Incidentally the quality of the submissions this year way exceeded that of last. Our big challenge tomorrow, round the judging table, as a result will be the tricky job of electing who doesn’t make the cut. But for the 30 who do, they will be taken through the acclaimed intensive mentoring program funded by the government and volunteers. It will be in this program that we address all these issues I am writing about and whatever else these lucky 30 need to get them on the road to success. Of course there will be a winner, but that will come later on completion of program, but the real beneficiaries are those that participate this program. For those that don’t make the cut, there will be several reasons why, some with nothing to do with quality of their venture. It will have a lot to do with the way it was presented. These 6 points are for you.

Here we go…

4) Traction: Early stage investors are eager to see movement, action, traction, toward defined milestones. In the spirit of aviation (most of you know I have a thing for planes), the success of your venture will boil down to movement towards takeoff position (startup), ability to execute climb to cruise (growth), and positioning for landing (exit). Notice how these concepts are all dynamic and demand action. The more that a business plan feels like it has no inertia, the more the feeling of inaction – this will likely reflect poorly on the team behind the business. And interestingly, many of the 94 plans I read (and many had already raised several millions of dollars) did not leave me satisfied they were on the move, at least as much as they could. A lot of the time they did not demonstrate succinctly what they have done to date and what they are aiming at. And in a similar vain to my last blog, commercial milestones are of more relevance than technical, even though I acknowledge without the technical milestone not much else can happen. So, at a minimum, you should dedicate part of your plan or proposal to showing where you are at, what you have achieved to date, and where you are going, better still, this should be peppered throughout the document / pitch.

5) Metrics: Developing on the point above re traction. Whilst we are technically judging these plans this week, investors also have to make a judgment call. That’s why this is such a powerful simulation for early stage entrepreneurs. But how can an investor judge if there are few measures on offer to make a judgment call? So, take the ambiguity out of the story, add back objectivity, and attach metrics, for judgments to be made. Please see the template for proposals in my free videos on my website and ensure that for each of the component elements there are measures that an investor can make a relative judgment on your business. For example, your target market, your niche within that market, the stepping-stones to target market share, or the margin on a unit of sales etc. Without these basic metrics, your plan is getting closer to the too hard basket.

6) Too little, enough or too much? There is a fine balance between enough detail in your plan to satisfy further exploration of a venture, and on the flip side, too much where the overall message is lost in the minutia. One thing is for sure, if there is not enough to reflect deep study of the critical success factors in getting the business from A to B, and what conclusions have been arrived at to reinforce the plan to continue to work at it, then you will not get support. But too  much detail is equally a problem. For early stage ventures, investment will not be decided upon the plan, nor the proposal, nor the people, nor the technology / product, alone. They all play a role in the decision. Trying to pack in as much as possible into a any one of them, or in particular the business plan to demonstrate competence in your field is not necessary, and may be detrimental to your objectives. Given that there is a time intensive process that investors are exposed to to arrive at decision point to invest or not, then you must ensure that you pay attention to their time, and they typically value their time more than you might give them credit for. With the knowledge that there are several touch points in a capital raise campaign (for example pitch, proposal, business plan, interviews, due diligence) each of the component parts should develop on the preceding component as you progress through the process. If there is too much detail in the pitch that could be taken up in the plan, or too much detail in the plan that could be taken up in due diligence then beware. These are common mistakes. Further, use of colloquialisms and reference to “feelings” (usually unqualified judgment calls) of the management team that X, Y and Z will happen in the market usually reflect amateurism.

I will write next week with an update from the round table and any new distinctions that came up.

Meantime, look out for our last webinar for FY 2013, where I will present more about preparing your business for investment and our last coaching enrolment for the year. Places are short so, get in while you can

I greatly enjoyed being a judge last year; this year will be no different. But reading 94 business plans in a 48 hour period really fuels a number powerful reminders for those of you seeking to attract investment dollars into your businesses. And though the message comes from the Cleantech industry, no matter what the industry is, these reminders will apply to you..and I have been in touch with many businesses in recent months, owners of sporting goods businesses, businesses in the alternative health, medical device, software and hardware industries just to name a few. You know who you are! These distinctions work for you too….

