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How Entrepreneurs Use Mentors to Raise Capital From Investors

For many entrepreneurs, the most difficult part of the entrepreneurial process is sourcing funds. A venture capital fund or an angel investor group might only grant 1 in 1000 entrepreneurs who cross their path the right to pitch, and only 1 in 10 of those deals might get the funding they need. So how do entrepreneurs set themselves on the path to becoming that 1 in 1000?

Mostly, it is about perception and networking. Many entrepreneurs still do not understand that if they go straight for the money their first time out, they have a 95% chance of burning the entire investment network they want to raise capital through. The perception they create with those first impressions can travel much faster than the entrepreneurs can. One investor will tell 10 others that they passed on your deal and then, even after you’ve cleaned up your presentation, you will still have a hard time getting future investors to take a serious look at your deal.

Don’t make the fatal mistake of going this process alone.

There are many, many people and organizations that want to see you succeed. But first, you have to be humble enough to realize that you don’t know it all. Although every entrepreneur believes their deal has what it takes to get funded, every deal can be improved to improve its investment success. Ask around to find a great Mentorship program.

A professional mentorship program will help fresh entrepreneurs cultivate positive perceptions with seasoned investors, thereby forging positive connections between them. Mentorship programs can allow an entrepreneur access to a wealth of guidance, advice, and connections within the venture community. Using those critical resources, entrepreneurs can drastically improve their chances of getting funded.

Innovative venture capital mentorship programs, built on award-winning research and
time-tested ideas, can help you become that 1 in 1000 entrepreneur. Such programs include the participation of venture professionals and investors as mentors who give a full review and critique of your executive summary and pitch. They also provide access to innovative programs and ideas, along with useful venture analytic tools.

Within the mentoring process, value is added to entrepreneurs through a series of critiques and question and answer sessions with seasoned venture professionals and investors. Through a third party observer, objective comments and critiques from mentors provide important feedback on how entrepreneurs appear to investors.

Positive impressions and perceptions are constructed and perfected through mentorship programs and that creates long-lasting value for entrepreneurs as they embark on their new business ideas and ventures. Such venture capital mentorship programs are the only places where venture professionals provide unbiased feedback to help entrepreneurs achieve their true potential and help them to successfully raise money.

www.grants-loans.org — The CEO of Sate Tech Alarm Systems, explains how to get money from small business financing programs in Canada.
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Home Page > Finance > Venture Capital Alternative For Technology Entrepreneurs

Venture Capital Alternative For Technology Entrepreneurs

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Posted: Nov 10, 2006 |Comments: 0
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If you are an entrepreneur with a small technology based company looking to take it to the next level, this article should be of particular interest to you. Your natural inclination may be to seek venture capital or private equity to fund your growth. According to Jim Casparie, founder and CEO of the Venture Alliance, the odds of getting Venture funding remain below 3%. Given those odds, the six to nine month process, the heavy, often punishing valuations, the expense of the process, this might not be the best path for you to take. We have created a hybrid M&A model designed to bring the appropriate capital resources to you entrepreneurs. It allows the entrepreneur to bring in smart money and to maintain control. We have taken the experiences of several technology entrepreneurs and combined that with our traditional investment banker Merger and Acquisition approach and crafted a model that both large industry players and the high tech business owners are embracing.

Our experiences in the technology space led us to the conclusion that new product introductions were most efficiently and cost effectively the purview of the smaller, nimble, low overhead companies and not the technology giants. Most of the recent blockbuster products have been the result of an entrepreneurial effort from an early stage company bootstrapping its growth in a very cost conscious lean environment. The big companies, with all their seeming advantages experienced a high failure rate in new product introductions and the losses resulting from this art of capturing the next hot technology were substantial. Don’t get us wrong. There were hundreds of failures from the start-ups as well. However, the failure for the edgy little start-up resulted in losses in the – million range. The same result from an industry giant was often in the 0 million to 0 million range.

For every Google, Ebay, or Salesforce.com, there are literally hundreds of companies that either flame out or never reach a critical mass beyond a loyal early adapter market. It seems like the mentality of these smaller business owners is, using the example of the popular TV show, Deal or No Deal, to hold out for the million briefcase. What about that logical contestant that objectively weighs the facts and the odds and cashes out for 0,000?

