Archive for the ‘Investors, Investing, Investment’ Category
Capital-starved entrepreneurs eagerly await the dawn of a new capital market called crowdfunding. ActSeed is glad to support the Crowdfund Bootcamp and its mission to prepare us all for the opportunity to tap a major new vein of investor capital.
This new way of funding emerging businesses is shares a name with a donation-based funding model in use today, but is very different than offering a t-shirt or other memento in return for contributing a few dollars to a cause.
On April 5, 2012, the “Jumpstart Our Business Startups Act” or “JOBS Act” became law. A new game in the world of early stage business funding was created. The Act calls for the US Securities and Exchange Commission to now define the rules of this new game. It’s expected that the rules will be defined sometime next year and entrepreneurs will begin pursuing crowdfunding equity investments.
This “new game” is designed to increase participation in the investment process beyond existing restrictions. It’s designed to help flow more capital into the primary engine for economic growth and jobs growth: small businesses.
While the general parameters of this new capital market are defined in the law, the coming specifics from the SEC must curb fraud while encouraging participation.
Numerous crowdfunding web sites are popping up almost daily – all hoping to become a thriving “new millennium stock exchange”. Each site will serve as a mini-exchange, with SEC-compliant rules for what company information an entrepreneur must share with investors and how it must be shared. The rules are supposed to be less onerous on small businesses while still protecting both the capital-seekers and capital-providers. Of the hundreds of aspiring crowdfunding sites, most will likely fail or consolidate with other sites. Crowdfunding will spawn cottage industries of support services and trade advocacy. Insurance companies, law firms, accounting firms, PR firms and trade organizations will specialize in crowdfunding activities.
So, as an entrepreneur trying to figure out what this all means, who the players are and how to prepare your company to raise capital through crowdfunding, where do you start?
We recommend the upcoming Crowdfunding Bootcamp conference, which will be held October 9-11, 2012 in Henderson, Nevada (just outside of Las Vegas). Write the word ‘ticket’ in the promotional code box and they will knock 5% off of the already-reasonable event fee.
The early bird gets the worm. The second mouse gets the cheese. Nobody has a saying for the ones who arrive third or beyond. JOBS Act Crowdfunding is coming soon, and entrepreneurs who know what to do will be the first to benefit.
Our “Ask ActSeed” team recently received a question from an entrepreneur who wanted to restart his company, find angel investors and be prepared to provide investors with the info they want. Here’s what we told him:
“The information below is an important part of the story that an investor will want to know for sure. It seems there are two parts to your question:
- How to find investors and
- What to present to them when you find them.
First, how to find them:
While there is no single “exchange” to find all prospective investors, there are many venues and approaches to finding them. The best is personal networking – talking to people you know and finding out if they, or someone they know, might be interested in your deal. The other end of the investor-search spectrum is to do Google searches and cold call banks and investment firms to gauge their interest. This is a very low probability approach. In the middle are communities like ActSeed that help bridge an entrepreneur’s lack of personal investor network with connections to investors and investor groups. Some communities are free (e.g. LinkedIn), but investors don’t dwell there as free sites attract half-baked deals and lots of “noise”. Some have membership fees (like ActSeed), are more concentrated, and have a higher quality. None can guarantee a successful deal, but the good ones can help you reach investors you wouldn’t find otherwise.
However, reaching prospective investors is only a part of the equation…
Most professional angel investors, VC and other equity investors see hundreds, if not thousands, of deals each year. Most invest in 2-6 deals each year. This leaves 97%+ of all deals unfunded. The remainder get bootstrapped (e.g. self-funded through self-directed IRAs, savings, etc.), through debt (e.g. bank loan) or likely shut down or go dormant.
The second part is what information you present to the prospective investor.
- If an investor believes the information being presented to them is incomplete, they will stop reviewing.
- If an investor doesn’t “get it” very quickly – i.e. understand the business opportunity before then – they will stop reviewing.
Through ActSeed, entrepreneurs prepare the information that investors want to see using a scored profiling system. ActSeed scores the “completeness of preparation”, not whether the idea is viable. ActSeed’s scored profile enables the investor to have a uniform comparative against other deals that signals risk of successful implementation of the business model. It’s kind of like a FICO score for early stage companies. Here’s a link to a brief white paper about the ActSeed profile and scoring process.
