Selling an investor on investment: if you want to raise money from professionals, take the time to understand the process they'll use to examine your company.
If you want to raise money from a professional investor, take the time to understand the process they'll use to examine your company and your sales and then build your case to stand up to their scrutiny. Here's how it works:
* Executive summary: To attract investors, you need an executive summary that provides a clear and concise overview of the business. This is absolutely critical. The discipline to produce this document will be the difference between investor prospects understanding your business and its value, or just smiling and walking away. There is a fairly standard summary format investors are used to seeing (about 15-20 pages). If you need one, e-mail me and I'll be happy to provide it for you.
* Due diligence: Whenever you raise money, the investor conducts "due diligence." Be prepared to "bare all" and have everything (and I mean everything) scrutinized. The core "due diligence" areas to be covered are: financials, competition, market size, sales, intellectual property and human capital. While all are important, in my experience the most critical area examined will be your selling efforts.
* Value proposition: During due diligence, your sales presentation will be reviewed to see if there is a solid "value proposition"--what it is that your company does better than the competition that solves your customer's business pain. All too often, the "value proposition" is not dearly defined. If you don't clearly and crisply articulate your "value proposition" it's game over. Remember, the problem you are solving is obvious to you, but you have to make it crystal dear for an investor.
When it comes to investors, understanding your company's value proposition is too important to leave to chance It takes a marketing perspective to dig deeper and get at the heart of the product's reason for being Look through a marketing lens to see why customers bought your product and differentiate between the "nice-to-haves" and the "need-to-haves." Marketing is grounded in the solid understanding of what the product or service can do and crisply articulating a real business "pain" that customers are experiencing. This is rarely obvious and a bit time-consuming to fully understand. But it's critical and essential. Only then will you deafly define a solid value proposition.
* Sustainable sales: Another assurance investors will want is whether or not your initial sales success can be sustained. "Why wouldn't they continue?" you might say. Consider this: Most new companies have initial sales success because they invariably sell to Visionaries--the easiest group to sell. Visionaries are people who see breakthrough potential in some technology and are willing to brave hell and high water to realize that potential. From the company's point of view, the positive is that Visionaries are not too concerned about defining benefits (as they make the leap themselves), nor are they bothered by the fact that the product is difficult to use since they are willing to make it work Unfortunately, this gives the company a false sense of sales potential. Then, before they know it, they hit a wall when selling to Pragmatists.
Pragmatists want a product that works. They are not interested in debugging it. They want to be able to hire people who have used it. If customization is needed, they want to find third parties who can do it. In short, they do not just want a product, they want a 100 percent solution to their business problem. If they get the 80 percent that delighted the Visionary, they feel cheated, and they tell their Pragmatist friends.
You need to dearly articulate to investors and convince them of the benefits your product or service provides to customers. They need to believe that your early success resulting from Visionary sales does not run into a brick wall when faced with Pragmatists. An investor doesn't want to be throwing in more dollars earlier than anticipated, or losing money on a bad deal because the Pragmatists don't have the business pain you assumed they did when they invested.
Raising money is one of the most important events for your company. This is no place to cut comers or assume a potential investor will just "get it." Seek objective, third-party help to review, argue and build your plan.
Like everything else in life, you get what you pay for.
Rudy Nadilo is a sales and marketing expert. You can reach him at firstname.lastname@example.org.
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|Title Annotation:||SELLING WITH NADILO|
|Publication:||New Hampshire Business Review|
|Date:||Aug 29, 2008|
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