So here are three crucial distinctions that kept coming up for me:

1. As I said reading 94 business plans in 48 hours is a lot but understand that a lot of VC’s and sophisticated investors dedicate blocks of time assess multiple opportunities. So the spirit of this rapid assessment of investment opportunities is probably a fair approximation of what happens in the real world. The first key for you is literally to inspire the investor to keep reading. It is as simple as that. So, if you do not condense your investment opportunity into an Executive Summary or snap shot of why they should continue reading, then expect their attention span to drift towards the next opportunity. Yours will be left in the too hard basket with 95% of the others.

2. Our instructions as judges are not to assess necessarily screen for the perfect business plan, but to assess for the business’ likelihood for commercial success. Which is at the root of what an investor wants. If your argument to attract interest from an investor is heavily weighted in the discussion about how innovative your technology is, or how much blood, sweat and tears has gone into patenting it, at the expense of how this business will be a commercial success, then it doesn’t get the investor any further along the path of understanding if they will get a return. It is worth pointing out that it is not good form to state the return they should expect. Let them have the last say on this.

3. A point connected to #2 above: if you have a great idea and even developed the prototype, but you don’t have the right team nor the strategy to get it to market, then you are best making this very clear. At least you need to make clear what you actually need – is it capital or is it capital and XYZ. You won’t get the majority of VCs or investors to invest in you if you only have a product (they invest in “businesses”) and certainly, if you try to pull wool over their eyes to convince them otherwise it will be thrown in the too hard basket. But if you are open and honest in what need, and where the business is at (eg stating stages of development and proximity to revenue; cash flow break-evens are all good indicators), then at least an investor doesn’t have to spend time (“invest” time in the investors mind) in exploring further, if this is outside their sweet spot. Maybe, just maybe, if they don’t get excited about investing in you, you might get a referral to someone or a team who could help. Isn’t this worth being open about what you have and what you don’t? But you need to respect their needs to get a favourable response.

I will send you three more power distinctions later in the week before we have our first round table of judging to assess which businesses get through to the semi finals.

Hope these tips help you on your own journey to getting funded.

Look out for an announcement for our last webinar next week for FY 2013 where I will present more about preparing your business for investment and our last coaching enrolment for the year. Places are short so, get in while you can. Click here to register now.

Listen to this story of woe to go from one of my clients.

A new client came to see me for the first time the other day (he asked to remain anonymous for reasons that will become clear shortly).

This was the 25^th year of trying to get this spectacular property project up and running – now THAT is a long time of false hope and disappointment, but credit to my client, it is also a testimony to his commitment in the face of a whole heap of rejection. This visit to my boardroom was his last attempt to get his pitch right. A last ditched attempt at getting  the message over the line in the way investors wanted to hear it.

In the spirit of Marshall Goldsmith, I had to tell him what he probably didn’t want to hear, but he knew the importance of it. We started the process of rebuilding his pitch back from the ground up. Last week he phoned me to say he has a heads of agreement for $150M – this, some might say is the price of not knowing what you are doing wrong.

When it doesn’t go to plan, investors or prospective JV partners whose acceptance you seek, will not tell you the truth, they wont necessarily lie (though they might!), they just wont tell you what you need to hear.  So my advice to you is to confide in someone who’s job it is to tell you what you need to hear – perhaps it might be a little uncomfortable to hear it – but let me tell you, it will be alot less painful than 25 years of trying in the face of not knowing what you need to know.

Why do I say this?

The Cleantech Open is now open for applications. I will be judging business plans again this year. Of the 70 or so business plans that didn’t make the semi finals last year, a good proportion spelt out in detail why there was a climate crisis, and why it was important to do something about it. Don’t waste your time. There is nothing new and inspiring about this. What investors will want to hear is what the specific problem is in the context of the global climate crisis that you are seeking to address, how you have solved it – how robust is it, how advanced is it, how close to market ready is it, and how big and accessible is the market for it. This is because all these (and the rest of your plan) ought to explain to the investor what is in it for THEM. Sure you are important, in fact you are crucial to the success of the venture, but like any marketing challenge if you start talking about yourself, or some nebulous irrelevance like solving the impossible, before whats in it for them, then you will be pushed into the too hard basket before what needs to be heard is in fact heard. This is what happens round the judging table and to the detriment of some great opportunities I am sure. But it is a great dress rehearsal for the real thing.

For all of you, for whatever reason you are seeking funding – Keep your business plan and pitching relevant. Know your audience. Your venture is counting on it.

I wont exhaust the application process here – if you are interested in being accepted into the federally sponsored Cleantech Business Accelerator Program then click here.