ActSeed’s 1-page “Business Snapshot” template is an excellent framework for an entrepreneur to introduce their business highlights on a single page; if an investor “gets it” on that first page, they will be much more inclined to read further. The scored profile and Business Snapshot are available in ActSeed.com. Once your ActSeed profile is complete, you can search ActSeed’s Investor Group for prospective investors within the ActSeed community. You can also share your ActSeed link with any investor outside of ActSeed.
If you’re interested, you can learn more about the ActSeed Entrepreneur Group and sign up if you want to use these resources by clicking here. You can also download a free copy of ActSeed’s “Business Snapshot” template when you complete your free registration on ActSeed.
There are other communities and resources available to you that will also extend your reach into the investor community. In addition to ActSeed, we advise all of our community members to also use other networks that can be helpful. The new business creation and small business ecosystem is too fragmented and dynamic to fit one application or one community; however, a balance of communities can together drive value to those who build companies.
If you think your startup or product idea can survive an interrogation on national TV, then contact us now.
Yun Lingner is the Co-Executive Producer for a TV series on ABC called Shark Tank, a Mark Burnett Productions show.
If you’re not familiar with this show, entrepreneurs are selected to pitch their businesses to a panel of wealthy investors (e.g. Mark Cuban and Barbara Corcoran) in order to land an investor. We are helping Yun find some innovative businesses, products, business ideas and of course, entrepreneurs with interesting backgrounds or stories for the upcoming season.
If you’re interested in swimming with the sharks on national TV, send us an email to firstname.lastname@example.org with “Shark Tank” or “I want to swim with the sharks” in the subject line and we’ll get you connected directly to Yun.
If your deal needs some polish before jumping in the deep end, join ActSeed’s Entrepreneur Group.
Also, you can test your elevator pitch in ActSeed’s “Inside Pitch” discussion group on LinkedIn (it’s free).
Deadline to submit your idea, startup or small business? Just say “you snooze, you lose…”, and hesitate at your own risk.
What is compatibility in the context of small business investing and why is it important?
Private direct investment is very different than buying a publicly traded security. Investors do not have the same regulatory support or liquidity as a publicly traded stock. While we have witnessed a number of publicly traded companies mislead the public with incorrect or incomplete information in the past, at least there is a formal structure with a set of reporting regulations and consequences for failing to adhere to those regs and provide certain information to investors. With startups and small businesses, there is much less information available and very little regulation on what must be shared with investors.
Because of this, there is a greater element of compatibility required between the small business investor and the small business.
Trust and Alignment of Purpose
Understanding this need for compatibility is one of the key topics in the ActSeed Investor Workshop (“How to Evaluate Deals Like a Professional Angel Investor”). Simply stated, we strongly recommend that seed stage investors and startup entrepreneurs are fully aligned in purpose and culture as well as around expected return on investment and “exit strategies”. At the early stages of a business, investors should be viewed as a partner, not as a transaction – a co-pilot and navigation assistance, not merely gas in the tank. The business risk is extremely high in the early stages of a new company and the investor should play an active role in helping the entrepreneur steer clear of pitfalls.
Last year, we created a fun vignette about how ActSeed was like an “eHarmony for startups and investors” – how we help match investor-entrepreneur compatibilities. Recently, we had an inquiry from an entrepreneur who didn’t quite understand our analogy, and interestingly, was persistent in trying to understand how we were an “eHarmony to investors”. So, we drafted a candid reply:
“Simply put, most early/seed stage investors look for strategic and long term compatibility, not “quick hits”. The days of throwing money into something based upon a whim or basic concept are gone.
eHarmony markets their community as one where “people are brought together based on the things that really matter” (the current front page quote on eHarmony.com). ActSeed does the same for investors and entrepreneurs.
To further apply the personal relationship / eHarmony metaphor: investors aren’t interested in “one night stands” and “casual encounters.” Investors are no longer being seduced by what sounds good without verifying what IS good. ActSeed provides a mechanism to help the investor verify and accelerate the due diligence process by 60-90 days.
