Want help to start or grow your business? Call 503-501-2444 for a free consultation. Ethos Cleantech

Archive for September, 2009

Sprowtt.com Has Arrived To The Benefit Of Cleantech Entrepreneurs

Thursday, September 24th, 2009

Every day, I keep hearing people asking, “where do I go next for funding?”  I’ve talked about how to seek funding, how to seek investors, how to get money, etc.  No matter how you slice it, trying to seek funding is almost like going door to door and asking people if they have five minutes to hear an idea.  Obviously, it’s more professional than that, but the feeling of apprehension is still there as you try to scale the metaphorical walls of potential investors.

With all of the innovations in social networking and business tools, how has a solution to this ordeal not been developed?  As soon as I asked this question to myself, a colleague showed me a website called, www.Sprowtt.com and then I considered wondering aloud if I could have a free Mercedes.

To put it simply, by using Sprowtt, anyone can participate in the funding of companies. Potential investors are able to log on to the site and create a profile with detailed financial and bank account information. Then they are given a list of companies they can invest in based on their financial capabilities.  The start-ups have their own information posted such as informational presentation videos, the amount of money the start-up has already raised, and their products and detailed business plans, on which the investors can share their comments.

So what happens if the investor likes the company?  Once they’re interested they can sign the stock subscription agreement and then enter the number of shares they wish to purchase.  At this point, the funds are held in escrow until the offering is complete (which happens when the minimum amount for an offering is accumulated). Sprowtt then helps to transfer the funds from an investor’s account to the start-up.

The entire process is done in a very comfortable and familiar format that is like almost any social networking set-up that we as a Web 2.0 familiar community are used to. Personally, I think that if this site can get its proper ducks in a row that this will make the investor process very accessible to the sudden influx of start-ups that are currently out there and ready to make the leap to capital raising.

Tags: , , , , ,
Posted in business, business start-up, raising capital, venture capital | No Comments »

The Top Five Killers Of Business Plans When Seeking Loans

Wednesday, September 16th, 2009

Guess what? Lenders can’t approve every loan application that crosses their desk.  I’m sure they wish they could, but the fact of the matter is that they deal with mostly very small businesses seeking small loans, usually less than $250,000. Lending to inexperienced, new business owners is one of the riskiest arenas for a lending agency.  That’s where the eye for looking for those classic, “business plan killers” comes in.  These lenders and investors that you’re going to be meeting with know what they’re looking and they know how to read between the lines of your business plan and what constitutes a “red flag.”  Here are the five most common killers of a good business plan:

1. Dreadful Personal Financial Profile 

Be extremely careful with your numbers.  Classic red flags pop up in business plans in the form of high credit card financing, garages full of toys (trucks, bikes, boats) 90% financed, poor credit history and no savings.  Lenders will be looking at your personal finances as a way to see how you’ll be able handle the finances of the business.  If you’re house isn’t in order then it’s likely your business won’t be either.

Solution: Tidy up your personal finances before applying for a business loan. Pay down loans, clean up any bad debts, collect some business-related equipment and save some money. 

2. Insufficient or Non-Existent Owner Equity or Security 

Business is always risky, but new business is infinitely more so. Lenders will want to see you personally “invested” in your business. The part of the business you personally own is called your equity. Another way to describe equity is the amount of cash or equipment you put into the business. A lender wants to see that you are invested to the point that you will not be inclined to walk away when the going gets tough.  Makes sense, right?  I mean, how can you ask someone to give money for your business if you’re not invested in it fiscally?  

The question then becomes, “How much owner equity is enough?” This amount varies from lender to lender, but less than 10% is inviting scrutiny while 20% or more will make your proposition more enticing.  Security is the surly sister of equity. Your loan application will be stronger if you bring some sort of asset to the table as security. Lenders will be more attracted to assets with a clear resale value of more than the loan. Inventory is usually less desirable because it tends to grow legs and disappear when the going gets tough. 

Solution: Create some equity to bring to the table. Save money, sell some toys, etc. 

3. Inadequate Market Research 

Know your market.  Seriously.  If you’re getting into a business that involves real estate, the lender will want to know that you understand real estate.  Present current information regarding the industry and market, but don’t be upset when the only information you can find is two years old.  The reports you’re trying to cite may not even be out there or readily available.  Just do your best, but keep in mind that you’ll have to actually speak to your knowledge and expertise regarding working in a field you.  Lack of market research can lead to a business plan that is too general – not specific enough.  A lender will want to see that you have “turned over all the rocks” in search of knowledge about your business. After reading your business plan, if the lender feels that they know more about your business than you do, they will not be inspired to approve your loan. 

Solution: Prove your business case to yourself and to your reader. Persist in your market research efforts until you become “the expert” for your business. You will feel more confident and have an easier time convincing your readers that you know what you are doing.  