1) The media are a large factor in fuelling the belief that anyone can get capital for their business. Headlines such as: “Uni student from Perth raises $5m for start up”, “Mum from Coffs gets $500k backer for her idea” to such a discredit to those who actually made this happen. This is not like winning the lottery, .There is a lot of hard work that goes into not only incubating the idea (which is usually the easy part), to developing the business model, to finally targeting, and securing the right sort of capital provider for the business in question. There is strategy to this. This is not to say that it is impossible for anyone. Quite the contrary, but it is largely impossible if the entrepreneur steadfastly believes capital will just walk through the door based on a phone call to the right person.

2) The overarching rule that will keep the entrepreneur true to what an investor wants, is to understand that we live in a world where the number of opportunities seeking capital vastly outweighs the amount of capital available. Just like in an entrepreneur’s own business i.e. there are vastly more choices available to your customers than for them to have to come knocking on your door begging to be served. Unless you are Woollies or Coles! But how can one say this in light of some corners of the media saying that there are billions available to invest in businesses? Whilst this may be true, the real problem is quality – quality opportunities to invest in. Unless the opportunity in question is marketed effectively as a “quality opportunity” implicitly, and explicitly, then it will not get the time of day from investors. Securing private capital is a sales and marketing challenge more than a financial one. It needs to look good and when explored further, everything stacks up.

3) One mistake that entrepreneurs make that is symptomatic of them forgetting that this is a sales and marketing challenge is that their pitching, documents, plans, or whatever are overly focused or centred on their product.  This is a common mistake and all too easy to make if you are an inventor, or it has been your life’s work for the past 10 years.

The business, however, is where the money will be generated, not the product. Therefore, the emphasis must be on the business model (including the people), and showing how it will make the money that you will be sharing with the investor.

My suggestion…? Speak for 4 times as long about the business than you do about the product when you are pitching. If you only have 20 minutes to pitch then how does that change the game for you?

I will share with you the other question next time!

You might be tempted to make the assumption that grants will be forthcoming
in the future and serve to reduce the funding requirement of your business – in this case feel
that a reduced funding requirement to the investor would be attractive ie gross funding less
Grants Received = Net Funding Requirement.

I have two perspectives:

(1) It is fair to include grants expected in cash flows, but because they are often so
material, it has to be crystal clear what happens to your business without the grant -
long before the investor gets to the nuts and bolts of due diligence. They are not guaranteed until
banked.

(2) The government bodies that offer grant money, have consultants (usually at no cost)
who assess prospective grant applications. It is wise to seek their counsel well in advance
of formally raising capital. If there are likely problems with your technology from their
perspective, make sure that those technical hitches are a matter of opinion of that consultant
and are not related to a more generic risk that affects the long term viability of your business
or technology. For example – if you are looking at getting commercialisation support from
Commericialisation Australia, and they give you a heads up on some things they don’t like
about your technology, and this loosely or otherwise translates into commercial risk for you,
then this is is a head up – not only that grant funding may not be forthcoming, but potentially
the commercial strength of your solution. It is worth paying them a visit.

Whilst I was never offered the chance to invest in the ipad at inception – even if it was not feasbile to do so – I like to imagine what it must have looked like: a device way larger than a phone, but not a phone, way smaller than a PC / Mac, but not one, not least one without a keyboard, and with other misfits to the norm, anyone else trying to pitch this thing other than Steve Jobs, would have a tough time. That is, in order for this to be a success, Steve Jobs had to touch the masses with his inspired “idea” and create a market, not only a market, a movement, in order for millions of ipads to be sold. The risk that investors at Apple took was on Job’s ability to create this market. That is a tough ask of most financiers to back, unless you were Steve Jobs, or for that matter the inventor at Segway.

Segway got $100M – a good 10 years ago – clearly inspiring investors, but they failed miserably to inspire a new market or movement as predicted.

The inventor – Dean Karmen – predicted that the Segway ”will be to the car what the car was to the horse and buggy” with VCs predicting that the company would be the fastest company to reach sales of $1B. In 2001 40,000 units per year were expected, but they have struggled to sell 40,000 in 10 years never mind 1.

The reason investors like to see evidence of a market, pain and problems, is to avoid the disappointment at Segway.

