Sunday, February 19, 2006

Raising Funding: What VCs Want to Hear

From CHEN PR co-founder Brenda Nashawaty...

In his State of the Union address last month, President Bush reiterated the need for the U.S. to decrease our dependence on foreign oil.

As usual Massachusetts is a hotbed of innovation in creating alternative energy sources that can cut our use of foreign oil and fossil fuels in general.

Last week at an MIT Enterprise Forum of Cambridge Energy Special Interest Group, close to 200 entrepreneurs, students and investors gathered for the kickoff of the 2006 $125K Ignite Clean Energy Business Competition aimed at making New England the center for clean energy economic development.

What’s striking about remarks from speakers Cary Bullock, CEO of Greenfuel Technologies; and Rana Gupta, managing director at Navigator Technology Ventures, is that whether you want funding for your renewable energy or enterprise software company investors want the same information:

  1. A compelling idea -- Tell investors what’s new or different about your product or solution.
  2. A sweet market opportunity -- Minimize the investor’s risk. Size the market. Know your revenue potential based on current market figures
  3. A cohesive team -- Make sure every team member tells the same story with enthusiasm and conviction (and your team can include advisors, beta customers, partners, etc. who will champion your idea)
Mr. Gupta emphasized the importance of showing investors how you will minimize their risk by demonstrating a deep level of preparation. In addition to understanding your market, customers, and revenue potential delve further. He used the example of understanding who inside a potential customer company will buy your product. Is the person who says "yes" the one who’ll write the check, or will you have to go through another process to close the sale? Key pieces of information like this tell investors that you’ve done your homework, and make it easier to assess the risk.

In addition to developing a solid business idea, the old joke about how to get to Carnegie Hall (practice, practice, practice) was in the air.

Practice your presentation until it’s as natural as breathing. Anticipate and prepare for questions about market size, prospective customers, competitors, what makes your product or solution different, etc. before your first investor meeting. Mr. Bullock emphasized the importance of being able to respond, not react, to questions and shifts in the conversation and suggested creating a FAQ. (He also shared his strategy of giving his pitch to investors before beginning his funding campaigns so he can hone his presentation.)

Considerations for companies looking for funding:
  • Tell your story from a business viewpoint. Focus on the pain or possibility your product will provide the market.
  • Tell the investor why your business proposal is a good risk.
  • Note your assumptions and recognize what is most variable.
  • Use more business slides than technology slides.
  • Promote your success to-date. Are you already in beta? Do you have partnerships, patents pending, etc.?
  • Be honest. Investors conduct due diligence prior to funding a company.

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