Shane O’Toole: How to raise money out in the real Dragon’s Den ... the ruthless marketplace
FOR most entrepreneurs, raising money is a key factor in their success. Convincing investors whether it is Enterprise Boards, Banks or Venture Capitalists can be daunting to say the least. While these meetings are generally not as highly charged as "Dragons Den", tough questions need to be answered and poor preparation will be spotted in an instant. Especially in today’s environment those with funds to invest receive many more proposals that they could possible select so if you are very persistent and lucky enough to get the opportunity to pitch your proposal you will want to maximise your chances.
The good news is that most investors are generally looking for similar information so once you have honed your proposal you will only have to adapt it slightly as you meet different prospects. I have outlined the main areas which will normally be the focus of such meetings and if you have these covered you will be a long way on the road to success.
Overview: Begin your pitch with an overview which should quickly get the investors interest in your proposal. Outline in the first few sentences your competitive advantage and how you will use this to build a scalable business where everyone will get significant returns on their investment. Demonstrate credibility by outlining your key career achievements to date which could range from positions of responsibility to successfully establishing other businesses. You will then go on to support your statement of intent by discussing each of the key elements of the business.
Team: Remember, people buy from people and you are selling yourself as well as your company when you are looking for funding. Describe your background and that of your team in a way which demonstrates that you can deliver on the initial overview provided. Very few early stage companies have all the skills so be confident in outlining those which you possess and how you will use external support for any areas in which you are not proficient. Have a shortlist of external providers and be in a position to discuss their various merits.
Market: Whatever the business is you need to demonstrate to the potential investor that you understand the market in detail and how your product or service will be successful. Your assertions should be based on detailed research and quote verifiable statistics where possible. Whilst discussing the market you will be trying clearly define what is missing in today’s offerings and will then go on to describe how your product or service will fill the gap.
Product/Service: When talking about your product or service the key message needs to be how your competitive advantage makes your offering more appealing to customers than that available currently. For seasoned investors competitive advantage and the individual are the two key criteria so take time to develop this element of your pitch. Don’t oversell, a small competitive advantage can be fundamental. Ryanair flights are no longer significantly cheaper than many of their competitors but are cheaper and as a result they get a lot more business.
Business Model: How will the business generate revenue, with many technology start-ups getting visitors to your site is only the first step. The key factor is converting hits into revenue. If you look at companies like LinkedIn, having people register is just step one and if that was it they would have expended a lot of money in creating a free virtual network for professionals and gone into liquidation. Instead they are growing revenue and profits every quarter through Hiring Solutions, Marketing Solutions and Premium Subscriptions.
Timing: When and how is the product/ service going to be launched on the market and what type of growth is predicted and how soon will profitability be achieved will be big areas of focus. These key elements need to be considered carefully as they will determine the amount of investment required and they type of investor who will be interested. In the early dotcom era investors and shareholders were willing to wait a considerable period of time for large projected profits, unfortunately in many instances these did not materialise and today the appetite for delayed returns is much less.
Financials: While the old adage “ if it doesn’t work on paper it won’t work in practice” doesn’t always hold through, there is certainly some merit in it and the quickest way to lose a potential investors interest is not to be on top of your numbers. Spend time creating realistic expectations and use professional help if necessary preparing the financials which underpin your proposal. Don’t abdicate responsibility though!! Firstly make sure the financials make sense and then study them to understand every last aspect as it is all about money at the end of the day…. yours and theirs.
Shane O’Toole is a Consultant CFO, Financial mentor and MD of Advanced Accounting.