Seeking adequate funding for a start up enterprise can be a daunting task, especially in this trying economic environment, but have you wondered why individuals attending a critical funding presentation began to look the other way, look at their watches, and edge for the nearest exit?
It may not be that your proposal does not have merit, but it may come down to your "story" not being as complete as they would like.
The investment community today is more "numbers-driven" than ever before. A slick marketing pitch is not enough. Your financial history and projections must also tell a tale that correlates well with the marketing side of your business model.
It is true that the first thing investors like to see in a new venture is that the leader has an extensive marketing background, well-grounded in all phases of distribution, product packaging, and sales management. These skills must be present to ensure that the "revenue" side of the equation will be addressed with focused solutions.
As for the "expense" side of the ledger, investors want to see detailed numbers that make sense to them related to market sizing, competitive profiles, customer acquisition costs, direct cost of goods sold, discretionary spending, and overhead. The focus will be on trends and operating ratios that demonstrate that increasing revenues equate to increasing profits.
These investor groups have seen more business presentations in a week than you will see in your lifetime. They know what "good" is, but they are quick to judge the "bad and the ugly". The latter is almost always lacking in financial information that matters to the people in the room. Typically, a five-year projection that dramatically displays revenues growing to the magic $100 million mark is the only "numbers" slide.
In the absence of anything else, the entrepreneur is asking the "room" to "trust me," highly unlikely when other business plans are more professional in their content and create an impression that the management team is focused on all the right priorities.
Unless you have substantial capital or collateral of your own in "the game", most potential investors or lenders will not be accommodating if their immediate impression is unfavorable. They expect to see numbers derived from experience, not "guesstimates" of how you think things will play out. The days of investors throwing money at just an "idea" are long past. An operating business model with paying customers and predictable margins in a fast-paced and growing market is the basic expectation at "Square One".
These expectations are not that difficult to understand if you look at your own decision-making process.
If you were in the retail business, whether store front or on the Internet, you would take your time researching merchant account reviews before ever committing to a merchant processor. Cost would be an issue, and you would want to know how fees would change over time, based on volume and transaction sizes. A merchant account review might point you to a small group for consideration, but you would want to see more number-oriented information before making your final choice.
Investors are no different than this simple example of business decision-making. The best way to answer number-related questions is to present the "answers" before the questions are ever asked.
Here are a few pointers:
1. Size of Market: Don't just say it is $1 billion and growing. Take the time to detail size and growth rates from other industry reports, competitor press releases, and general news articles. Cite your sources, since there will be heavy scrutiny in this area; 2. Costs of Distribution: What is your sales cycle? Sales pipeline? Customer acquisition cost? Commission compensation structure? Marketing and advertising plans with response rates given? 3. Operating Margins: What are your current operating profits after cost of goods sold? What are the historical trends? Are margins predictable and improving over time? How can this trend be improved upon? 4. Other Ratios: Is overhead manageable? Are there other key expenses and how do they relate to revenue? Are there capital asset requirements? How quickly do clients pay their bills? Any debt issues?
You have one chance to make a good first impression. Use it wisely.
About the author: Tom Cleveland is a writer for MerchantSeek.com. He has over 30 years of experience in executive management, corporate governance and business development