The common theme from our growing Investor Group members is that they don’t have time to see millions of interesting ideas, but they want to quickly find a few good ones that match their interests AND that provide evidence of preparedness in the core areas of business …PLUS a demonstrated ability to execute a sound plan.”
We know ActSeed isn’t for every entrepreneur, but we pledge to our growing group of Investors that the companies and entrepreneurs they will find within ActSeed’s Entrepreneur Group are ready to “extend trust” through an early presentation of the due diligence issues that will eventually need to be addressed anyway. The sooner this information is “on the table”, the faster a deal can be done or the parties can move on. If you can use the ActSeed process to cut 60-90 days out of the due diligence process, why not?
Within ActSeed, in order for a successful investment to occur:
- ActSeed presents the questions to be answered
- The Entrepreneur must provide the answers
- The Investor must trust the answers
Are you an ActSeed Investor?
If you are someone who wants to invest an amount between $5,000 and $5 million in early stage, seed stage, startup or small businesses, please join ActSeed’s Investor Group. It’s free to join, takes 15 minutes to set up, and allows you to interact on a username basis and allows you to reveal your real identity when and if you choose (to avoid the possibility of “overly ambitious” entrepreneurs).
Learn more about ActSeed’s Investor Group through the resources below:
Click here to download a 1-page PDF about ActSeed’s Investor Group
Watch a two-minute video about ActSeed’s Investor Group:
Join ActSeed (no cost).
Let us know how we can help you get set up.
Earlier this month, we led our first formal seminar entitled “How to Evaluate Prospective Deals Like a Professional Angel Investor” and helped about 40 attendees get started in the world of small business investing.
For two hours, we worked with this group to share the ins and outs of finding, assessing and engaging startups and entrepreneurs. Through an informal poll, we estimate this group represented about $1 million of investor capital. Some were interested in investing $5,000 to $25,000. Others were interested in $50,000 to $100,000.
Some were young and had full time jobs, but craved the opportunity and upside of investing in a startup. Some wanted to use some funds from a self-directed IRA and one person had recently sold his long-held business and was driven to explore investing to keep his mind and business acumen stimulated.
What all attendees had in common was a desire to understand some of the nuances of small business investing – what to look for, what to expect and what to avoid.
What our attendees learned:
- Understanding the early stage investor landscape, the different types of early stage investors and how investing in a small business is different than buying and selling publicly traded stock.
- The importance of identifying deals that are in areas where direct experience exists.
- The Tangibles: A “checklist” approach of the issues a prospective investor should address with the entrepreneur before proceeding.
- The Intangibles: Issues beyond intellect and into instinct, where a shared sense of trust and aligned purpose are important.
- Actual testimonials from angels who have invested in and have nurtured multiple early stage businesses.
- Forms and compliance: Documents each prospective investor should know about when pursuing a deal, as well as the role and importance of legal counsel in “doing the deal.”
- Action Items and Next Steps: sharing tools and tactical activities that transform small business investing into a systematic process so investors can make informed decisions.
What we learned:
The interest in small business investing is enormous. Through this inaugural conference, we have received local media attention and will soon have some national exposure. We have been invited to host this workshop in three other cities and are exploring two potential national webinars as well. In short, we learned that we have an important role to help coach a new generation of investors.
The diversity of those interested in learning how to approach startup investing is broad. Men, women, all age ranges and ethnicities. There seem to be quite a few people who want to be part of the startup revolution, but don’t have the ability to strike out on their own, or just don’t have their own ”big idea” they want to commercialize. But they want to be part of the new business ecosystem and they have some of the estimated trillions of dollars that are “sitting on the sideline” ready to support an entrepreneur with well-prepared business model.
Finally, we learned that responsible investors want to be as well-prepared as the entrepreneurs they are considering investing in. We learned that ActSeed’s Investor Group is a great tool for new investors to evaluate startups looking for funding.
