What is the process to get VCs, Private equity firms or Angel Investors to read my business plan?

Sometimes it’s hard for entrepreneurs to understand that VC firms, Private Equity companies, Angel Investors and  brokers can get a minimum of 100 (or more) business plans per week Private Placement Memorandums, deal offers and all kinds of emails offering the next Google, the next E Bay, the next Apple.

Someone at these companies has to read through all that paperwork and emails and make sense out of it. It takes a lot of hours and man power to figure out who is who in the deals. Meaning that there are usually a lot of intermediaries in the deals. People that hear about a deal and start shopping it around. 

So we (the people with the money to invest or the people that represent the people with the money to invest) always attempt to get to the right person in the deal.

Because intermediaries usually don’t have quick access to all the information required by the Investors, they can not negotiate on behalf of the company. They have to go through a series of people. So it delays the process when you present a deal to the Investors and then you can not get to the information requested. 

On our website www.fundsforprojects.com we have a minimum charge for companies that are looking for funds to present their funding request for 3 main reasons:

•  If a person is serious about raising capital for their company, they understand that is going to cost and that no one is going to give them money for free. And if someone has to take their time to read their funding request why should they do it for free? Most intermediaries are hesitant to spend even a small amount of money because it’s not their deal and they do not have an agreement signed with the company searching for the funds. So they may never see a cent out of the deal.
  

• It takes a lot of man power to go through all the deal flow that we get.  When we are looking for a particular company to fund, we invite them to send the information to us without any charge, because we have the people in our company assigned to look for these particular types of companies. If it is unsolicited and in a different industry, then we have to assign other people to go through the information and that costs money. If someone is willing to pay us to read their information, then we are willing to market their deal through our Investors or contacts in the industry.
  

• Most information that we receive is not in a standard format that answers questions that we want to know right away before we present a deal to the investors. So we have taken the time to create an online platform with standardized forms for both Companies and Investors. As those forms are entered on our system, we immediately look at them and assign it to the proper person in the company for follow up. It makes our work a lot easier and efficient.
  

To give you an example of how it works. A few days ago I posted a request for a very particular company that one of our investors is looking for, and we received so far a total of 230 projects that are relative to the criteria that we requested and about 70 in a completely different industry. It takes weeks to go through all those projects and a lot of man power. 

How Long does it take a Company to get funded by Investors or VC companies?

That is a question that every company wants to know  right a way. And the answer is not so simple.

The company should have all documents necessary to present to Investors, (there is a lot of information on www.fundsforprojects.com on what documents you need) whether Angel or VCs.

Most companies think they have all paperwork required, however their interpretation for instance of what financials are, and what an Investor wants to see are two different things.

Year to date financials to an Investor are P & L, Balance Sheets, with all details. How you spent money in prior years, will reflect to them how you will spend their money. Did you purchase unnecessary items for the company with money from prior investors, are you taking big salaries while very little is spend in marketing? All of these reports will give Investors a feeling for how you manage money.

If you have all the documents ready, the process can take anywhere from 2 to 6 months. 

 

What Investors want to know before they invest in a company

I recently attended a 4 hour forum for Venture Capital firms, Angel Investors,  Companies who are trying to raise funds and Companies who offer services to these parties.

It starts with an hour of networking where every one mingles with everyone, then there is a useful presentation to all parties, then there is a nice dinner while Companies looking for funds get a 15 min chance to pitch their project to all.  After this is over there is a panel of professionals who offers friendly criticism and advise to the Companies in how to improve their presentation.

An attorney guest speaker  spoke about the difference between a Business Plan and a Private Placement memorandum. He explained that: ”Entrepreneurs who are trying  to raise equity capital from family, friends, and other third party investors typically present their opportunities with a business plan. Often in a most favorable scenario. And many times Companies treat a Business Plan like an essay which is a big mistake. A professional Business Plan, carefully written is very important not only to potential investors but also for the entrepreneur. 

