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When do I start pitching to investors…. after I have all my investor docs?

March 20th, 2008 · No Comments

This question comes up often and we see companies that never pull the trigger because they constantly feel that they aren’t ready for investors.   We also see companies jump the gun and blow their shot with investors because they don’t have their act together enough.  

First you must realize that a large portion of the money that is put into start up and early stage companies is done so because a relationship was formed.   A trust was forged between the investor and the entrepreneur.   It is true that as a company creates momentum and creates a buzz within the investor community, “strangers” will be investing because they know someone who has also invested or message is clear on how they will make money on the deal.  

So, even at the seed stage, a company should have an elevator pitch (see the other entry in this blog regarding elevator pitches and visit www.blogtalkradio.com/karen-randsand listen to the 3/21 broadcast), so they can plant the seed in the investor to either go ahead and take the chance on the starting of this company, or so they will stay in touch and invest in the future when the company is beginning to accomplish the milestones.  

Preparation comes in multiple forms:

  1. Messaging:  Can you articulate the value proposition….to you target market and to the investor on how they will get a “pay raise” by choosing to put their money in your company.
  2. Structure:   Do you know how much you are looking for and what part of the company you will give up for that?   Is it based on solid inputs to establish the value of the stock?
  3. Offering: Whether taking $100,000 or $1,000,000, there are  documents that must be signed and you must establish a legal protocol for collecting the money.   That Protocol includes documents to validate the investor has enough wealth to make the investment, and legal documents that state the risks associated with the investment that are signed by the investor.   For smaller amounts they can be done with subscription agreements and stock holder agreements.   As the amount of money sought increases, so does the complexity and therefore would require a Private Placement Memorandum.  
  4. Budgeting: it costs time and money to raise money.   You must plan accordingly.   It is very difficult to raise a lot of money and run your company.   You need to either hire someone to run the company or to run your investor campaign.   There are the costs associated with going to different conferences…. if you are still figuring out your messaging, stick to the networking expo (SPEC will have one www.sePrivateEquity.org ) that doesn’t cost  much.   Pay to present to a group of investors only after you have raised part of your round and you need to finish that round and you have ALL of your financial and investor docs completed. 

 At an expo, the goal is to plant a see with investor so they know you and you know them and you can follow up meetings and get the 2-hour listening ear.   When you present to a group of investors and you’ll pay anywhere from $2000 to $4000  for that opportunity, it is important to understand you are the entertainment for those investors.   So entertain and then “ask for the order”….which is a meeting to further discuss investment in your opportunity.  Best of luck

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Tags: Entrepreneurs Seeking Capital Corner · Just Ask Karen!

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