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CED venture conference homework: Ten insider tips for entrepreneurs

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Editor’s note: The Council for Entrepreneurial Development’s annual venture capital conference is coming up April 22-23 in Pinehurst. LTW asked “The Angel Connection” author and 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. The Angel Connection is a regular feature in LTW.

RESEARCH TRIANGLE PARK, N.C. - With the season for venture capital and angel investor conferences upon us, it is important that entrepreneurs make sure that they are ready to meet investors in a way that gives them a chance of generating interest.

Here are 10 good tips for approaching investors:

1. Be able to explain your business in 45 seconds. Believe me; it’s important to be able to explain your business this quickly. When you first meet an investor, you need to get them initially excited about your business, so that they really want to know more about it. I know it sounds impossible, but you really can do it this quickly. Practice it and you will be surprised how effective a tool it is in getting someone interested in your business.

2. Know your business completely. A business associate of mine, upon seeing a business plan presentation that is full of techno-babble, says, “Well, there’s another science project.” Investors want to know about your entire business, one component of which is the product or service. You need to be able to explain your market, the buyer whose needs your are satisfying, how you will beat the competition, your marketing and sales strategy, the financial dynamics, your management team and your investment opportunity. Know all these major subjects cold and have credible and clear explanations.

3. Anticipate their questions, and know the answers. You need to really be familiar with the kinds of questions that investors will ask you, even at your first encounter. If you make a very positive first impression, when you initially meet an investor, your chances for further discussion are much greater. If you come across like a novice who has not done their homework, you could be discounted out of hand.

4. Know your market and buyer. The foundation of your entire business proposition is based on a large and growing market in which a compelling problem exists that a buyer will spend money to fix. You must know everything about your market opportunity and what drives it. If you are not able to explain this and answer the hundreds of questions you will get, the investor will conclude you don’t have a business and your chances of getting any further interest is near zero percent.

5. Know your competition. It’s going to be a bad day if the investor knows more about your competition than you do or identifies competitors that you have not considered. Even worse is saying that you do not have competitors because you are in a new market or nobody has a product or service like yours. Your potential investor will conclude that you have not done much research and not considered the various alternatives that your potential buyer has to solve the problem that your product or service solves. If you show that you don’t know your competition, your potential investor will have little regard for your understanding of how to win in your marketplace.

6. Be honest about business progress. If you say that you have made certain progress in product or service readiness, customer traction, strategic partner interest or investor interest, and it is later discovered not to be true, the investor relationship will be over. You will have shown a lack of integrity and precision in your communications which will be extrapolated to everything you have previously said. This is a breach in trust which can be impossible to recover from. Avoid this mistake by always telling the truth about the status of your business; doing it as objectively as possible using straight forward facts.

7. Don’t be resistant to additional management. Investors are going to make sure that the right management team is in place. Sometimes that means bringing additional people into the company to fill necessary roles, including the CEO. If you resist this by unrealistically insisting that you can play a role that you are not really qualified for and you are not acting in the best interests of the company, investors will not work with you. You will be showing a level of immaturity that indicates that the investor’s money is not going to be managed well, so they will not take the risk.

8. Be open to their ideas. Chances are that your potential investors know more about starting and running businesses than you do. If you come across as arrogant and not willing to listen and be coached, your potential investor will conclude you will not be a good business partner. If your mind is closed to other perspectives, the door to investor money will be closed as well.

9. Don’t be disrespectful. Investors don’t know as much about your business as you do so they ask a lot of questions that may seem obvious to you. Investors have certain perspectives of how business models work that will have to be reconciled. Most of the time the process of raising investor funds is an exercise in patience, so exercise a high degree of patience for their questions.

10. Know what you will do with the funds. Not knowing exactly how much money you will need is usually forgiven, especially if the amount has been determined by a cooperative discussion with the potential investor. But, not knowing what you need the money for is a mistake. It indicates that you have not thought about what you have to do next to launch your business and that you don’t have a clue what your next few milestones are. The investor has to feel comfortable that money is going to be spent wisely and on the right things. If you don’t show that you know where the money needs to be spent, you will not get funded.

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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