Sophisticated investors often immediately presume that the business will take twice as long to develop and be half as profitable as represented by the entrepreneur prior to commencing some level of due diligence. Should their discovery as a result of due diligence indicate the prospect for an acceptable ROI at an acceptable level of risk, savvy investors will often write the check.  The attorney emphasized the importance to have good backup to support all claims, to go over all the potential problems, the key challenges and not just the risk factors. The importance of a good marketing plan was stressed, to be specific as to why the identified target market is going to be buying/using the product/service. 

In our litigious society, when these businesses fail, deep pocketed investors, – be they third party, friends or even family – Investors may initiate legal action to recover their lost funds. Entrepreneurs need to know their personal legal and financial exposure and the SEC regulations that govern raising equity capital before they raise any funds. 

The Private Placement Memorandum (“PPM”) is an important legal document that is written to help protect the entrepreneur from this predicament. While elements of the business plan will be incorporated in the PPM, it may or may not productively serve as the primary document for presenting an opportunity to prospective investors.  And, crafting this document may be expensive. When to PPM, or not, is the question.

The Panel  of experts reiterated that they live in the trenches; preparing business plans and Private Placement documents, evaluating opportunities, and either facilitating funding or investing their own money. Their knowledge helps entrepreneurs better understand how to present their opportunity to investors and, more importantly, how to mitigate their legal exposure should the business under perform or fail.

Both the Venture Capital firms and the Angel Investors stated that specially in this economy there is a lot of money, and a lot in an understatement, money everywhere looking for places to be invested in. So many people are pulling their money out of banks and the stock market and looking for places to invested where their ROI may be better that the nominal fees banks are paying.

Overall is was a very informative, lively, revealing, interactive round-table discussion. I definitely plan to attend others in the future.

Now is the time for Angel Investors

There was an article in Techcrunch back in September about angel investors that really caught my attention. A panel of Angel Investors talked about why they see this downturn as an opportunity for them and how they differ themselves from Venture Capitalists. This also provides insight into how they like to be contacted and the do's and don'ts of angels. Mike Butcher and Techcrunch really hit it on the head with this one, if you want to read all about it please follow this link (or cut and paste on your browser):

http://www.techcrunch.com/2008/09/08/tc50-angel-investors-say-now-is-their-time/

Where is the Private Money Going?

Even with this economy, can companies find funding?

As more and more Wall Street investors get tired of their losses caused by this unstable economy and they think of alternate ways of investing their money. Wait....... didn’t these investors give their money to the so called “experts”, Portfolio Managers or Financial Advisors, these people who were supposed to put Stop Losses in all their clients’ portfolios?

Since January 1, 2008 all financial indicators were showing that the stock market was going down and many financial papers and websites services such as "Investor Business Journal" and "Vector Vest, Inc." among many others were recommending their readers and clients to sell ALL positions and be in cash...

Maybe this so called experts were the same people that were filling up the tee times at the golf courses at their country clubs, knowing that they were going to make their fees no matter wether their clients’ portfolio made money or had big losses...... these same Investors are becoming wiser and realize now that they can make more money or at least save their money if they make their own investments.

These investors are looking for alternative places to stash their money, billions of dollars all over the world.

And we all know that when we look back at times of economic stress, many technological developments, scientific breakthroughs, inventions took place during these times. People that are going to survive and make money are entrepreneurs which are the livelihood of challenging times as these. They are the innovators pushing these inventions forward.

From an article found in Fortune Magazine, November 2008 by Michael V. Copeland called Private Money's Balancing Problem

Points that a basic math problem is causing a sell off in private equity-and providing opportunity for a little-known subset of investors.

"NOT SINCE FOURTH GRADE have so many sophisticated investors been so troubled by a basic math equation. An asset allocation problem called the" denominator effect" is forcing the sell off of billions in private equity and alternative investments.

