1. Chapter 13 Communicating the Opportunity

2. Objectives Target the business to investors. Prepare oral and visual presentation for investors. Investor evaluation process. Prepare investor presentation.

3. Introduction Entrepreneur has to communicate the opportunity to potential stakeholders – investors, bank loan officers, corporate partners, or potential acquirers. Communication skills are a key to successful entrepreneurship. Any communication whether verbal or written must be customized to the target audience. The first communication should be in the form of an executive summary (elevator pitch). If it is successful, a full business plan will be requested for review. If this is successful, the next step is usually an invitation to give a full investor presentation. The key ingredient in raising capital is to clearly and effectively communicate the investment opportunity.

4. Locating Investors Once the entrepreneur has prepared a business plan, then need a presentation that contains 10 to 16 slides, and an executive summary. It is important that the investor contact only those who are likely to be interested in the opportunity. One way to do this is to speak with other entrepreneurs in similar business fields who have been successful in getting investments. The internet is a valuable resource in locating and learning about the interests of different investors and finding the correct contacts – Pratt’s Guide to Venture Capital. Investors prefer involvement in a business they know. Investors can also help in finding key management team members and providing key industry and professional contacts. The investors can also serve as mentor, confidant, and sounding board for ideas and plans to solve problems. Go to any local entrepreneurs networking meeting. Many local angel groups have web sites. Introductions can also be made through accountants and lawyers. Local banks can help with small business loans.

5. Preparing a teaser Writing a compelling teaser can take an experienced entrepreneur a full day. Do not underestimate the importance or the difficulty of the task. You will need help and practice. A teaser is a clear, concise, elegant, and engaging short document. Write a draft, wait a few days before going back and reading it as if you were the recipient. Edit the document and wait again. Have someone else read and critique the document. Finally go through every word and remove anything that is not absolutely necessary (example on page 350).

6. The elevator pitch An elevator pitch is the verbal version of a teaser. Show how the investor will make money, everything else must be left for later. Speak clearly, and do not rush. Get audience involved. Be enthusiastic. Finish on an up note.

7. Investors presentation: Preparation for the meeting After reviewing the executive summary, and hearing the elevator pitch, the investors, if interested, will ask for a copy of the business plan. Follow up with a phone call a few days after submitting the plan and ask if they have any questions. Put in the business plan only materials that are not considered proprietary. Remember the investors are interested in the business opportunity, not the invention itself. Therefore the entrepreneur can state what the invention can do, not how it does it. If the investors want to proceed they will usually require a more formal presentation. Pitch should be 12 to 16 slides and last up to 20 minutes without questions (table 13-1, page 356): outline, market, product or service, customers, intellectual property, development plan, distribution plan, management team, competition, financial projections, and exit strategy.

8. After the presentation The entrepreneur should contact the investors a few days after having completed the presentation to see if additional questions can be answered. If investors have expressed any degree of interest, the entrepreneur should move interest into action and investment. Good communication (frequent updates) are vital for vital throughout the investor-company relationship.

9. Investor evaluation process Investor evaluates the business in 4 fundamental sections: 1. Management team: Experience and previous successes of management team and entrepreneur. 2. Business Model: Market size, customers, and timing of opportunity. 3. Context: Internal & external factors including customers, competitors, economic regulations, and stage of technology. 4. The Deal: A final valuation is generally made 3 to 6 months following the presentation.

10. Dealing with Rejection or Financing Agreement Dealing with Rejection: The entrepreneur should always inquire if the investor knows another interested party or under what conditions would the investor reconsider. The financing agreement: The ownership for investors can range from 10 % (profitable companies) to 90 %(financially troubled firms).Most investors do not want to own more than 50 % of the business. Investors will generally ask for representation on the board to have some say in important decisions. The financial objective of the investor is either a corporate acquisition or a public stock offering within 3 to 5 years of initial investment.

11. Summary Entrepreneur has to communicate the opportunity to potential stakeholders – investors, bank loan officers, corporate partners, or potential acquirers. Investors prefer involvement in a business they know. Investors can also help in finding key management team members and providing key industry and professional contacts. The investors can also serve as mentor, confidant, and sounding board for ideas and plans to solve problems. A teaser is a clear, concise, elegant, and engaging short document. An elevator pitch is the verbal version of a teaser. Show how the investor will make money, everything else must be left for later. Put in the business plan only materials that are not considered proprietary. Investor evaluates the business in 4 fundamental sections: 1. Management team 2. Business Model 3. Context 4. The Deal. The financial objective of the investor is either a corporate acquisition or a public stock offering within 3 to 5 years of initial investment.

12. Home Work 1. What is the key ingredient in raising capital? 2. What is a teaser? 3. What is an elevator pitch? 4. What is the financial objective of the investor?