4. Shoddy Presentation 

Your business plan is a tool for communicating with others. What is your product or service? Who are your customers? How will you market and distribute your product or service to your customers? Will you make money? Will your business be able to repay the loan? Does your plan communicate these things clearly?  You can do the best market research on the planet, but if you can’t communicate it clearly and package your business plan professionally, your target audience might not even read it. 

Solution: Provide a professional presentation. Ask a friend or pay someone to proof, but do a professional job. Demonstrate that you care and you will increase your odds with the lender. Answer the basic business questions. Who, what, where, why, when, how. There are many business planning systems (although none surpass the Roadmap!) that will provide a framework to keep you on track. A proper business planning system will provide you with a framework in which to place the assortment of information you will gather.

5. Unrealistic Expectations 

Inflated, overly optimistic sales forecasts or cash flow projections will derail your loan application every time. Enthusiasm should not be mistaken for blinders.  A future too bright will blind the lenders and scare them off the loan. 

Solution: Be realistic in your expectations. No matter how lofty your financial aspirations might be, know that businesses are usually not profitable for the first six months to a year. Estimate your sales conservatively and your expenses a bit higher than you think they will be. Keep the cash flow realistic and be sure to include ALL expenses. 

Keeping in mind these five points will be a big help if you’re going before a lender.  The plan is a tool and should be used accordingly.  Make sure you’re using it correctly; that you can speak to its authenticity and accuracy, and that you are realistic regarding its expectations and your abilities.  Lenders want to help you and avoiding these pitfalls will make that happen.

Posted in business loans, business plans | No Comments »

The Current Paradigm Shift For Venture Capital Firms

Tuesday, September 15th, 2009

Currently, the state of funding for start-ups from a venture capitalist seems to be on the wane.  The keyword there is “seems.”  Once again, what is actually happening in the realm of business and what is being perceived to be happening in the realm of business are too very different things.  The assumption is that a venture capitalist doesn’t want to put any investment capital out there since they’re afraid of the market’s current state.  Things to keep in mind about the current climate is that there is no basis for comparison to use when saying, “In the past when the economic downturn has been this bad…” is pretty much useless since an economic downturn of this caliber has never existed along the advent of technology like it is today.   This is a cycle, yes, but it’s also never the same cycle twice.  Every time an event like this happens in the financial world, there are always factors that are in play to make it a different setting than the last time we were at this point.  

For instance, during the post-2000 internet implosion, we were witness to two landscape changing events of the time:  The inherently great start-ups and late-stage opportunities were shown to be able to survive even if they were weakened by the crash.  Also, we saw the web become a place of imagination as well as innovation as opposed to just a new advertising marketplace.  Social networking, video aggregators, etc. all were new additions to what was thought to be a fad market that died as quickly as it ballooned.  Here we are today and we’re most likely going to see yet another renaissance of people who come up with an idea that doesn’t even exist for comparison and can gain ground in a competitive landscape that is devoid of rivals. 

Things to be keeping in mind in this new economic landscape is that the economic recovery plan from the Obama Administration will play a factor in allowing for any productivity-enhancing information technology to become a sought-after investment opportunity.  Also, survivors of this recession will be seen as strong companies that should maybe be given some working capital investment in order to keep thriving in the years ahead.   Domestic clean energy will also be an area that investors will be looking at since now is the time to start moving away from oil and coal and other fossil fuels as the dependency on those resources has shown to be a severe detriment to the United States. 

There are options out there and there are venture capitalists who want to invest in those options.  Now is the time to be meeting these demands and showing why your company is deserving of funding from a venture capitalist or private investor.  Either have an innovative idea that actually breaks the mold instead of imitating it, capitalize on the need for energy demands, or make it so your company survives this recession to live to fight another day and you will be able to seek the monies from the VC’s that are patiently waiting to put up funding.

Tags: , , , , , , , , , , ,
Posted in raising capital, venture capital | 1 Comment »

Business Plans: Getting Started

Friday, September 11th, 2009

Whether you are planning to start a brand-new business, expand an existing company, or get financing for a business venture, you will need to write a business plan.  There’s no way around this unless you have a dead rich uncle who just left you his two-car garage full of thousand dollar bills.

Although writing a business plan can be a lengthy, intimidating project, it doesn’t have to be the end of days regarding getting your project in order.  There are key components for what to include in a successful business plan and if you can check these off of your list at the end, then you’ve done your job right. 

Your business plan needs to demonstrate that you have thoroughly considered all aspects of running your business. To that end, the standard business plan has nine major sections, covering everything from your business’s mission statement to a detailed financial analysis.  

Each of these sections needs to be sure to carry their own weight and stand on their own regardless of the differences in content or length.  Honestly, if an investor wants to skip ahead in your plan and not read, say, the market analysis and get straight to your management summary, the sections should be complete enough that they shouldn’t feel like they needed to read 20 pages of content ahead of their desired goal.  

Another note regarding business plan construction is the Executive Summary.  Many times, this section can double as your pitch document if constructed properly.  Its content should be highlights of some of the data and points made in the plan proper, but still be a single narrative that explains the project as a whole.  Also, if you can include a financial overview section after the Executive Summary, that will go a long way to help it function independently.  

