Techpreneurship: Becoming Investment Ready

Jeff Amerine

Techpreneurship, with Jeff Amerine

(Jeff Amerine is an IA advisor and officer with the University of Arkansas Technology Licensing Office. Each Thursday, his Techpreneurship blog will appear in INOV8. Drop him a line in comments.)

This week I am going to cover one of the necessary startup activities that will cause most techpreneurs to age in dog years….yes, you guessed it, the never ending search for venture finance!

In my case, my hair didn’t turn gray through the process: it just gave up and fell out.

As a startup CEO, a large percentage of your time will be dedicated to raising money for your venture. Based on my experience anywhere from 25-50 percent of your time will be dedicated to pitching your story to investors.  This is especially true in the first few years.  Seems like a crazy amount of time to spend on an activity that doesn’t drive revenues, doesn’t it?

My advice is to simply plan on 20+ hours of your 80 hour week being dedicated to preparation for investor submissions, presentations, and discussions.  If you win the lottery or inherit a gold mine, well then, never mind… otherwise read on!

So here are some tips that can make the process more tolerable and hopefully more successful.

Realize not all businesses are appropriate for venture finance.  Be brutally honest in your assessment of your own business.  Here is an oversimplified set of rules I use:

1. Does the business have a leadership team with a track record or unique subject matter expertise?
2. Does the business have intellectual property or unique subject matter expertise that will present a competitive barrier to others?
3. Does the business have customer traction or the high potential for customer traction in a large and meaningful market?

Clearly, there are ways to mitigate shortcomings for each of these key questions.  Even so, generally speaking, institutional investors will zero in on these points as they evaluate a startup’s potential.  More often than not, investors bet on management teams over hot technology.

So, if you suffer from the issue of not having a track record (as I did many years back), then build a leadership team, Board of Directors, and Board of Advisors that can bring the credibility you need.  This is a non-trivial, but critical, exercise.

As to the other points, if you plan to raise institutional investment, communicating product/service differentiation and having an encyclopedic knowledge of your market and your customers is crucial!  You have to be the best in this regard.  Average will not be financed.

The need for clear communication cannot be overemphasized.  Investors have little time and a short attention span.  You must be able to communicate your value proposition quickly and succinctly, i.e. the 30-second elevator pitch has to address “problem-solution-business model-financial potential.”

Your investor presentation would be well served by following Guy Kawasaki’s 10-20-30 rule: 10 slides, 20 minutes, 30-point font with very few words on the slides.  Guy is a former Chief Software Evangelist for Apple and a very outspoken VC.  Do a search for some of Guy’s material on YouTube.  He has some great presentations that are very helpful.  The key is to get to the point as to why an investor should pay attention to your story.

Technology in search of a problem typically will not be financed.  I’ll say typically because there have been some notable exceptions. Think social media…..

One final thought to close in this week’s rambling rant….please be realistic in your valuation of your company.  Many have suffered from entrepreneur’s disease over the years, i.e. they have a totally inflated view of the value of their great technology and they wound up with 100 percent of nothing.  Be prepared to give up substantial equity in your business if you plan to seek institutional investment.

The whole point of the exercise is to grow the value of the company to a large number, so that the equity you retain after multiple rounds of investment is really meaningful.  This can be gut wrenching and must be balanced across issues of control, but if managed well you can be successful.  When you exit you might just be crazy enough to do it again!  Think hard about that one….

Enough or maybe too much for this week.  Shoot me your comments!

Leave a Reply

Name (required)

Mail (will not be published) (required)

Website

CAPTCHA Code