Most companies need to raise financing of some kind or another throughout their development. The funding may be equity, debt or government supported financing such as grants, subsidies and interest free loans. A well thought out capital raising strategy should be developed to target, solicit and obtain the needed financing from appropriate investors at each stage. Below are guidelines to help develop a Capital Raising Strategy. Build A Strong Management Team "There is always funding available for a business with a good team and a sound plan" is an oft heard refrain of investors. Knowledgeable observers also note that "management" is usually the key factor in determining the success or failure of any particular company. To successfully raise significant financing beyond the very earliest stages, it becomes important to develop an increasingly experienced management team with strength in all key areas of the company. The management team can range from founders only at the earliest stages through to executive officers and senior managers at later stages. Develop a Dynamic Business Plan Business plans are the primary capital raising tool for entrepreneurs and should clearly and concisely express the investment opportunity to investors. As the company grows and reaches new milestones, a company should update its business plan accordingly. A typical business plan is no more than 30 pages in length, not including attachments. It is usually not a good idea however to send a full business plan to investors without some introductory discussions or a meeting first. An "executive summary" of the investment opportunity (8-10 pages maximum) is usually preferred by both investors and entrepreneurs at preliminary stages. T-Net British Columbia has developed an online process for developing and distributing your business plan summary in a standardized format that will meet the needs of investors within our network. You can distribute this to interested investors online and then proceed with more formal or complete business plans and meetings at a later stage if requested by the investors contacted. Do Your Due Diligence on Potential Investors Investors are going to undertake a high level of due diligence on any investment opportunity under serious consideration. It only makes sense for you, the entrepreneur, to undertake your own due diligence before selecting investors for potential targeting, and prior to committing to any particular deal. Why undertake due diligence? Investors and financial organizations receive a huge number of business plans and applications each year and only a small number succeed. Most have established investment criteria that they use to prioritize potential opportunities for their particular organization. Investment criteria can include stage of development, sector, amount and type of financing sought, amount of funds currently available, overall portfolio balance, purpose of funding and many other factors. It is important to identify these factors in advance prior to contacting potential investors. Why waste time submitting a business plan summary or contacting investors who have no potential interest in your opportunity? Below are two charts which indicate rough level of interest of each investor type for companies in each stage of development and what is important to investors at various stages of development (H=high, M=medium, L=low)   Self/Friends/Relatives Angels Govt. Bank VC Public Seed: H M M L L L Early: - H H M M M Expn: - - M H H H Later: - - L H M H Table courtesy of Tom O'Flaherty, Ernst & Young Infatuation Seed Early Expn. Later Huge market potential H H H M IP with high entry barrier H H M M Founder did it before H H M L Complete management team L M H H Customers and revenue - H H H Profit - L M H Readable business plan H H M H Have you attracted supporters M H H - Table courtesy of Tom O'Flaherty, Ernst & Young It also makes sense for an entrepreneur to talk to other companies and entrepreneurs who have received funding from a particular investor prior to committing to a deal. Financial partnerships are very much like marriages and you want to find out as much information about your potential "mate" as possible before "tying the knot". In general, short listed financial organizations (especially equity investors) should be thoroughly researched, including their background, management teams, investment strategy, and other portfolio companies. Prepare For Investment Before spending significant time "shopping your deal", you will want to ensure your company is in a position to pass the close scrutiny and due diligence of investors. This means all areas of your company and the backgrounds of your company personnel should be "squeaky" clean. Things to watch for in this area are that the ownership of your intellectual property is uncontested, the backgrounds of key personnel are free of legal actions, and that normalized financial statements and records are in place for your company. Gain An Introduction (Don't Cold Call Investors) Try to get an "introduction" to an investor. Well known and respected investors are generally swamped with "opportunities". The right kind of introduction will help move you to the front of the line and will make sure your proposal gets at least some kind of introduction. There are a few well established ways to gain an introduction to a capital provider. A qualified referral by someone trusted by the capital provider (or someone in their professional network) such as lawyers, accountants, investment bankers, other capital providers or someone the capital provider has worked with in the past works best. Another alternative is networking at major industry events such as those organized by the Vancouver Enterprise Forum, the BC Technology Industry Association, the BC Biotechnology Alliance and others. Many capital providers regularly attend such events. T-Net and the entire Capital Connector "process" lessens the need for qualified introductions to some extent by connecting you directly to "hard to find" investors (and bypassing middlemen). Shop The Deal Once you have completed your due diligence and short-listed capital providers that match your investment opportunity, you should develop a "targeted" or staged solicitation plan. For earlier stage companies or entrepreneurs, it is an excellent idea to "shop" your deal to a few "second tier" capital providers to obtain feedback on your investment opportunity and business plan summary. It also wouldn't hurt to run it by a few well-respected people you know such as company advisors, directors, mentors or accountants. You only get one chance when you finally submit to the capital providers you are most interested in so it makes sense to work out the wrinkles and make sure your business plan summary is not missing any critical information before getting to this stage. When preparing to "shop a deal", capital seekers should also develop a 10-15 minute prepared presentation in case there is a request for an introductory meeting. Usually the President, CEO or an executive officer of the company will make this presentation and should be prepared to answer any questions posed during the meeting. The Proposal If you successfully clear the above hurdles, your company may be in the position of receiving a proposal that is usually in the form of an "offer" or a "term sheet". These are usually 2-3 pages and contain numerous "escape" clauses in case the investor is to later find something not in order. It is important to have a "reasonable" yet aggressive sense of your company's value and you should not react negatively to an offer that does not quite represent this value. This is all part of the negotiation process. See the attached articles and links for more information on valuing an early stage technology company at the bottom of this article. The Ceremony If your company is one of the lucky few who make it this far, you will now proceed to complete a formal agreement with the potential capital provider. Usually by this point, deals move forward and only get broken up by relatively minor issues such as failure to agree on the need for signing authority limits, hiring approvals by the investor for senior hires, stock holds for companies going public, and new reporting requirements such as monthly and quarterly financial reports. Always Have A Plan B! For every company that successfully raises financing, there are many others that fail at any given stage of the capital raising process. A good rule of thumb for entrepreneurs is that everything takes 3 times as long and costs 3 times more than expected (the "3X" rule), so any forward thinking company should always have a Plan B in case things don't work out as expected. Plan B can range from the awful (raise short term bridge loans from friends and family) through to the totally horrible (shutting down the company or adopting other defense and survival mechanisms). We hope you'll never need Plan B! Good luck in your search for capital! Money. From Angels to Devils! From the perspective of Mike Volker, Founder, Vancouver Angel Capital Network Tel:(604) 644-1926, Fax:(604) 925-5006, Email: mike@risktaker.com Investment Matching If you are now ready to proceed, please begin by clicking on the "Begin Investment Matching" button below. This will enable you to determine the number of investors with a potential interest in your opportunity. Once this is completed, you may move on to the next step of creating and distributing your business plan summary. " Business Plan Development " Capital Raising Strategies " Sources of Financing " Referral To Advisors " Entrepreneurs Showcase " Contact T-Net