Here is the lesson – businesses seeking massive success from their ideas, products or services, will find it much easier to get backing from investors, financiers, or other stakeholders (eg board executives, staff), if there is already a market present or otherwise have expressed a problem, pain or challenge that you can demonstrate you can solve, effectively. The exceptions to the rule are the Steve Jobs of the world, but even they do not have a crystal ball.

Which is not surprising. Lets face it, generally they have been there and done it, a hell of a lot wiser to the ways of the world, are less about “doing” and more about “leveraging”, and of course they have the money that you want (and that alone changes the way most people think).
Investors, are opportunists on one hand, highly attuned to the risk of a venture failing on the other. Most do fail of course – can you blame them for thinking this way? So a decision to explore your venture is not so much the absolute returns you promise, as some believe, it is how well you have covered your bases, and thus raising the probability of it actually coming to fruition.

Think about this…
Investors will process your upside logic in a nanosecond relative to the extended time it takes to process the risk of it NOT happening. But risk IS part of the game of being in business (and why above average profits can be reaped). But awareness of specific, significant risks and alertness to them is a crucial part of the game. Mis-management of these risks could lose you the game – ignorance of these risks when raising capital is a bigger problem – you may not get to play the game at all.

Re-engineering balance sheets and process optimisation, whilst is complex and daunting to some (and darn right boring for others), is a lot more straight forward than it is getting people to adopt new ways of doing things. And one the biggest challenges for my client moving into this new world is getting people to do what he wants them to do – in fact forget new ways of doing things – in reality, you can’t get people to do anything they do not want to, even to just maintain the status quo.

I was re-reading (more like re-browsing!) the excellent book The EMyth Revisited at the weekend and was gifted with the reminder from Michael Gerber of how we get people to do things for us. If you haven’t read it, then do so. The extract that struck me goes as follows. It is a conversation between a manager and a new employee:

“the work we do (here) is a reflection of who we are. If we are sloppy at it, it’s because were sloppy inside. If we are late, it’s because we are late inside. If we are bored it is because we are bored with ourselves. The most menial work can be a piece of art when done by an artist. So the job here is not outside of ourselves, but inside of ourselves. How we do our work becomes a mirror of how we are inside”

One missing piece from this extract, of course, is that the example must be set from the top: the owner, CEO must lead and inspire this belief in others.

If you struggle to get your people to do for you what you want them to do, ponder how the spirit of Gerber’s advice applies to you.

Armed with all the tools, lingo, frameworks and especially insights to how an investor’s brain thinks and decides, they got straight into the pitch without much time for niceties.

The start was strained, unrehearsed and complicated. It was not in the order prescribed. Capital was mentioned, though return was not. The client was intense, appeared nervous, jumpy and exhausted, dipping in and out of minute detail, yet leaving untouched the true “meaning” of what this business was all about.

So needless to say, with my investor’s hat on, I failed to get why I should be interested to part with my money or want to have a long-term relationship with this person. In the real world it is unlikely that the entrepreneur would be allowed to finish their pitch. Most investors would glaze over pretty quickly, and few, (as you should factor in to your pitch planning) have time to glaze over, and ponder their navels.

Pitching is nerve racking at the best of times – but pitching your “baby” to deep-pocketed highly respected multimillionaires makes this a really tough gig. So when presented with a big selling challenge, the best approach is to break it down into the crucial elements of any sale …

- the logic of why I should buy, and
- feel good factor (emotion) of being a part of your future

The overriding issue with my client and me was the feel good factor …. or lack of it.

It is difficult to prescribe how to make some one feel good in a few paragraphs, but what we can do here is, to point out how to avoid some of those things that make investors feel otherwise. I suggest that you eliminate these. On balance, coupled with strong logic of your deal, you will get what you came for: the next meeting.

1) Don’t rock up exhausted: Get some rest – come to the pitch well rested, responsive, and ready for nimble footed discussion
2) Don’t go in hard – the investor has to like you, so develop some degree of rapport before settling in to the formalities. And smile. You are asking the investor to work with you. The investment has to have the prospect of being a happy experience.
3) Never read or memorise your pitch word for word – develop fluency in the major points
4) Do not overcomplicate it – keep it simple. Investors, though not likely to be dummies, are not usually rocket scientists. Rocket scientists should stick to science in any case.
5) Don’t just tell me that it will be the case – just because. Connect me with the story. Join the dots for me. You are painting a picture of your take on the future. Make me believe what you believe to be true. And make me believe that you understand the logic.