As we discussed the dynamics of this market, we were drawn to a merger and acquisition model commonly used by technology bell weather, Cisco Systems, that we felt could also be applied to a broad cross section of companies in the high tech niche. Cisco Systems is a serial acquirer of companies. They do a tremendous amount of R&D and organic product development. They recognize, however, that they cannot possibly capture all the new developments in this rapidly changing field through internal development alone.

Cisco seeks out investments in promising, small, technology companies and this approach has been a key element in their market dominance. They bring what we refer to as smart money to the high tech entrepreneur. They purchase a minority stake in the early stage company with a call option on acquiring the remainder at a later date with an agreed-upon valuation multiple. This structure is a brilliantly elegant method to dramatically enhance the risk reward profile of new product introduction. Here is why:

For the Entrepreneur: (Just substitute in your technology industry giant’s name that is in your category for Cisco below)

1. The involvement of Cisco – resources, market presence, brand, distribution capability is a self fulfilling prophecy to your product’s success.
2. For the same level of dilution that an entrepreneur would get from a VC, angel investor or private equity group, the entrepreneur gets the performance leverage of “smart money.” See #1.
3. The entrepreneur gets to grow his business with Cisco’s support at a far more rapid pace than he could alone. He is more likely to establish the critical mass needed for market leadership within his industry’s brief window of opportunity.
4. He gets an exit strategy with an established valuation metric while the buyer helps him make his exit much more lucrative.
5. As an old Wharton professor used to ask, “What would you rather have, all of a grape or part of a watermelon?” That sums it up pretty well. The involvement of Cisco gives the product a much better probability of growing significantly. The entrepreneur will own a meaningful portion of a far bigger asset.

For the Large Company Investor:

1. Create access to a large funnel of developing technology and products.
2. Creates a very nimble, market sensitive, product development or R&D arm.
3. Minor resource allocation to the autonomous operator during his “skunk works” market proving development stage.
4. Diversify their product development portfolio – because this approach provides for a relatively small investment in a greater number of opportunities fueled by the entrepreneurial spirit, they greatly improve the probability of creating a winner.
5. By investing early and getting an equity position in a small company and favorable valuation metrics on the call option, they pay a fraction of the market price to what they would have to pay if they acquired the company once the product had proven successful.

Let’s use two hypothetical companies to demonstrate this model, Big Green Technologies, and Mobile CRM Systems. Big Green Technologies utilized this model successfully with their investment in Mobile CRM Systems. Big Green Technologies acquired a 25% equity stake in Mobile CRM Systems in 1999 for million. While allowing this entrepreneurial firm to operate autonomously, they backed them with leverage and a modest level of capital resources. Sales exploded and Big Green Technologies exercised their call option on the remaining 75% equity in Mobile CRM Systems in 2004 for 4 million. Sales for Mobile CRM Systems were projected to hit 0 million in 2005.

Given today’s valuation metrics for a company with Mobile CRM Systems’ growth rate and profitability, their market cap is about .26 Billion, or 3 times trailing 12 months revenue. Big Green Technologies invested million initially, gave them access to their leverage, and exercised their call option for 4 million. Their effective acquisition price totaling 9 million represents an 82% discount to Mobile CRM Systems’ 2005 market cap.

Big Green Technologies is reaping additional benefits. This acquisition was the catalyst for several additional investments in the mobile computing and content end of the tech industry. These acquisitions have transformed Big Green Technologies from a low growth legacy provider into a Wall Street standout with a growing stable of high margin, high growth brands.

Big Green Technologies’ profits have tripled in four years and the stock price has doubled since 2000, far outpacing the tech industry average. This success has triggered the aggressive introduction of new products and new markets. Not bad for a million bet on a new product in 1999. Wait, let’s not forget about our entrepreneur. His total proceeds of 9 million are a fantastic 5- year result for a little company with 1999 sales of under million.

MidMarket Capital has borrowed this model combining the Cisco hybrid acquisition experience with our investment banking experience to offer this unique Investment Banking service. MMC can either represent the small entrepreneurial firm looking for the “smart money” investment with the appropriate growth partner or the large industry player looking to enhance their new product strategy with this creative approach. This model has successfully served the technology industry through periods of outstanding growth and market value creation. Many of the same dynamics are present today in the high tech industry and these same transaction strutctures can be similarly employed to create value.

