10/ 01/ 2002
by Andrew Sherman
- Preparing inadequately. Today's capital markets require you to get inside the head of the typical investor and deliver a business plan and a business model that meet his or her key concerns. You will be expected to demonstrate that you can ramp up quickly with a team that really understands the target industry. You want to show that your company can generate a sustainable and durable revenue stream that will become profitable in a reasonable period of time.
- Letting the search be guided by a shotgun instead of a rifle (the search must be focused on the most likely sources).
- Misjudging the time it will take to close a deal.
- Falling in love with your business plan (creating stubbornness, inflexibility and defensiveness--a deal killer).
- Spending too much time raising the money and not enough time managing the business along the way.
- Failing to understand (and meet) the investor's real needs and objectives.
- Taking your projections too seriously.
- Confusing product development with the need for real sales and real customers.
- Failing to recognize that the strength of the management team is what really matters to investors.
- Providing business plans that are four inches thick (size does matter and shorter is better). Be prepared to have multiple presentations in different lengths--the one pager, the two-pager and the full plan).
- Not understanding that most investors are very, very busy and hate to have their time wasted. Keep it simple and get to the point in your presentations.
- Providing business plans that are more exhibits than analysis.
- Forgetting that timing is everything. Don't raise money at the last minute. It will already be too late, and the cost of desperation is very high. The best time to raise money is when you can afford to be patient.
- Being so afraid of sharing your idea that you don't tell anyone about it. You can't sell if you don't tell.
- Being price wise and investor foolish. It's not just about getting the best financial deal, it's also about learning what other strategic benefits the investor brings to the table.
- Not recognizing that valuation of small companies is an art, not a science. Be ready to negotiate as best you can depending on your negotiating leverage.
- Believing that ownership equals control. An investor can have 10% of the ownership and 90% of the control (and vice versa) depending on how the deal is negotiated and structured.
Andrew Sherman is internationally recognized as an authority on the legal and strategic aspects of entrepreneurship and business growth. As a senior partner with McDermott, Will & Emery, he manages a multi-million dollar corporate and transactional practice, representing Fortune 1000 corporations as well as hundreds of technology-driven, netcentric and rapidly growing businesses.
