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IMPORTANT RESEARCH BEFORE PRESENTING TO INVESTORS - Start Up Club Webinar Presentation Notes

Updated: Nov 11, 2019

November 9, 2019


Host: Olayide Olumeko (olayideolumeko@thegirlscode.com), Tomruk iHub Multiverse, Jos, Nigeria


Speaker: Laura Emerson, USA

lemerson@starlightcapital.com


IMPORTANT RESEARCH BEFORE PRESENTING TO INVESTORS

Entrepreneurs are special people. You are optimistic, visionary risk takers. Let's face it: most people never take the risk of starting and growing their own businesses because of challenges, including a high proportion of failures. In the US, 1/2 restaurants fail first year. 1/3 other startup businesses fail within 3 years.


Investors and lenders are well aware of these risks. That is why they are so selective. In the US, close to 20% of early stage businesses DO succeed in securing US based angel round funding (from individuals) - usually under $500,000. But these are the entrepreneurs who are so well prepared that they can “pass the gate keepers” to get in front of angel investors.


The most important work of appealing to investors involves painstaking research before you appear in front of anyone:

Research and assess your own management team and employees;

Research and assess your competitors and the market appetite for your offerings; and

Research and assess the investors you plan to approach.


Seeking money from others is an inherently uneven relationship. The person or group WITH money has the upper hand. So the wise entrepreneur figures out what is important to the other party.


PUT YOURSELF IN THEIR SHOES. Will they trust and respect you and your management team? The market opportunity? How do they assess your competition?


1. RESEARCH YOUR MANAGEMENT TEAM and EMPLOYEES Even if you know your colleagues well, research them as if you are an outsider because investors will certainly do so. You want to look for two things: negatives that will dissuade or positives that will persuade financiers. You don't want to be caught by surprise.


a) Is there any bad news: public info about criminal convictions, customer complaints, financial problems, prior investment deals that went awry, bad reputation? Have you put people in positions for which they lack experience?Maybe Joe is your best friend, but if he has no experience in finance, he should not be Chief Financial Officer. Do not give him that job!


b) Surround yourself with people smarter than you in skills you lack. For example, a chef who wants to run a restaurant needs skilled people in inventory management, sales and marketing, finance and accounting, local building and health codes. A surgeon who wants to run a hospital or an software app developer needs others with the business acumen to make the leap from vision to profitable venture. Investors will respect a team with depth and breadth of relevant experience. If you have never done what you propose, get experience before you seek money from others.


RESEARCH THE MARKET and COMPETITORS:


a) NEVER say you have no competitors. This may mean that there is no market appetite for your product or service or that it is not profitable or that you are unaware of key drivers in your industry. Identify and analyze those that investors may perceive to be your competitors. Also focus your lens on your own company using a SWOT approach (Strengths, Weaknesses, Opportunities, Threats). To be competitive, you have to demonstrate that your company can deliver services or products faster, better, or cheaper than the other guy, and at a higher profit margin.


b) Example: Maybe your overhead is lower than in other countries so you can make greater profits on lower revenues. Maybe a competitor makes an excellent product at a high price point but your market assessment indicates a large, unmet consumer appetite for several products at lower price points. Or perhaps your product is better suited to a local or regional market that remains untapped.


c) If knowledgeable investors ascertain that they know more about your market than you do, they will not respect you and will not invest. Keep yourself well informed.


