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CONTENTS
CONTENTS
This guide breaks out the preparation for a capital raising into 2
distinct elements of work:
The restraint I put on myself is that this guide could not be longer
than 8,000 words. Why? Because I both respect your time and
have read too many publications that are long winded. I want you
to be able to take as much out of this in as short a time as possible.
Success for me in writing this short work is that at the end of this
you will have had an opportunity to step outside your business
initiative, reflect and look back in. This will simply allow you to
prepare thoroughly and then pitch your opportunity with much
greater confidence.
Good luck with your venture. The world needs more entrepreneurs
like you.
UNDER As with all projects understanding the
STANDING elements of what is required to be done is
THE TASK not always straightforward, but essential
for success.
Explaining these:
1. We are creatures of convenience.
Technology and the trappings
of the modern world drive us to
only do those things that are most
convenient to us. If it is too difficult,
we turn off. Fast.
Understanding The Task | 9
You should also consider how each document you are going
to prepare builds on its predecessor – drawing the Investor in
further as the opportunity develops. Consider in a one page
project management styled document, for example, the index and
“purpose” of each document. Or do it on a whiteboard. This is a
simple way to effectively review the content build across the suite
of documentation you will prepare.
Confidentiality Agreement
The issue of the CA comes up in every deal. Do not be surprised
if you come across Investors who will not sign them, and for
good logic. Professional investors see many deals a week, and the
potential for a conflict of interest is therefore high (they see similar
deals often).
I remember one deal many years ago where a Sydney Law Firm
produced a CA that was about 60 pages long. When this was
provided to our client at the time (a West Coast USA Private Equity
Fund) they just politely declined to sign it and moved on. They
were well and truly scared off.
In the early interaction with Investors just make sure that what you
are presenting is timely, and they have appetite to commit. I struck
a situation a few years ago with a major private equity player who
wanted to retain all information that was to be presented by the
Client, including confidential information. They said it was as a
part of any Investment Committee Pack that had been presented
internally. The argument that was given on this was “compliance”.
They didn’t proceed (after taking up a lot of time), but we were able
to close the deal with another party.
These are not the be all and end all, and of course you can discard
and look at other summary presentations. What is important
to remember, whatever way you go, is that you need to deliver
something that is punchy, well thought through and influential so
as to move the Investor to the next step (usually into due diligence).
Always have a printed version with you if you are presenting off
an electronic device. You will be staggered the number of times
technology lets people down at the crucial moment.
This guide will not go into the overall content of an IM, as there are
plenty of sources available that can assist (as a last resort grab an
IPO document or Prospectus as they generally follow the same layout).
I will provide you with a number of observations and tips, however,
to help you prepare effectively.
Secondly, look for good sources for data and think logically about
your business projections. Leaving aside financial growth rates
(which are commented on separately) study the leading public
companies in a sector and look at the comment and data that their
leaders are providing to the public markets. Time after time I have
seen a small start-up project that its business growth rates will be
greater by a large factor than dominating public companies, or
that its view of market size is completely different. Understand the
Investor will independently be trying to establish these things and
predictably will look at sources for data including the above.
18 | The Mechanical Work
Thirdly, don’t “hand pick” data that you want to refer to and present
it in isolation. I see this all the time. If it is economic macro data
go to Government Statistics Sites or Industry Peak Bodies – don’t
pick data that comes from some obscure source. Consider how
such a simple thing as being wildly wrong on a population growth
rate impacts the overall feeling of confidence on the pitch – if you
are wrong on such a basic, then what about the more aggressive
assumptions?
You want to make sure your great idea translates to compelling on-
paper communication.
The financial model outlines the revenue and expenses glide path
for the coming years. From a credibility perspective the next 12
months is obviously the most critical, as for emerging companies
there are always wins and losses that take place. Know the next 12
months like the back of your hand – and also be ready to discuss a
100 day plan. It is a common question.
The Use of Funds statement details the capital request and the
timing of the need of that capital. This 2nd limb is important. It
may be that you require a capital commitment, but do not need
100% of the raising on day 1. Structured capital injection deals can
be attractive for investors.