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<a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”mailto:davekauppi@midmarkcap.com”>Dave Kauppi</a> is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of <a target=”_new” rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://www.midmarkcap.com/”>MidMarket Capital</a>, providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, “Smart Equity Capital Raises”, sales and acquisitions.  Visit our Web site to review our lists of buyers and sellers.

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Advantages of Women Entrepreneurs

Something that women have developed much more than men is their intuition muscle, probably the most important skill for a lot of successful entrepreneurs and business investors as well. Following your gut instinct means ignoring all the naysayers, all those who do not believe in you and prevent you from moving ahead.

It is possible that waiting for perfect timing for your own business startup would sometimes mean not starting it at all and this is a consequence of not listening to your inner voice. Women have developed some traits that surely make them an important asset in any company, as well as great business partners. Five of these traits will be emphasized below.

1.Emotional Intelligence

Whereas men have the tendency to think in a systemizing manner, women are more apt to developing emotional intelligence, thus empathizing more, building strong interpersonal skills that are vital for networking and strategically using their social networks in order to build support for their ideas.

2.Multitask Orientation

Women have the ability of juggling many tasks at the same time, such as talking on the phone, reading their email, scheduling what else needs to be finished for the rest of the day, producing  excellent results. Many successful women entrepreneurs are able to balance family life and career.  Men are known to have more trouble with multitasking, tending to focus on one or two things, thus wasting opportunities.

3.Self-Branding Attitude

Women seem to be natural marketers, extremely passionate and enthusiastic about their choices, talking about them and sharing their thoughts. They naturally emphasize the benefits of their services to their potential clients and are aware of  how to highlight the positive features.

4.Patience

An extremely important attribute for business people is constant patience. Visionary entrepreneurs giving up on their dreams after only some months, as a consequence of becoming impatient with the process only proves that vision is not enough. The ability to wait and see is a key attribute in order to receive positive outcomes and women have it naturally.

5.Motivation

Most of the women who start a business  have a great passion for their work and  a philanthropic commitment to society. If they they have the drive to pursue entrepreneurship, it means they are not afraid of taking risks and will also make monetary gain a less likely factor in their business pursuits.They possess the inner strength to continue and search all possible means to share their business ideas with others.

The increasing number of women entrepreneurs can promote economic and social equity,  facilitate self-fulfillment for individuals, improve the use of valuable human capital. Feminine traits and talents can be seen as sources of power with great advantages for entrepreneurship. In the near future women may be closing the venture capital gender gap.

Guy Kawasaki, Silicon Valley celebrity and co-founder of Garage Technology Ventures, explains how to present to VCs to increase your chances of acquiring early stage capital. Part 1 of a 3-part presentation at StartWorks, June 2008. Film by Expert In A Box. (c)2008 John Montgomery
Video Rating: 4 / 5

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Are Bloggers Entrepreneurs?

Across many other indian blogs, I am observing that entrepreneurism is being associated with (or related) to the personal risk and/or risk of invested money. There is a fundamental flaw in the chain of thinking. And this fundamental flaw comes from our misunderstanding of the true meaning. We take the literal meaning of the definition and fail to put entrepreneurship in proper context.

The central premise of entrepreneurism is about “risk of the idea”. The risk is associated with whether the idea solves any problem, how that idea can be executed, whether a business model can be derived out of it, or whether it can be sustained profitably. The basis of entrepreneurship does not stand on pillar of personal risk and risk of capital. These two aspects are just the enablers or facilitators. They do not, cannot, and will not drive entrepreneurship. If that were the case, then all angel investors and venture capitals would be called entrepreneurs. Buffett takes personal risk and capital risk by putting money into companies (many times distress and depressed companies), he should be called entrepreneurs! Do we call them entrepreneurs?

Just because one takes personal risk or invests money does not make him/her entrepreneur. Otherwise we should call stock market traders, owners of street corner shop, and vegetable vendors as entrepreneurs. Even a college student can be called an entrepreneur. He spends money, time, and takes personal risk by spending 3 to 4 years in college not knowing what kind of job he will get after graduating.

History shows us that entrepreneurs are successful when they focus on core problem, when they focus on a unique solution, and solve that problem in better way. Here unique solution does not necessarily mean innovation, and better could be cheaper, faster, simpler, ease, etc.

