8 April 2008 by Grizz.

It’s been a while since my last post. I really need to put action into words and update this site more often. Since my last post, I’ve (among other things) been to Japan, reviewed a dozen (much much too long) business plans, and participated as a judge in a university business plan competition.

It’s not surprising, but the plans submitted by students for a school (albeit MBA level) competition are no worse, and in many cases much better, than the “professional” plans we review each week.

It’s a waste of time and an insult to the reader to ignore major aspects of how you intend to grow your business—such as a real revenue generation plan, and every investor’s favorite, the dreaded Use of Funds.

Saying you’ll use our capital to “grow your business” isn’t enough. A detailed cash flow analysis, month by month for the first two years, and quarter by quarter for the following three years, is the very least you can do. You are asking potential investors to trust you with their money…

As I’ve said over and over, you don’t have to have majority shares to control your company: the person with a plan, that runs the company TO THAT PLAN controls the company.

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18 February 2008 by Grizz.

Investors are never in a hurry.
All investors work at their own pace and in their own style. Some will decide right after reviewing an opportunity that they want to invest, and diligence is a matter of proving their instincts are correct. Other investors will take months…to say “no.” It’s totally groovy to ask a potential investor how they prefer to review opportunities; asking such an open-ended question will elicit all kinds of good information.

They get paid to judge risk.
Professional investors are essentially risk managers. They spend a lot of time asking themselves “what is the best (and worst) that can happen if I commit funds to this venture?” Everyone has personal bias, but that bias is based on previous experience with similar circumstances. Make the bias work to your benefit by asking potential investors what kind and size of deals they have completed in the past.

Fund size, focus, resources, age of fund, and current deal flow will dictate interest level: It’s called “timing.”
You can show an investor your business plan, but ultimately, if they aren’t investing–for whatever reason– don’t waste anymore time on them; move on to other prospects.

VC’s are NOT stupid, arrogant, lazy, worthless, dishonest, mean, living off their spouses, and just trying to get to the golf course.
Well, most of them aren’t. Someone thought enough of them to trust them with their money. Misconceptions about investors, especially VCs, are legion. Do thorough research about a potential investor before approaching them. It will save you a lot of time and effort.

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11 February 2008 by Grizz.

So, how do you like New Mexico? (or some other non-relevant inquiry): I am so confused I don’t care about your company any more.

We don’t invest in that area: We’re done here; leave me alone.

Keep me advised: If I see movement I might get back to you.

Send me your plan: I’ll have an associate see what they think.

When can we meet?: I am personally engaged and your timing is right. OR I haven’t found a good reason to say “no.”

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1 February 2008 by Grizz.

1. We only need $1 million to reach profitability.
2. This thing will sell itself.
3. Recruiting the management team will be easy.
4. Marketing? Yeah, we’ll do some advertising…
5. We don’t need a formal quality program; everything we do is high quality.
6. Plan? We don’t need no stinking business plan!
7. Market Research? I understand the market perfectly.
8. We know exactly what that first product is going to be (so it will only take us a couple of months to develop it, launch it, and sell it).
9. Public Relations? The receptionist can do it!.
10. We don’t need a budget. (we’ll just fire people when we run out of money).
11….we’re all friends, we’ll work out the compensation issues later.
12. The customer does not know what he wants. I know what he needs because I am smarter than he is ( the average customer is stupid).
13. We don’t need to worry about handling customer service right away because our product will blow them away.

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21 January 2008 by Grizz.

Myth #1: investors just want to take advantage of you.
Myth #2: investors want to steal your idea.
Myth #3: investors know more about your business than you do.
Myth #4: investors are money hungry bastards.
Myth #5: investors are all lazy, rich, and arrogant.
Myth #6: investors follow a “playbook.”
Myth #7: investors don’t work and play well with other investors.
Myth #8: investors just follow the latest fads and investment trends.
Myth #9: investors have to move fast and will work on your time scale.
Myth #10: investors need you more than you need them.

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11 January 2008 by Grizz.

One of the most intimidating things to do is distill that 100 page business plan you spent three months writing down into just a few sentences. Some folks calls these “elevator pitches,” but I try to avoid talking to people in elevators, so refer to this as The Ask.

