Even during a pandemic, the appeal of being your own boss or an entrepreneur never loses its luster. The United States, Asia and other markets have proven to be exciting and happy hunting grounds for companies to explore new funding opportunities, and the COVID-19 shutdown has presented plenty of opportunities for entrepreneurs to explore new investment. Raising venture capital for your small business or startup is an exciting and rewarding opportunity that shall. Also, opportunities abound for investors within the various markets in the opening up and these markets are increasingly filled with pent-up demand.
We wrote an article on distressed assets in New York that may be of interest to investors: Investment in Distressed Assets in New York: Purchasing an Asset in Bankruptcy or UCC Foreclosures. If you are interested in buying a business please see an article we wrote at: Buying a Business in New York and Buying or Selling a Business in New York? Do your Due Diligence.
If you are a start-up or small business looking to package your business to obtain funding from a venture capital firm then you’ll need to put together a substantial and nuanced package of documents, materials and business savvy before you even begin to pursue venture capital investment for your business.
Meeting the right investor for your company takes time and patience and when the opportunity presents itself, you’ll want to be able to demonstrate that you know your business inside and out. Be prepared to pitch constantly and put yourself in the position to receive feedback. Inevitably, once you have a yes from one VC firm, more shall come to the table. Below is a guide of some of the issues that you’ll need to start a conversation with potential venture capital investors.
Perfect your Elevator Pitch
If you don’t know and are not excited about your own business, how can you expect others to invest money into it? An elevator pitch is that great line from a movie you’ll never forget. It’s something that starts the conversation and grabs an investors attention. Persistence and the opportunity to get as much feedback as possible is the key to winning business. Remember this is a contact sport, the more people you contact, the more opportunities you have. Practice and love your elevator pitch.
Your business plan or your investment pitch deck shall be a major tool for helping your business nab Series-A funding. The business plan should be a compelling story of your company’s journey. Investors will be looking for financial potential, so viability needs to be the key focus of your plan. Do skimp on your pitch deck and get a senior advisor or consulting firm to assist in tailoring your pitch deck.
Executive Advisory Board
No company, especially a start-up is complete without an executive advisory board. An executive advisory board is there to provide guidance and as opposed to a board of directors, doesn’t, in most cases, hold any fiduciary responsibilities to the company. Advisory boards can provide valuable insight and expertise to all levels of business. It was the advisory board at Facebook that pointed out to founder Mark Zuckerberg, that user data could be seriously comprised – we know what happened there. Please a strong team of advisors makes your company more appealing to potential VC Firms, thus, take this seriously. Many accountants, lawyers and other outside consultants that you retrain may accept joining your executive advisory board.
The term sheet is the blueprint of the relationship between investors and business owners. In most instances, a term sheet will be non-binding and shall cover the economic and control aspects of the potential deal. There are two basic forms of two sheets to consider, long and short form. A short firm term sheet shall cover the principals of the deal. A long-firm term sheet shall look at more aspects of the deal to be negotiated, making it easier to finalizing documentation and contracts. You need an experienced lawyer for this.
Valuation of the Company
A critical issue for any company financing shall be the valuation of the company. Pre-money valuations refer to the value of the company before new funding is introduced. Low valuations create high upside for investors, while high valuations shall allow business owners to contain more control. There’s no “one size fits all” approach to a company’s valuation and investors look at several issues to evaluate a company’s value. Some factors investors will look at include:
- Is the company in a “hot” sector of the market right now?
- What’s the track record and experience of the current business ownership team?
- When and how likely will the company achieve minimum viable product (MVP0)?
- Who invested to date?
- Who are members of the advisory board?
- Do you have skin in the game?
- Past successes, experience and education of the founders.
If you can throw some skin in the game
Any potential investors will look as an upside a business owner putting his money where his/her mouth is. A business owner or entrepreneur who has invested their funds into a company will have a better chance of success at attracting outside money.
Misc. Issues to Consider
Other issues that need to be addressed for any potential venture capital investment include:
- Antitrust and regulatory issues.
- Information technology concerns.
- Outsourced professionals.
- Insurance coverage.
- Litigation Ricks.
- Products and services.
- Customer information.
- Tax information.
- Material contracts.
- Licenses and permits.
- Environmental issues.
- Real estate.
- Physical assets.
- Intellectual property (trade secrets, copyrights, patterns, trademarks).
- Employees and benefits.
- Organization and good standing of the company.
- Financial information.
- Revenue streams.
We shall be addressing a number of these issues over the next few months, please subscribe to the blog and please check back regularly.
Hayes & Simon attorneys and business professionals are involved in assisting companies with partnerships, joint ventures and the structuring of venture capital investment deals in NY, New Jersey, Connecticut, China, Hong Kong, South Korea and throughout Southeast Asia. We are proud to help companies package businesses from start to completion of the deal via a dedicated team of attorneys that work hand-in-hand with business, marketing and accounting professionals.
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