revenues you project.  Be conservative in your assumptions – it’s better to underpromise and overdeliver.  Find external data to show that your assumptions are reasonable.  Don’t lead with this data, but keep it handy to show if asked. 
• Identify a significant and painful problem your business will solve, be prepared to give a few “real world” examples of how your solution is or will be better than other alternatives available to customers.  You’ll always have competition, and you need to be able to convincingly explain why customers will choose your solution over those offered by competitors. 
• Be highly conversant in the “secret sauce” aspects of your business – those things that give you a significant competitive advantage.  While you won’t give the recipe to investors, they will have to get enough of a taste to validate your claims of competitive strength. 

Presentation Materials

• Your presentation materials will perform several critical functions, which include demonstrating professionalism, communicating specific information, and providing a framework for dialog. 
• Your materials should be professional in appearance and content.  Typographical and grammatical errors, sloppy formatting, and faulty data must be eliminated. 
• Investors are not the federal government, so they usually don’t want to be buried under a mountain of research and projections from entrepreneurs.  You need to say the right things in the right way in the right amount at the right time to efficiently and effectively move investors through the decision-making process. 
• Lastly, your documents should lead investors to ask you questions about those subjects they are most interested in.  If you are properly prepared, this is one of the most effective ways to demonstrate both your likeability and your credibility. 

Honesty

• The tendency for entrepreneurs is to maximize business strengths and opportunities while minimizing weaknesses or problems.  This is both naïve and dangerous when raising capital.  Investors will usually see through the smoke and mirrors, hurting your chances to get funded.  If investors let you slide on these issues and make an investment, you will likely be unable to achieve your projections, opening a whole different can of worms that can put the future of your company in jeopardy.   
• A balanced discussion of strengths and weaknesses is a far better approach.  Show that you understand the risks, know where the company is weak, and have appropriate strategies for addressing these issues. 
• If you cannot answer a question asked by an investor, don’t bluff.  They’ll know.  It’s better to recognize the validity of the question, promise to get back with an answer, and follow through on your commitment.

Humility

• Investors like smart people, not smart alecks.  So don’t act like you know it all.  Be confident, but be receptive to input.  This does not mean that you have to implement all input, but you should at least express thanks for and appropriately consider it. 
• While there are certainly some arrogant business owners, the majority of those I’ve encountered are approachable and open to the ideas and concerns of others.  In my capital raising experience, arrogance on the part of entrepreneurs is a deal breaker. 

Do you really need a business plan, and why?

What’s the fastest, easiest and cheapest way to get one? 

Should you copy one for a company that got funded and edit it? 

Should you do it yourself or hire someone else to do it all for you, and why? 

Can you just start with an executive summary? 

I’ve reviewed many websites, articles, software programs, videos, audio files, and books on the subject of writing business plans for raising capital.  Here’s what most of them say in answer to these questions:

You need a business plan so you can effectively communicate your business to investors, employees, and other stakeholders. 

The fastest, cheapest, and easiest way to get one is to copy and edit one.  However, this is the least effective way to create a business plan.  You get out of the effort what you put into it.  It would be like trying to become a medical doctor by using someone else’s lab work and notes.   May I never visit a doctor thus prepared to practice medicine!

Ditto on copying and editing a plan for a company that got funded. 

Most experts say you should write the business plan yourself.  Sweat it out, gain from the pain, pay your dues, and all of that.  This approach has merit, and you’ll become much more knowledgeable about your business.  But you’ll almost certainly waste a whole lot of time trying to figure things out on your own, learn lots of things that are useful and interesting but not yet critical, and probably have to do quite a few rewrites as you start showing it around.  If you can partner with someone who knows the ropes and is willing to work with you through the process, kind of like a personal trainer or a mentor, you can reduce the time it takes to create a solid business plan and be prepared to present it effectively.  I’m not talking about turning the whole thing over to someone else to create for you, but engaging the support of an expert who works with you to do it right the first time.  

All this stuff is pretty straightforward.  It’s going to take time to create a business plan, and the clock is ticking.  So it’s the final question I primarily want to address. 

Can you just start with an executive summary?