In summary, what’s good for the entrepreneur must be good for the investor, and vice versa too. It cannot be out of balance. Intangibles like trust, synergy, purpose and company culture are important. Investment should only occur when there’s a focus on “business basics” with transparency and reciprocal communication between investor and entrepreneur; this is not the same as buying a share of Microsoft or GE. As a small business investor, you must be engaged as an ongoing partner in helping your business investments succeed.
ActSeed carries a clear message to all participants in early stage business creation and growth: “Preparation for success helps avoid behaviors that lead to failure.”
If you are interested in hosting one of our Small Business Investor Workshops locally or via webinar or if you are interested in becoming a small business investor, please contacts us at email@example.com.
If you are an aspiring seed stage or angel investor and want to get started now, you can join ActSeed’s Investor Group (there is no cost to join) and start applying the principals we share in our workshop immediately. Learn more about the ActSeed Investor Group here.
We are already working diligently to find and guide more investor millions that we can connect to well-prepared entrepreneurs.
You need an infusion of capital to grow your business.
The bank says you have insufficient collateral or they don’t lend to businesses in your industry.
Venture capitalists and angel investors aren’t usually interested unless they think you are going to unseat Facebook or cure cancer (home run plays in healthcare and IT) in the next 18 months.
So where can you get the funding you need to grow your business? Who is going to step boldly into this funding gap that the majority of American small businesses fall into?
Utilizing the Royalty-Based Finance (also known as ”Revenue-Based Finance”) model of lending, RevenueLoan provides growth funding to businesses who are not being served by conventional lenders.
No collateral? No Problem!
A royalty-based loan does not require any collateral.
Not interested in giving up 10%, 20% or even 50% of your company for funding? You may have an alternative!
A royalty-based financing does not require you to sell part of your company to the investor. You remain in complete control of your business. You simply agree to pay a small percentage of your monthly revenues – generally less than 5% - until an agreed-upon multiple of the original loan amount is reached.
Yes, this does make royalty-based financing more expensive than a bank loan (if you even qualify for a bank loan), but a royalty-based deal also makes your monthly payment vary in harmony with your revenues. Try telling your bank that you missed your revenue target this month and don’t want to pay the usual amount, and see what they have to say! With a RevenueLoan, flexible monthly payments that don’t deplete your operating capital are business-as-usual.
Since this loan structure is based upon your revenues, this is not a good fit for most startup businesses that haven’t started generating consistent revenues. …but if you have an established revenue stream and just need a cash infusion to bump your business up to the next level, RevenueLoan may just be the lone YES in a forest of NO.
ActSeed is glad to welcome RevenueLoan as a valuable resource to the ActSeed community for small businesses and the entrepreneurs who are building them into durable, sustainable, competitive participants in our economy.
Learn more at www.RevenueLoan.com.
Recently, we were invited to talk with Markus Lampinen of GrowVC. The resulting podcast covers a range of topics that are of interest to entrepreneurs and even angel or seed stage investors. We constantly highlighted how “preparation matters” and why those who take a focused, committed approach to establishing their business can leverage services like ActSeed and GrowVC to increase their chances for success.
In the interview, we talked about how ActSeed and GrowVC complement each other and how our focus is on providing resources to entrepreneurs who understand the importance of fundamental planning and preparation, including providing avenues to investors and other sources of capital that are needed to build a durable, competitive business.
GrowVC is based in the UK, Finland and Hong Kong, but has a budding presence in the US, too. With ActSeed’s growing international presence, our combined geographic reach enables our entrepreneur members in every locale to have a global reach almost instantly.
ActSeed is looking forward to expanding its collaboration with GrowVC’s crowd-funding platform and other resources for its Entrepreneur Group Members. We are also excited about integrating ActSeed’s Scored Evaluation Profile into GrowVC’s community of entrepreneurs.
Again, we thank Markus and also Jouko Ahvenainen, Founder & Chairman of GrowVC, for the opportunity to participate in the GrowVC podcast series.
Imagine an investment approach where you can fund an early stage company and not have to worry about – or wait for – a blockbuster IPO or acquisition many years out before realizing a return on your invested capital.
Angel and venture capital investments are traditionally defined as an equity stake in an early stage company where the investor provides funding when the business risks are high but the potential payout is also very large. While VC still is largely a “home run” investment approach, angels and some smaller funds are applying an innovative approach to early stage investing that still includes higher risk and reward, but is more of a “base hit” investment approach.