Remember that you’re also going to need to actually speak to the content of your business plan.  Learn it inside and out.  Investors might quiz you on it or want to know more about a particular piece of market or financial information.  In some cases, leaving little bit of a prompt in a section will allow for you to make your presentation to create a dialogue between you and the investor because they’d like to talk more about that section.  

Also, the document is not there to do the job of speaking about the project for you.  The business plan serves the purpose of either getting your foot in the door by enticing the possible investor or being the leave-behind document that will help answer questions after you’ve departed from the presentation.  Nowhere in those duties does it actually do the job of securing financing without your ability to speak to it and the project as a whole.  For this reason, it’s always good to do practice presentations with another partner taking the role of the investor and having them pick apart your plan and presentation.  Criticism is not designed to hurt you, but rather to help you improve.  

Financials should be done by a professional or at least be proofed by one.  There’s no guarantee that your numbers will be perfect, but they should at least be accurate.  Also, keep in mind that they’re forecasting so that they should be conservative and growing at a rate that is realistic.  Don’t expect to hit the numbers out of the park in the first year.  A professional financial consultant can help you massage what are essentially fictional numbers into a presentable projection that will make an investor interested without skeptical. 

Last but never least, never fall in love with your plan.  Always be interested in continuing to evolve it and rewrite it.  The plan is never actually finished even after you’ve secured investment.  Also, getting defensive about the content or the presentation won’t serve anyone, so always be open for suggestions how to improve it even if they’re harsh.  The idea is to take in as much input as possible and fold that into a semi-final product. 

Business plans shouldn’t be daunting as an aspect of seeking capital, but the process is by no means easy.  Seek as much help as possible, remember to follow guidelines of structure and style, and never let the content be something you can’t speak to or aren’t willing to change.

Tags: , , , , ,
Posted in business plans | 1 Comment »

No Secret To Pitching Investors

Saturday, September 5th, 2009

I hear from a great deal of my clients that they’re looking for the secret to the, “best pitch to investors.”  To me, this always sounds like looking for the secret to, “the best pitch to ask someone to prom.”  There is no perfect method.  There is no secret.  At the end of the day, all you can do is show up and do your best.  There are, however, things you should remember to do and things you should definitely avoid.  

Strong Opening:  Start off the presentation strong.  This can be intimidating based on the fact that people get nervous over just how to craft those first few sentences that you’re going to say to a potential investor, but that’s why you practice.  Come up with a strong lead-in line, a humorous anecdote, or just a casual introduction to start the ball rolling.  Keep in mind that no matter how you open, the idea is to find a professional, but pleasant way to deliver the beginning to your pitch. 

Origin Story:  How did we get here?  The tried and true way to discuss the project you’re pitching is to tell the story of how you conceived of the idea.  If it’s a product, what precipitated the inspiration?  If it is a service, what was the need and how did you discover the market demand for it?  Keep this story tight, though.  Long-winded rambling tales can bore the audience when you forget that not everyone finds the same topic interesting.  Cover the key points and then move on.  

Visuals for Visualization:  Nothing beats a good prop for a presentation.  PowerPoint has made presenting to groups relatively simple and visually-appealing whether in business meetings or pitch sessions.  Don’t use this as the only source for presentation material, though.  If possible, go out and have more professional looking digital slides done.  If your project requires a prototype, definitely have one produced so that investors can get a good look at what you’re talking about. 

Healthy Body:  Change up the pace when discussing the project.  Don’t keep an even tone throughout the whole pitch.  Making it feel like a more natural explanation will temper the fact that you’re standing in front of strangers and asking them for money.  Also, don’t oversell.  Confidence and arrogance have a great deal of similarities and can be easily interchanged when you’re not careful.  Your idea is not the end-all-be-all on the planet, but you should still believe in it.  As long as you’re not overselling it, then you should be able to convince others that it’s worthwhile. 

The End:  Endings are just as important as openings.  Just make sure that you end as strong as you started.  Restate the key points from your initial pitch and cover the key points that you’ve already gone over and you should be able have a strong finish.  

Dynamic Duo or Dark Knight:  If any of these pieces of advice seem to be too much for you as an individual to accomplish, that is not as much as a negative as you might think.  Selecting an experienced proxy can be the wisest decision involving these sorts of presentations.  If you feel you can cover some of these points, but not all, then look into having a partner on board.  Splitting the workload can create a natural rhythm that can ease pacing issues or any impediments that may arise. 

These aren’t the secret to the perfect pitch.  No, they’re just the advice handed down to me from people who actually succeed in front of an investor.  You can take it or leave it, but at least listen to it.  No one can give you a “how-to” for a perfect pitch, but you can always get some helpful hints to refine what is hopefully a polished presentation.

Tags: , , , , ,
Posted in business coaching, raising capital | No Comments »