Editor’s note: Lea A. Strickland is President/CEO of FOCUS Resources, a strategic business consulting firm, based in Cary.
_______________________________________________________________________________________Many companies believe that raising funds is all about the presentation to potential investors. It is that and much more.

The first step in raising funds is to understand the process — including what constitutes a securities transaction and what companies can and cannot do and say.

Another critical step that should take place before you start is preparing the answers to the question “Why should I invest?”

Preparing the ‘Book’

The majority of experienced, potential investors will undertake a due diligence process with your company before they write a check. For companies unfamiliar with the due diligence term and process, it works something like this. A company approaches an individual or group of investors with an opportunity. This contact typically comes as, or is closely followed-by, a business plan, prospectus, or private placement memorandum or “book”. This “book” contains information on everything from the company’s product/service information to information on markets, strategy, competition, financial (past and projected), management experience, and many more topics. Included with the package is an executive summary, which may actually be all a potential investor reads of your proposal.

Once a potential investor expresses interests, then the company provides information on the type, size, and so on of the investment elements. If still interested, the investor then proceeds to validate the information provided. This validation will typically include a review of audited financial statements, analysis of market potential, and a review of the company’s management capability. Depending upon the parties involved and the complexity of the investment, this process can take months to complete.

The company which is prepared for the due diligence process before seeking funding can significantly reduce the time it takes to close the terms of a deal with investors. By having all the elements available and having the financials in good order, the business can provide relevant information in a timely manner. The company seeking investors without adequate preparation risks losing the investor you are talking to as well as opportunities to meet with other investors.

Always keep in mind that the investor community is like any other: people talk to each other! Be thoroughly prepared before every presentation or you may not get another opportunity.

Making the pitch to investors means having answers to some “basic” questions:

  • What are you selling?
  • Who is buying?
  • Why would they buy from you?
  • At what price are they buying from you?
  • Is there a profit in that price?
  • Who do you compete against?
  • How do investors make money (exit)?
  • What is the growth potential and plan?
  • Who is running the company?
  • How experienced is the leadership team?
  • What do you intend to do with the money you raise?
  • Will you need more money or is this it?

    • More Than Presentation and Pitch

    There are many other questions which will need answers that relate to the operations and capabilities of the business. When you begin your hunt for investors, know that the process takes time. It takes honing your presentation and pitch into a package that sells. It also means that the business is ready for “due diligence,” opening the books and operations to examination by potential investors. During the due diligence process the investor is verifying that the story they heard is viable and matches with what your business currently is and that the assets and opportunities being presented don’t have undisclosed issues — contract issues, lawsuits, patent and intellectual property ownership issues, and so on.

    The presentation and pitch are certainly the most visible aspects of seeking investors. There is, however, so much more to the process. Take the time to get prepared. Investment occurs where opportunity meets preparation. So start preparing to seek investment at least six months before you really think you need to. Many deals take at least six months to come to fruition once the deal begins. Finding the right deal may take additional time and effort.

    Keep in mind that the best time to seek out funding is before you need it. When you still have money in the bank, you have options and the ability to negotiate better terms and protect your interests. If you think you will need more money in a year, start the process today.

    Lea A. Strickland, MBA CMA CFM CBM, is President/CEO of FOCUS Resources, a strategic business consulting firm, based in Cary. Strickland is nationally recognized as a consultant, speaker, columnist, and author on the strategic, operational, and financial issues of businesses of all sizes. Her experience in financial and operational leadership spans from Fortune 500 and Global 100 companies to early and growth stage technology companies. She is the author of “Out of the Cubicle and Into Business”, a guide for first-time entrepreneurs working on defining the business. She has over 200 published articles and has numerous appearances in national publications and media including Entrepreneur Magazine and Entrepreneur Magazine Radio. She can be reached at 919.234.3960 or lea@focusresourcesinc.com. Her website is www.focusresourcesinc.com

    FOCUS Resources, specializes in early and growth stage companies (primarily in technology, bio-technology, and other emerging industries) advising on the start-up, strategic, financial, funding, and other areas related to commercialization and profitability. FOCUS Resources is also recognized as a leading advisor on the business issues and requirements associated with governmental funding (SBIR, STTR, and other sources).