1. What’s my “elevator pitch”?

1. Hard questions for the first-time fundraiser 1. What’s my “elevator pitch”? Explain who your customers are, what their problem is, how you solve it, and why they’ll pay you for it in 25 seconds flat. That’s how long people will pay attention after they’ve asked “so…what do you do?”

2. Hard questions for the first-time fundraiser 2. Why do I need money, anyway? Why do you even need money? If you are genuinely planning to raise your company’s value by 25 times, why not get a job and invest your own money to do it next year? There is only one good answer to this question: your company can only reach rapid growth once it reaches a funding threshold. To qualify for investment, you must prove that this is the case.

3. Hard questions for the first-time fundraiser 3. How much do I need? Take the bare minimum projection – assuming you’ll re-use your pencils, paper, and desks like a true hardscrabble entrepreneur. Then add 20%: that’s how much you need. If your number is under $200,000, get your friends and family to invest their “love money” in you. If you’re honest with them about the risks, they will be tolerant of screw-ups and will be there to help. They will also likely trust you with control of the business. If your needs are between $200,000 and $1 million, you need an “angel” – a wealthy individual who trusts you, loves your idea, and is not obsessed about valuations, projections, and business plans. Over $1 million? In 2005, you’d better be ready to have a pretty amazing idea – hardly anyone gets this their first time around. VCs care about meticulous planning, a wealth of market evidence showing the need for your product, and will insist that you have an experienced entrepreneur aboard. They will likely take control of your business.

4. Hard questions for the first-time fundraiser 4. Would my best friend invest? Would I ask him/her to? Once you know what type of investor you need (love money, Angel, or Venture), make a list of your prospective targets. Ask everyone you know what they think (even people who can’t afford to invest). Listen for common questions and criticisms. Then ask ALL of your friends for the name of someone who might be interested – remember, they’re doing their wealthy acquaintance a favour by introducing them to the Next Big Thing on the ground floor! If people are consistently refusing to introduce you to their friends, ask why they’re uncomfortable – this is a valuable source of information.

5. Hard questions for the first-time fundraiser 5. Have I thought of everything (is my plan complete)? You cannot hit sophisticated investors until you have a business plan! Use internet resources (see www.ptventures.ca for links) to work out the skeleton of the plan, and consider hiring a professional business planner to clean it up. Professionals can show you where you are putting in too much time, and where you need more detail. Note – most first-time writers make the same mistakes – don’t waste time on a plan you don’t know how to write. A half-day with a business planner will cost a few hundred dollars, and will save you weeks of work! Also don’t let a business planner try to write the entire plan – you know your business better than they do. Remember, this is about your idea, not their interpretation of it.

6. Hard questions for the first-time fundraiser 6. Can I convince a complete stranger that I can transform an industry he/she doesn’t know? Once you have your business plan, practice your pitch to friends, and consider hiring an entrepreneur coach to help you refine it. You only get one chance to make a first impression! Prepare for your calls, and try to get a 15-minute meeting with every investor. For “love money” and angel-level investing, always get a reference to someone else who might be interested. If someone says they know nobody, ask why they wouldn’t forward you. Don’t be shy – everyone knows someone, and this may get you valuable information about the credibility of your pitch. Target investors and venture capitalists with some knowledge of your target industry – they will be more likely to understand your idea, and will be better able to help you refine it as the business progresses.

7. Hard questions for the first-time fundraiser 7. What sort of term sheet can I expect? From “love money” and angels, you may get to write it yourself. Three things to remember: a) treat all the investors the same way; b) have them all sign on at the same time, if possible; and c) value the shares low enough that you are sure they will make money. If they do not, you will likely never get a second round, either from them or from anyone else. If you are going for venture capital, expect an aggressive term sheet with only a 24 hour expiry. Have your lawyer ready, and get an education in term sheets from your lawyer or one of the many books on the subject. Canadians should follow general trends in the US, but should read Canadian books on the legal ins-and-outs. For all investors, the trend in 2005 is for investment to be dribbled out over years, subject to you meeting milestones – and if you miss a milestone, you’ll get hammered! Undersell and overdeliver on this!