Many entrepreneurs, realizing that a business plan represents a significant investment of time, wonder if they could perhaps create an executive summary and start shopping it around while they work on the full plan …

In theory, it’s a great idea.  But most experts concur that this is not a good approach because you have not thought things through well enough yet, and so you’ll be communicating faulty information. 

Well, I’m not most experts. 

I believe you can and often should go with an executive summary first for a number of reasons.  With one caveat.  First you need to build a comprehensive financial model that tells the story of the business with numbers.  Then you’ll be prepared to start hanging words on the numbers, even in abbreviated form. 

The benefits of this approach include:

• During the process of creating a comprehensive financial model, you’ll think through all aspects of your business, and see how they interrelate with each other.  You’ll have a clear picture of your key success drivers.
• After you’ve done the complete numeric creation, it becomes quite easy to start putting the story into words.
• A solid executive summary supported by a comprehensive financial model can be developed faster and at a lower cost than a complete business plan.
• This speed means you can start circulating the executive summary to generate interest in your business, and even start raising capital, while your business plan is in development.  I have many clients who have successfully followed this path.
• For startup businesses in particular, this is an economical way to test the waters to see how viable your business is and how attractive it will be to investors before you invest heavily in time and other resources.

The viability of this approach all comes down to one thing – how effectively you develop a comprehensive financial model before committing your ideas to words.   And that’s a topic for another time.

I provide for my family by helping entrepreneurs prepare for the capital raising process.  I’ve seen angel investors, venture capitalists, and trade associations strongly recommend that you should not hire people to help with your financial projections and business plans.  Obviously, I disagree with this recommendation, but I believe there are several basic principles that apply to entrepreneurs trying to raise money that we should all be able agree on, leading to mutually beneficial coexistence.   

• Business owners must have a thorough understanding of their financial projections and business plans.
• Many new business owners have limited experience with creating detailed financial projections, developing effective business plans, and raising money.
• For business owners, time equates to money.

The Issues

If you hire someone to do everything for you, you won’t get the benefit of learning your finances and business model inside and out.

If you don’t have much experience with financial modeling, spreadsheets, business planning, writing, and experience in raising capital, it can take a tremendous amount of time and effort to get it right. 

A lengthy learning curve can be very costly to you, as you spend less time in activities that can generate revenue and profit, and more time developing expertise in the capitalization process.  In my experience, even those who have done it multiple times often rely on help from others.

If your business has the potential to get funded by angel groups or venture capitalists, you preparations better be right on the mark, or your deal will probably not pass the screening process.  This is very difficult to do, especially if you’ve never done it before.  It’s like trying to hit a home run in your first at bat in the major leagues.

A collaborative effort between entrepreneurs and experts in the capital raising process can overcome all these challenges.  This approach has been proven to work effectively time and time again.

Elements of Effective Collaboration

In an effective collaboration:

• An expert walks through all the “nitty-gritty” details of a business with the entrepreneur, discussing ideas, strategies, tactics, plans, opportunities, weaknesses, and many other issues. 
• The expert coaches the entrepreneur, and helps identify solutions to challenges and pitfalls to that specific business, which result in better projections and stronger business plans. 
• The expert provides qualitative feedback on the information provided by the entrepreneur, something that does not come from publications or software. 
• The expert works “side by side” with the entrepreneur to develop a comprehensive financial model and business plan, which are highly customized to each business. 
• At the end of the collaborative process, the entrepreneur has been intensively schooled and tooled in preparation to raise capital. 

If any of these elements is missing at the end, then the collaboration has not been fully effective.  If the expert does all the work, then the collaboration has not been effective, and the end result is an unprepared entrepreneur.  Intelligent investors will be quick to recognize the lack of preparation, and won’t invest. 

Entrepreneurs:

• You do have to pay the price to get correctly prepared. 
• You don’t have to do it alone, you just have to do it right. 
• An effective collaboration is a proven, viable way to do it right. 
• An effective collaboration can save you a tremendous amount of time and money.

A smart man learns from his own mistakes.
A wise man learns from the mistakes of others. 
A fool learns from neither.