Have a simple summary sheet of the Use of Funds, but that this
links to a very detailed projected line–by-line analysis of how
capital will be deployed. Such analysis is not painting you into a
corner (always build flexibility in), but it shows the Impact of Capital
which is something I rarely see focussed on. Effectively, this is
along the lines of:
20 | The Mechanical Work
“We will spend the first $5m in the following way, and that will allow
the business to mature as follows. We would hope the valuation
impact that this would have would therefore be material”.
Exit Analysis
Any investor wants to know how they will be able to harvest their
capital. At the start up / early stage doing a detailed exit analysis
can be of only limited reliability – so the central thing to focus on
is the prospect of this initiative being an attractive one down the
road once fully developed.
The two traditional exit approaches are Trade Sale or IPO, although
there are a number of others which tend to be hybrids of these.
The information that I recommend you prepare is simple, but will
likely take you some digging:
1. Analysis of various funding rounds that are similar to your
corporate initiative
2. Trading valuations of public companies that might be in your
sector
3. Deal values of M&A transactions that have taken place
The third point is important. Investors will tell you they are
interested, but until you see them spending time and money on
investigating your opportunity then it is hard to be convinced that
they are really engaged.
This is the bare bones so knock it into shape early and make the
job easy.
Once you have allocated folders and uploaded documents the VDR
automatically produces an index.
Make sure that all understand the language and intent of the
drafting clearly. As I write this, I am negotiating a Terms Sheet
on a large deal where a clause simply has not made sense. A
lawyer has introduced text that may make sense to them, but its
interpretation can be argued in a number of different ways. Maybe
it’s an intentional tactic. I hope not.
I have kept a designer on staff for many years. It is one of the best
decisions I have ever made. She is an incredible asset and we are
all proud of the work we hand over to clients – from the simple
document to the extensive presentation.
Before you begin, make a plan of the factors that will be relevant to
you - which the basic workflows in this guide will hopefully assist
you to do. You can change them at any time – but you need to be
working always in frameworks to keep this exercise organised and
on track.
That individual is usually the key contact point you have made,
but sometimes the function of progressing an opportunity can be
delegated (particularly in larger VC Firms).
Presenting With Influence | 29
It is critical for you to both identify and build a rapport with that
person – who hopefully will stand up in front of an Investment
Committee and seeking support.
Of course, there are no “high walls” that mean this should all be
inflexible, and often you will be working across phases at the
same time. Never lose focus on the need to work through a
structured path for each investor you are engaged with – which
the institutional grade investor will in fact expect and appreciate
(that you are well prepared and know the drill).
You would have heard many times about being able to deliver an
“elevator pitch”. This is similar to the 4 basic requirements that I
have developed as a framework for Short Pitch Books.
Just as with other things, have a short project plan on how each
meeting should be designed to take place, meeting schedule for
the day, contact details in case you late, etc.
We all have our own approaches for dealing with nerves, and it is
important to both recognise when that feeling starts to bubble
up and how to deal with it. For example, I find slowing the
conversation down helps enormously.
Make sure you really have nailed the first and last statements that
you are going to make in relation to your pitch. Besides settling
you down nerve wise (not scrambling for opening words) it sets the
tone for the entire meeting with a great lead in statement.
“Thanks for your time, we are all busy and I understand things come
up. I would like to leave you with one key message on why you should
invest in this initiative which is …………”
If you are late for any reason make sure you call (don’t email or text)
ahead and either speak or leave a message.
Make sure you nail all the things you can control, and detail them
in your project plan to be doubly sure. If you are comfortable and
organised believe me, it will help with your confidence.
In reviewing your pitch make sure you have adopted that step by
step approach. Your goal is to advance parties in your process with
each interaction of them.
34 | Presenting With Influence
Setting the valuation to one side, the real issue was the potential
to successfully work with that Founder. It was assessed as low.
In your presentation make sure you are not going so far out on a
limb that it will be difficult to climb back in. Remember the job is
to move an investor step by step through a process – that’s it.
“Thank you for your time as I know you are busy. I would appreciate
feedback once you have had a chance to digest all this, and perhaps
we could have a further chat by phone in a couple of days when I
have had a chance to compile the outstanding information from this
session”.
In Conclusion
Your time, energy and innovative mind are all incredibly valuable
assets.
You will strike many opinions on the best way to prepare, and
consider this short work one set of opinions to consider in terms of
protecting your assets. Feel free to adopt, adapt or discard as you
see fit.
Good luck on your journey. Stay positive and focussed. The world
needs more entrepreneurs like you.
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