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The Entrepreneurial Trait
An entrepreneur’s dream is to have their idea brought to life with the help of business experts and their capital. There were many stories shared at the 2010 Perfect Business summit in Las Vegas by some of the top entrepreneurs describing their rise to success. Founders of Monster.com, Zappos.com, Rainforest Café, Hard Rock Café, and more shared personal difficulties, failed plans, and years of hoping and what would seem like insurmountable dedication.
While they all came from different backgrounds in technology, top schools in the country, and down to no education past high school, they all share the same trait: They were all dead set on making their dreams come true.
Their dedication didn’t span a few months of tough times but YEARS. Zappos took almost a decade to become profitable before achieving a $1 Billion valuation. Steven Schussler, the founder of Rainforest Café, shares his story of turning his entire home into a rainforest to convince a potential investor. For years he was declined until he finally received the money and saw his dream come to life (outside his home).
Considering that the room for venture funds is very small, these stories exemplify the league that one must be in to get funding. Most venture capitalists will not fund a business that has not shown some type of success in the form of cash flow, users/subscribers, and novelty of the business.
To be in this league one must be prepared beyond a few documents and financial predictions. When co-founding my first company, we started with personal funds, but realized they were insufficient. At the time we were lucky because we knew people within our network that were willing to partner with us. This leads me to the next topic which I call “Priming."
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Priming Yourself to Become a Candidate
Priming is something you as a business owner or entrepreneur must do before ever seeking funds. The success stories mentioned above did lots of priming, in fact years of priming. My personal business found capital because of priming as well.
So what is priming?
Priming is the process of completely establishing yourself and your business or concept in your mind, in the minds of others, and building your reputation as an authority in the field, as well as someone who is completely reliable.
Take inventory of the following:
- How many years of experience in the industry do you have?
- How many people consider you an authority, or turn to you for answers with a related question?
- How unique is your business/concept?
- What have you done so far to make your business/concept become successful, make progress?
- What resources do you have to your advantage (including partners with special knowledge)?
Priming will not be complete until you have positive and concise answers for the above to demonstrate you are ready.
One thing I have learned is that people don’t respond to ideas so much as to actions. Meaning that if someone hears about a great idea they say something like, “Oh that sounds great!" They leave it at that. But when people hear something like, “I have been putting together this idea, and have already accomplished X and Y…" That’s when they start taking a larger interest, and actions, that might benefit you.
The point is that without solid measurable actions (priming), others wouldn’t be compelled towards action either. So prime yourself with the above questions and hammer them down. If you don’t have the experience, consider finding a partner that does. This is not an option, according to a conversation I had with an investor, “We invest in people and great teams first. If the idea is great but the team is weak, we won’t invest. But if the team is A grade, we will invest even if the idea is not as unique because we know the people will make it successful."
Priming includes getting involved with the right people; this may take months to years if you do not have the expertise and resources available, but you must do it.
Consider getting venture capital like going to the Olympics. Only the best of the best get to go, so you must spend the time in training and priming every single day until the opportunity presents itself.
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Priming for Venture Capitalists
Here are some administrative tasks involved in the priming process:
1. Complete a business plan
Value the business appropriately and know how much you will ask for, how you will use that money, and how much equity you are willing to give. Venture Capitalists look for 10-20 times or more return on their investment. So if you plan on raising $100,000, they are looking for $1 million-$ million return. So that means, if that investment represents only 20%, you need to show them the potential to turn the company into a $5 million company. This differs for certain industries and based on the risks and maturity of the business.
2. Create an executive summary
Summarize your business plan and goals. Highlight your unique value proposition, milestones already accomplished and milestones you plan on accomplishing.
3. Create a list of resources and accomplishments
If you only have a concept, you must prime yourself by building something more concrete, like a prototype, market research, and any evidence that your idea has some traction with the real world. Patents and copyrights should be applied and granted before presenting the idea in front of investors.
4. Clearly identify the target market
Within the business plan, as well as in the executive summary, make sure you know who your target market is, and ideally, have success stories within the market.
Make no mistake about it, venture capitalists will want to see that you have done your work, and show some promise for them to risk their money in your idea. This is all part of the priming process. If you already own the business and it is running, then you probably already have done the majority of the priming and just need to go through the action steps discussed below. But if you are still in the concept phase, you will most likely be looking at months, at minimum, for correct priming.
Image Credit: http://www.sxc.hu/photo/1158790
Keep reading on Page 2 for six more steps serious candidates should take.
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If you wanted to raise money for your business, prime and prepare...and then take additional steps that show your are serious. Not only will you establish a reputation in your industry, but you will also increase your chances for success.