RESEARCH THE INVESTORS BEFORE/AFTER YOU MEET THEM


a) If you are looking for a Santa Claus figure who will fall in love with you and your company and give you carte blanche with their money, forget it. You need to research the investors, too, in order to ensure a likely fit AND to avoid unscrupulous people who take advantage of naive and optimistic entrepreneurs.


b) Websites of many investors indicate their preferences for industry sector, geographic location, company stage (seed, early, expansion), and they types of deal structures (equity/debt) and terms. For example, one investor may prefer equity stakes in highly scalable software companies. Another makes one year loans on real estate. A third invests in local retail operations that generate jobs. Target those that convey an interest in your niche. Also, scrutinize their preferred deal structures and know what may or may not work for your company. For example, a debt deal is a loan, repaid with interest on a schedule. Many such loans are collateralized by assets. If you cannot repay the loan with interest on schedule, you forfeit those assets. This means assessing your cash flow and profit margin. Could you continue to run your business without that loan or that collateralized building or real estate or car? Tread carefully. An equity deal means that for a certain amount of money, the investor owns a certain percentage of your company. In other words, you will have a partner to whom you are accountable. The company is no longer solely yours. The earlier and riskier the deal, the higher percentage of ownership for a lower investment. Make sure that you trust and respect the investor to whom you will be linked for a long time.


c) Private investors can be a bit harder to research. If their professional websites do not specify, you may be able to infer their interests by their past experience or current affiliations. Someone with a retail or healthcare background may favor industries they know. If they are associated with a private angel investment network, those websites provide additional information.


d) The biggest mistake I see entrepreneurs making when they meet an investor with whom they are not familiar is to launch into a monologue about their company. It is much smarter to ask logical questions:

* Do you invest in particular industry or geographic sectors?

* Do you invest in particular stages of company development?

* What sorts of deal structures do you prefer?

The answers to these questions let you know whether there is a logical fit between you or not. If not, be polite, offer to forward relevant companies that might interest the investor. Keep in touch in that way. Forge a professional impression.


e) In my career, I have encountered unscrupulous people who position themselves as investors in order to take advantage of naive and optimistic entrepreneurs with a profitable business idea. Two examples: A smart man, in fact a Ph.D., in India was encouraged by a politically well-connected investor to leave his company and open a competing one. The investor promised to put in a stated amount of money to cover initial salaries, office space, and rapid growth. In happy anticipation of this, the Ph.D. formed the company with the future investor identified as a director, hired lots of staff, and spent a great deal of time on expansion plans. Sadly, to date, three years later, the alleged investor has put NO money into the company but does take out a portion of the profits, according to the director contract. The Ph.D. has been able to fund operations out of current revenue, but the growth is much slower than he had hoped.


In the US, a small, new Private Equity firm specifically sought out naive entrepreneurs from whom they stole companies. Their ruse was this: They would promise an investment of, for example, $1 million over one year for 10% of the company. Mentally, the excited entrepreneur was probably spending it already! However, when the contract was finalized, it included the following provisions: a) the investors would put up only $100,000 in tranches, each successive amount dependent on the entrepreneur meeting certain milestones. This is not a bad idea, but the milestones were purposely set so they were highly unlikely to be met, such as doubling sales within three months. Failure to meet the requirements meant not only no more money but that the investors owned an increasing percentage of the company over the course of the year until they became major shareholders for an investment 1/10th of what the entrepreneur expected, at which time, he was often fired from the company he started.


The participants

In conclusion, a good presentation to potential investors begins WAY before meeting anyone. It involves many hours spent researching and analyzing the strengths and weaknesses of your own management team and employees, of competitors and the market for your products or services, AND the priorities of the investors you plan to meet. This time is well spent, as it can increase the trust and respect of people whose money you wish to have, and ensure that you link yourself and your company with the right investors.



The presentation of Ijubaneche (ijubaneche@gmail.com) is available upon request.


Ijubaneches first PowerPoint slide

We moved on to the interaction sessions where we asked two of the participants to mention their business.


Victoria has an education tour business in Nigeria currently she gets funding’s from family and friends she will has take the courage to have children to tour education sites thereby increasing this children’s desires to continue in the career path from those site. She will be scaling it up if she has potential partners in the future.


Samson making his pitch

Samson is into vet and farm technology where he uses the available resources to organize training session for potential farms coming into this space. Source of funds are family and friends.
















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