The problem is straightforward. Portfolio managers have strict guidelines for asset allocation (Harvard's endowment, for instance, is offloading $1.5 billion in private equity to get back to its 13% target.) As the public markets have collapsed and the prices ofliquid assets have plummeted, the value of the overall portfolio, or the denominator, has shrunk. But allocations to venture funds, buyouts, and real estate, which aren't priced often, have held-at least in theory. So a slice that once accounted for 10% of a portfolio now might suddenly account for 15%.

There are two things that fix the problem: a rising market for stocks

or portfolio managers rebalancing by selling off the private-money investments. The latter is starting to happen, with Harvard, Duke, and others unloading alternative-asset portfolios or portions of them. If they aren't already, say industry insiders, practically every big endowment or pension fund soon will be putting something up for sale.

The Great Unwinding of 2008 is providing opportunity for investors in the so-called private equity secondary market, an obscure corner of the private money universe that trades preexisting commitments to alternativeasset funds. By buying these castoff units, secondary-market investors hope to capture the higher returns of alternative assets, and because they can pick and choose among funds or even individual. companies, they do it with slightly less risk. Because these shares provide liquidity, they are typically discounted; in bad times, when everyone is scrambling for cash, they can get dirt cheap. " states Michael V. Copeland in his article.

HOW TO GO FROM CONCEPT TO COMPANY, LEGALLY.

By: Jeffrey A. Bojar of Snell & Wilmer L.L.P

Entrepreneur’s Guide to Legal Hurdles

Entrepreneurship is not a venture for the faint of heart. While support and guidance are available, the entrepreneur’s path to prosperity is marked by numerous legal issues. Here are a few tips and an organizational checklist to help traverse the road to success.

Forming the Business

A range of tax, accounting, structural, corporate governance and certain personal considerations will drive the process of selecting an appropriate business entity. While an entrepreneur is free to operate as a sole proprietorship or general partnership, the entrepreneur will be personally liable for the debts of the business. Fortunately, there are alternative structures — C-corporation, S-corporation, limited partnership, and limited liability company (LLC) — that offer enhanced liability protection. Additionally, these structures offer a range of attributes that are beneficial or detrimental to the entrepreneur depending upon their specific set of circumstances.

In addition to its favorable tax attributes, the LLC provides the most flexibility with respect to allocation of profits and losses, capitalization and corporate governance. Accordingly, the LLC has been gaining popularity as the entity of choice. A S-corporation also takes advantage of favorable tax attributes and may be easier to convert into a C-corporation if that is a longer term goal. Regardless of the business structure chosen, the entrepreneur is forewarned to respect corporate formalities by maintaining corporate records and minutes, holding an annual shareholders meeting, and taking care not to mix personal and corporate property. The absence of these measures could lead to a “piercing of the corporate veil,” depriving the entrepreneur of protection against liability.

Raising Money
To grow operations and in-license technology, many entrepreneurs find that they must seek outside capital. This typically results in the sale of company stock but may also involve promissory notes or a combination of the two. There are only two ways to offer company stock for sale without violating the securities laws (i) register the transaction with the Securities and Exchange Commission or (ii) seek an exemption.

For a start-up with limited funds, the enormous cost and time involved with registration makes that option impractical if not impossible. The most popular exemption available to the entrepreneur is a “Regulation D offering,” referring to Regulation D (Rules 501-508) of the Securities Act of 1933, as amended. To comply with Regulation D, the entrepreneur should limit sales of stock to “accredited” investors if at all possible. An accredited investor is an officer or director of the start-up, a person with a net worth of $1 million, or a person who consistently earns at least $200,000 per year individually or $300,000 with a spouse.

Protecting Proprietary Assets

The value of many companies is contained in proprietary technology and ideas; to preserve this value, an entrepreneur is well advised to properly protect all intellectual property. This involves a multifaceted approach including a trade secret policy and a combination of trademark, copyright and patent protection.
It is also important to capture newly invented intellectual property into the company with applicable licensing agreements/clauses with the University and possibly consulting/employment agreements through the Company. While an attorney can assist in establishing and implementing a plan for protecting intellectual property, it is ultimately that entrepreneur’s diligence that determines its value and integrity.


