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Angel investors want to see decisive action from CEOs

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Editor’s note: “The Angel Connection” is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking angel investors and/or venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.

RESEARCH TRIANGLE PARK, N.C. - Angels are seeing institutional money slowing down. Credit is tougher to get. They see the critical need to save cash and get to exit as quickly as possible. Angels are renegotiating their terms for new deals or backing away all together. They are seeing the business of their portfolio companies slowing down.

Angels are not panicking, but they want to see decisive action to respond to the impacts of the current economic mess. Action certainly needs to be taken and it is very much the same thing that a CEO has to do in a turnaround situation:

• Reassess where you are with your revenue forecast. Talk to your most loyal customers and reassure them that you will be there for them and see where they are on future purchases. Take a hard look at new customer purchasing to verify that purchasing timeframes are still real. Adjust the revenue plan based on this brutally honest near-term view of customer purchases.

• Tighten the belt on the cost structure of your products and services. It's time to take cost reduction actions that will provide a short-term yield. Cut personnel that are not essential to the manufacturing of products and to providing services.

• Take a hard look at expenses looking for ways to save cash on discretionary spending, payment terms to suppliers, lease payment terms, unnecessary personnel and even look at stabilization of salaries. If an expense item is not serving the main mission of the company, question it.

• The conservation of cash is what this is all about. More drastic actions could include the curtailment of development of future products and getting out of markets and discontinuing customers that are not profitable. Any action like this has to be done in the context of the company's cash position and a judgment made as to whether there is enough cash in reserve to take the company through these hard times which could last through all of 2009.

• Rerun the income and expense report, cash flow statement and balance sheet forecasts with the operational changes you have made. Take a hard-nosed look at whether or not you will have enough cash to sustain your business and achieve and maintain positive cash flow. If not, more cost and expense is going to have to be removed from the business, which might mean you have to change the fundamental strategy of the business. You must get cost and expense in line with a realistic view of the revenue outlook.

You may be faced with the need to raise additional funds to get you through these tough times. Do not go to outside investors without having first done your homework. Bank loans are much harder to get, but if you have a realistic financial outlook and satisfactory past performance, you have a reasonable chance of getting help. CEO’s need to work closely with their angel investors and give them the same brutally honest view of the business and ask for their continuing help with additional funds.

This is a situation of the quick and the dead. The necessary actions are well known. We have been through this before. The difference will be in the execution of what needs to be done.

About the author: Bill Warner is the managing partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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