It’s a difficult task, but really important. Here’s why:

1. it demonstrates you know your business so well you can describe it in just a few sentences;

2. you (hopefully) will answer the Three Questions (What is it? Who cares? How do you get it?) in a concise manner;

3. The Ask educates prospects and advocates alike, so they can help you find capital and customers.

Think of the paragraphs below as a “Mad Lib,” like the ones so popular 20 years ago (hold on, I’ve just been told by Penguin Putnam Inc. that they still do a brisk business in Mad Libs thanyouverymuch).

The idea is to replace my silliness (in parentheses) with action words. Once you have that done, go ahead and rewrite the entire statement to better fit your specific needs.

THEN, send it around to people you know and ask them if they can understand what you’re so darn excited about just by reading those lines.

Here we go.

(cool company name) has a (patented/unique) processes for the manufacture of advanced (thingamabobs). These (thingamabobs) are sold by (quantity) and allow (this, that, and the other) to work (better/faster/cheaper/at all).

Companies like (A, B, and C) purchase (thousands/tens of thousands) of (thingamabobs) for (some amount of money each), but need (better/smaller/faster) ones like only we can provide. Ours are better because we use (some unique process) which allows, for the first time, for the creation of very (small/stable/unique thingamabobs) for new applications such as (this or that) and existing applications such as (the other).

The total (thingamabob) market was (a bunch of dollars) in (some recent year) in the U.S. & even (more bunches of dollars) worldwide that same year.

We’re seeking (some reasonable amount of money) to do (something) over the next (short amounts of months), and will require an additional (bag of money) in the (longer period of time) in order to capture (some large) percentage of the market and reach revenues in excess of (some large amount) by (some year in the future).

See, it’s simple!

Now you try your own. I’ll even help.

Send your Ask to blog@purplemountainventures.com with the subject line of “The Ask: Help!” and I’ll send you my comments/ideas/snide remarks.

Grizz

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9 January 2008 by Grizz.

We regularly get calls from folks wanting to invest in one of our companies. These inquiries are usually broken down into:

1. folks wondering if Company X is public;
2. folks wanting to get in on an IPO (make millions with nothing more than a well-timed phone call);
3. legitimate individual, corporate, or fund investors
4. shisters that claim to have as much money as we need.

Number 1, above, is easy to deal with.

Number 2 is benign.

Number 3 is where you’ll find legitimate equity or debt capital.

You’ll need to be very careful around the forth kind of enquiry.

I recall one of our early firms was asked by a shister to pay him a retainer to find capital, another asked to be given founder’s stock before he would go out and help us raise capital. Still others come on strong, act credible, but never deliver.

The pathetic shister investors are easy to spot. These idiots make very public postings on blogs and web sites saying they are raising a new fund, and promising outrageous returns; or they rattle off a list of well-known names; or worse, they “can’t disclose” their very private sources of funding.

Still others just want to see if they can insinuate themselves into an organization in the hopes they’ll be standing next to someone when something interesting happens.

If someone or some deal sounds too good to be true, it usually is.

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21 December 2007 by Grizz.

Board Compensation
There exists never a more apt example of the old saying "you get what you pay for" than when it comes to compensating your Board of Directors.

Companies, especially startups, need to look outside their own organizations for fresh perspectives on just about every aspect of running the firm. Startup CEOs need to be able to turn to a small group of motivated, objective, and (hopefully) smart set of folks for advice.

You can call them an advisory board if the members are unwilling to take on the liability a corporate board position brings; nevertheless you need this group of folks to be motivated.

Since small firms don’t have the resources to compensate their board with cash (retainer, meeting fees, travel, expenses) the very least you can do is match the board’s fortunes with that of the firm by offering stock and/or options in the company. Treat the board stock (option) allocation just like the employee bucket (first right of refusal on repurchase, vesting schedule, etc).

Don’t make the mistake of thinking you’ll engage quality people without motivating them. It’s axiomatic that if someone says they don’t need to get paid or compensated in any way, that you’ll get what you pay for.

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