Checklist
Bringing an idea to market can be a monumental task, intensified by the appearance of unforeseen problems. However, the entrepreneur who approaches these challenges armed with the knowledge of what lies ahead has the ability to defeat disaster and significantly improve their chances of success. The following checklist provides a good starting place for start-ups. While the volume of documents may seem overwhelming, the goal is to provide a solid foundation for the company’s organic growth. Once in the midst of the peaks and valleys of building a company, bringing on shareholders, raising capital and creating intellectual property, it becomes more challenging and expensive to address these foundational matters.

1. Organizational resolutions: Written approval of the incorporators, directors, and shareholders of each of the organizational matters set forth below, in addition to other basic authorizations regarding banking, election of officers, fiscal year, and general authority. Provide a solid foundation for good corporate hygiene. Maintaining such formalities will serve to limit liability and produce clear, consistent, and accurate corporate records.

2. Bylaws: Establish the ground rules and manage the relationships among the Company and its shareholders, directors, officers, and third parties.

3. S-election (if applicable): Election to be treated as a partnership for tax purposes, which needs to be filed with the IRS within two months and 15 days of the Company’s formation.

4. Capitalization table: Reflects the authorized and/or outstanding capital stock and other equity instruments of the Company. Determined with a sensitivity toward long-term goals, including additional investors, dilution, and related matters.

5. Stock ledger: Clear, concise record of all stock certificates outstanding with related shareholder contact information.

6. Stock certificates: Actual certificates indicating ownership of capital stock labeled with appropriate restricted transfer legends

7. Shareholder Agreement: Sets forth the rights of shareholders to purchase, acquire, encumber, sell, dispose, and otherwise transfer capital stock of the Company.

8. Stock Incentive Plan; Notice of Award and Award Agreement: Plan designed with long-term view toward promoting the success and value of the Company by aligning the personal interests of the directors, employees, officers, and consultants with the success of the Company.

9. Charter for Scientific Advisory Committee or Business Advisory Committee: State the purpose and obligations of the Advisory Committees organized by the Company to provide strategic advice and recommendations.

10. Consulting Agreements: For key management and advisory committee members of the Company, designed to define obligations with respect to services to be performed, compensation, expenses, and ownership of intellectual property.

11. Indemnification Agreements: Provide adequate assurances and protection against inordinate risks of claims related to actions by directors on behalf of the Company.

12. Federal Trademark Application and Intellectual Property Plan: To protect the name of the Company and its chief product lines and detail the Company’s proactive plan to develop and protect its intellectual assets and competitive advantage.

Entrepreneurs Undeterred by Crisis

http://www.inc.com/news/articles/2008/11/entrepreneurs-crisis.html
From: Inc.com | November 5, 2008 By: Kelly Faircloth

Many business owners say they would've launched ventures despite the shaky economy, a survey finds.

An overwhelming majority of entrepreneurs say they're undeterred by the shaky economy and would have launched their businesses anyway, according to a survey released this week by Ernst and Young.

Of 116 business owners drawn from the New York-based accounting firm's Entrepreneur of the Year finalists, 92 percent said a poor economy would not have stopped them from launching their startup. As it is, most of the owners launched their businesses during recent boom times.

While many said they're worried the U.S. economy is weaker than believed, 54 percent said they're confident the country will maintain its global economic prominence, the survey found. Over half of the survey responds said they felt their greatest contribution to the economy was job creation, while 28 percent cited innovation and quality of life.

"This survey illustrates the contribution entrepreneurs make by creating jobs, improving local communities and bolstering the larger U.S. economy," Larry Haynes, Americas Director, Ernst & Young LLP Entrepreneur of the Year program, said in a statement.

At the same time, a majority of respondents said they wanted more government support for small businesses, with many saying they're personally involved in policy issues or have appealed to a politician for policy changes. Among their top concerns are rising health care and energy costs, the survey found.