Anybody who starts a blog is not an entrepreneur. However, a blogger can be considered as an entrepreneur provided an individual is using blog as a medium to promote a unique idea. That idea could be addressing a problem. It could be providing solutions to that problem. If there is a need for it, than the blog will become popular, and end up being a profitable venture. The individual is addressing the core premise, i.e. risk of the idea, focused on problem, and solution to it. I would call them blogopreneur.

Let us take an example. There is a lack Indian blogs that provide opinions and viewpoints, based on individual thoughts, facts, data-driven analysis, and well researched posts. If an individual decides to focus on that topic and makes a profitable business venture out of it, then that blogger can be called as an entrepreneur. However, starting a blog to rewrite the news, or republishing the information is not entrepreneurial. They are just bloggers and not blogopreneurs.

Therefore, I believe entrepreneurship is not limited to taking personal risk or capital. It is about providing a unique solution to a problem. If that solution is unique, and there is need for it, and benefits its end users, it will automatically turn out to be a profitable venture.

We fail to identify the difference between business venture and entrepreneurial venture. It has been ingrained in our lexicon that any business venture is entrepreneurial. Among all of the tech startups that have mushroomed in last two years, ninety percent of them are attempting a business venture. The gist is there is no entrepreneurism associated with these ninety percent of tech startups. This is a topic in itself which I will discuss sometime in future.

accredited investor blog angel investor blog angel investor blogs blog on finance blogs about finance blogs on finance business finance blog business finance blogs corporate consulting blog corporate finance blog corporate finance blogs finance blog finance blog list finance…
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Small Business Loans for Women Entrepreneurs

Women often have the perception that acquiring small business loans is a painful, complicated and lengthy process. However, the truth is quite the contrary. A businesswoman will have to spend more or less the same time and efforts as a businessman to get a loan.

Loans are available for women entrepreneurs in a variety of fields such as catering, consulting, beauty care, bed & breakfasts, photo studios, pet supplies, greeting cards, etc.

Things to Keep In Mind While Applying for a Business Loan

Loans applications mainly focus on your character, credit, experience and reliability rather than assets.

Following are a few necessary details you should take care of before putting in a loan application:

Clean credit card score- A clean credit card score would definitely get you low interest rates on loan. The best thing is to pay off your credit card debt. If you have accumulated debt, your credit worthiness takes a beating.

Business plan- Keep your business plan handy, you can also hire a professional writer to write or proofread your plan. Without this, no bank would consider you for even a Small Business Loans. You must clearly outline the organizational structure, asset base and targets you have for your business and all of this should be included in your business plan.

Loan proposal- It should include all details about you as the entrepreneur, your experience, your business aspirations, the amount of money you require, how you intend to utilize the funds, how you plan to pay back your loan, etc.

After you have prepared as above you can opt for any of the following besides banks:

• Borrowing from your 401K

• Venture capital

• Enlisting a financial partner

• Cash advances

Borrowing from your 401K is probably the smartest move of all the options because, here you will be paying “yourself” back with interest. Plus the fact that you can borrow against your own money without “withdrawal penalties”.

Venture capital is where an investor or a group of investors will loan you money for your business or business idea. Venture capitalists usually want a hefty price for letting go of their money: you might not have to pay the money back in a sense of making payments but rather you have to give up some of the decision making as they will want you to run your business their way.

Getting a financial partner can be a good move if you get a contract up front explaining in detail how the partner is to be paid, whether monthly through payments and maybe a small percentage of profit etc. Whatever, you agree upon, be sure to get it in writing to avoid misunderstandings.

Cash advance is not really a loan to start a business; it is rather for working capital requirements. Organizations offering this cash advance get their money from the credit card sales that the business does in a specific period, there by reducing the burden of paying back the loan. The terms and conditions to qualify for such cash advance are also relatively simple.

So far as pure loans are concerned, all the information and tips have been discussed in my other articles. You will be benefited greatly by following them.

Angel Investors are high net worth individuals who invest individually or in syndicates in early stage entrepreneurial ventures. This book is designed to help an angel investor develop an investing strategy. It covers sourcing and evaluating investments, negotiation and valuation of the investment and then the process of managing the venture through to an exit. The book has been used as the basis of Angel education in Australia and New Zealand but is applicable to any environment. The book is available from www.tommckaskill.com

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