Royalty-based deals are not new, but the use of this funding approach for early stage companies is somewhat novel. For decades, oil and gas companies have used this deal structure to finance prospecting activities.
How It Works
In a nutshell, a royalty-based investment is more of a debt instrument (liability) instead of equity. While the actual financial structure may vary, the gist of the deal is a company borrows money and agrees to pay a royalty (percentage of its gross revenues) until a defined multiple of the original investment has been repaid.
One example: a company borrows $200,000 and agrees to pay 10% of its gross revenues to the lender until $800,000 has been repaid. This may take one year or ten years. The return of 4x may seem excessive to a borrower, but it may take many years to repay, so there is more risk to the lender than a typical commercial loan, and unlike a conventional angel investment, the company may not be giving up any or much equity (yes, an equity component could be incorporated into this structure).
Ideal Candidates (Early Stage Companies) for This Type of Financing
Royalty-based deals typically require the company to already be generating a reasonable stream of revenue. If a startup is still in the “pre-revenue” stage, most of the royalty-based venture financing firms will not be interested.
Royalty Capital New England (http://www.royaltycapital.us) from Boston does these types of deals
Revenue Loan (http://revenueloan.com) based in Seattle also does these types of deals
GigaOM Article from 2009 that talks about revenue based financing and coins the term “Class R Stock” (http://bit.ly/ClassR_Stock)
A video of a presentation from Growth Science International (http://www.growthsci.com) that discusses royalty-based financing:
While the full day of panel-driven sessions was meant for tech companies, most the wisdom shared applies to almost any emerging company in any industry.
While there was plenty of content about intellectual property, privacy and outsourcing, not surprisingly, the most popular session topics centered on investment, funding and financing.
The opening general session included a panel of local southern California angels and venture capitalists, including JP Lapeyre of the Tech Coast Angels, Ted Alexander of Mission Ventures and Carl Eibl of Enterprise Partners.
One particular exchange revealed some excellent insight worth sharing here with entrepreneurs in any industry. Even those who are not looking for funding will find this dialogue insightful. The moderator, James Chapman of Foley & Lardner, asked the panelists, “What do you look for in an entrepreneur?”
The answers included:
- “People who can get it done.”
- “Done is better than perfect.”
- “It’s all about execution.”
- “Someone willing to have a dialogue with, and listen to, their investor.”
- “Rapport is important.”
- “Self-awareness. Knowing where your gaps are”
These answers resonate with the ActSeed team and we hope resonate with every entrepreneur. These responses emphasize our mantra that investors seek not only the good idea, but a team with a demonstrated ability to execute the idea in a disciplined, planned manner.
This does not suggest creating a rigid plan and pursuing without regard to realities as they unfold. This also does not suggest “making it up as you go”.
It does, however, underscore the need to have a thorough plan that is constantly being interrogated and refined, which is the foundation and purpose of ActSeed’s Entrepreneur Profile / Evaluation process.
What answers would you add to the ones given by the conference panel?
“You can tell a story in a sentence; you can tell a story in a paragraph; and you can tell a story in a 20-minute pitch. Startups need to do all three.”
– from “Pitching Hacks” introduction
I’ll try to be as concise in my post as the book is in guiding you toward successful fund raising.
Nivi and Naval have a storied career with startups, both as fund-raising entrepreneurs and as investors, not to mention facilitators for other entrepreneurs and investors.
I’ve authored more business presentations, projections and plans than I’ve read about how others do it. But I’ve read a few books, and “Pitching Hacks” is the most concise, the most pragmatic and the most useful.
If you are about to “walk the fundraising gauntlet” – even if you’ve lived on Sand Hill Road before – read this book. For the first-time entrepreneur, it’s a gold nugget of guidance. For the seasoned startup veteran, it’s a superb refresher.
As authors Nivi and Naval say: “Investors don’t invest in businesses. They invest in stories about businesses.“
To buy this incredibly affordable book (<$19), go to the Amazon-powered ActSeed Marketplace (or if you prefer, go directly to Amazon)!