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For Serious Candidates Only
Once priming and preparations have been made, action steps are next. Here is a list of tasks to cover to make sure you are seen as a serious candidate:
1. Create a 15 second and 30 second elevator pitch
While learning and speaking with venture capitalists at various conferences, this was made clear to me: if you cannot explain what you do in 3 sentences or less, you don’t know what you’re doing; hence, you won’t get the proper attention.
Do not disregard this part. Spend days or even weeks on creating good and concise elevator pitches. Run them by friends and family for feedback, and adjust it accordingly. It’s not finished until you can utter it out in your sleep with complete clarity and confidence.
2. Start attending conferences
Every industry has conferences, attend those conferences with your business cards and elevator pitch handy. Make sure you go there to learn and meet people NOT to ask for money. At this stage you are just building your reputation. Give and get business cards. If you don’t have money, go to the free or inexpensive conferences. If you are not known for your skills or expertise, there will be little chance for your idea to get funding without forking out some heavy time and cash out of your life. This is just like campaigning in politics, you are campaigning for funding.
3. Establish yourself as an expert
When attending conferences, learn everything there is to know about your industry. Then start contributing at forums, write a few articles, and share tips and ideas with people you know. This will go a long way to validate you as the perfect candidate for an investment. Remember, this is the Olympics you are trying to make, not a free for all event, so take this seriously. Utilize social media sites such as LinkedIn and Facebook to increase your sphere of influence and network.
4. Attend investor/entrepreneur conferences
Here is your chance to use your pitch and find someone that might be a potential investor. By now you should have a clear idea of who you are and what your business is all about. Don’t be shy. Go ask investors questions, such as “What industry do you find the most appealing for your firm?" Don’t start talking about what you do until they ask! This is important as they are bombarded by pitches all day long. Learn to start conversations and ask about them, and what interests them. Give and get business cards.
5. Create letters of approach
These are letters, thank you cards, and emails that you will use to communicate with people you plan on approaching for an investment. Get a book on how to write business letters to make sure you write professionally.
6. Follow-up, Follow-up, Follow-up
The minute you meet a person, you might have their attention, but as soon as you walk out of their site, they will probably forget about you completely. This is nothing personal; you probably do the same thing with people. And this is just because most of us are consumed with thoughts about ourselves and how others perceive us.
Use all those business cards and follow-up with an email, thank you card, or letter, as soon as the first day after the conference is over, or after you have met the person and exchanged information. You do this to reinforce the meeting in their minds as soon as possible.
This will allow you room to follow up in the future and not just have your email deleted right away because they don’t remember you.
If this all sounds like a lot of work, it is. Don’t fall for people or scams that tell you to sign up for the monthly subscription that will put you in front of investors. Use that money and physically go to legitimate industry conferences and do the leg work to get your own leads. Investors would prefer to pick someone that shows they are more resourceful than paying someone to do the real work for them.
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Do it For Yourself
All this work will culminate in increasing the chances that venture capitalists will actually become more interested in you. When they start seeking you out that’s when you know you have a real chance. By then you should have the savvy to communicate your proposal and negotiate for the best terms
But before going the venture route, consider funding your business through other sources. Peer to peer lending is an extremely realistic solution for someone who has all their finances in order. Join sites like Prosper.com or Lendingclub.com. This was a great solution in one of my early ventures and it got us off the ground.
If you have great credit, use it. One of the first questions potential investors will ask is, “How much money have you put into the business?" Don’t be caught off guard, and never say, “Well I didn’t have any money." The more time you spend on priming, the more you will actually bring to the table.
Maybe your great idea needs some time. Time for you to develop it, time for you to find the right partners, and time for you to save and put some money into building the idea and at the very least lay down the foundation with things like incorporation, branding, copyrights, patents, and so on.
By starting with the foundations you will actually find answers to questions you had and find a lot more about creating the business in the first place. Don't be too consumed with someone taking your idea because chances are someone already thought of it too. At least you are putting the wheels in motion and opening the door to be seen as a more serious entrepreneur amongst your friends, family, and potential business partners.
So remember how bad you actually want this opportunity. Carefully prime yourself, your business, your reputation, and your resources. This is not an impossible challenge, but a difficult one. If you really want the investment, you will have to stand out, and by utilizing the tips and resources mentioned above you will be that much closer to investors finding you and potentially funding your deal. Create a plan and stay dedicated, because by the time you are actually in front of an investor you will have learned a whole lot about your industry, the ropes, and most of all about yourself--which is probably the most important part.
Image credit: http://www.sxc.hu/photo/1038128
Based upon the author's experience and attendance at the entrepreneurial summit hosted by PerfectBusiness.com.