Applying for Financing with b-to-vFebruary 1, 2008
Posted by nico_schweizer in inside b-to-v . trackback
Now, there are many in the business (e.g. Paragon Ventures) who have written an article about Do’s and Don’ts when applying for financing. And you will probably not find anything in this one that you wouldn’t find on other blogs or websites. But after a few months at b-to-v I can really understand why they all write similar things: I sometimes get very frustrated while looking through an application for financing. With a weekly dealflow of about 30 to 50 new ventures we get to see them all at b-to-v: the Good, the Bad and the Ugly. It’s sometimes not that the ideas are bad or the business models don’t work, but simply that too many applications are really weak! (Un)fortunately the times are over, where an investor got all excited when someone told him that he “just had this great idea this morning in the shower and needs 500k in cash asap in order to become the next Microsoft”. So we really want to help you send in a good application! There is a right time for a venture to apply for financing, and there is also a right way to apply. Don’t worry, there’s no such thing as the perfect venture! But make sure you do your homework before applying with b-to-v.
So here’s our list of Do’s and Don’ts:
- Summarize it for us – after screening seven 90-page-business plans in one day even we at b-to-v tend to get tired. And it might just be that your business plan is the 8th that someone looks at. So please, make it easy on us and yourself and write a good Executive Summary:
- what does your company do (Product/Services)?
- why are you better than others (USPs)?
- who are you (Team)?
- where are you now (Status)?
- what do you need (Funding needs)?
- what do you need it for (Roadmap)?
- Have your team together - According to the members of our Investorenkreis, the qualities of the team are the first thing of interest to them when they look at a potential investment. Bernd Hardes, member of the b-to-v Investors Circle says: “I am looking for companies with an experienced and reliable management team.”
- Make sure you create value for the customer! – Your product or service needs to have a benefit for the customers. No use if no one needs your product or services – or if Google can do within 2 weeks what you built up over the last two years (see also below: USP).
- Make sure you have a USP! – What ever you do, make sure that you are the best at it – and that it stays that way! “I know there are a lot of competitors, but if I only get 1% of the market…” just isn’t gonna do it for us. Besides: many entrepreneurs simply underestimate how hard it is to get a 1% market share. What you need is a real USP:
- specific
- unique
- uncopyable
- sustainable
- Be involved, be committed – You are looking for 1.75m € from our investors for your first round financing? That’s 1’750’000 Euros (or somewhere around 2’697’580 US$)! A lot of money in real life! Would you give us this amount of money from your wallet if we came with your idea and your business plan? Investing your own money (and your grandmother’s, friend’s and boss’) in the project you believe in shows an investor that you really believe that your venture will be a success. Anybody can burn someone else’s money, but if it’s their own cash, it suddenly hurts.
- Show us your Proof of Concept – 5’000 new members of your social community in the last 2 months without one dollar spent on marketing? This could work out! 300 new members over the last 6 months with 250k spent on Guerilla marketing? Might be that your idea with the “#1 Social Community for Nomadic Urbanists” isn’t the hottest thing after all.
Trust me: after a while there are some things you simply don’t want to hear anymore:
- “Our thing will be the next Google” – At 2’000 received business plans per year we see quite many “things”. And although we don’t claim to recognize the needle in the haystack when we finally see it, we have developed an idea of what could be a needle. But don’t blame it on us if we don’t realize your potential – maybe your sales talent isn’t as good as you thought after all. But don’t worry, if you’re thing really is “the next Google” (if it’s a website – replace with Facebook, Microsoft, IKEA, Coca Cola, Viagra, or Hilton for other industries), you will probably receive financing from someone in the world. And yes – we are already working on our “Anti-Portfolio” (check out our biggest idol on this: Bessemer Venture Partners).
- “You sign my NDA, I’ll send you my BP” – It’s not that we generally don’t sign NDAs, but we don’t like them. Not because we want to steal your idea. But, after all:
- We don’t sign NDAs if we have no clue what you do, who you are and what you want from us! We’d need to hire someone just to sign all those NDAs all day long.
- You should be able to pitch your business idea without telling us any confidential information. That’s what you have USPs for (see above).
- In the end, let’s be honest, an NDA is mostly useless. Because if you really need it, it’s already too late! So instead make sure you know who you are sending your confidential information to. At least our reputation is to precious for us, we wouldn’t ever jeopardize that!
- “There is nothing more powerful than an idea which time has come” - Big NONO. Just because McKinsey wrote this phrase (originally by Victor Hugo) in a “How-To-Write-A-Business-Plan”-book some time during the 90s doesn’t mean you have to write it in YOUR Business Plan!
- “An LOI? Not yet, but we’re really close from getting it signed!” – If you’re really this close, don’t come running BEFORE your LOIs (Letter of Intents) with potential clients, VCs, banks, partners, etc. are signed. Get them signed and apply AFTER that. Apply when you are really ready.
- “CEO Salary: 150k € p.a” – Financing your venture means financing your venture – and not your new 200m2 office with a big Mahagony desk and a fish tank for your nine 5k$-Kois from Japan. Keep your burn rate as low as possible, pay yourself the minimum – that tells the investors that you believe in your venture and its future success.
- “Your homepage? Erm…sure, I’ve had a brief look…“ – Applying for Venture Capital is a little bit like applying for a job. It is amazing what you can find out about a company with a thorough scan of our b-to-v website (like this blog) and a simple Google Search. Only takes you about 15 minutes. And prevents your from asking for 5m € Mezzanine Capital from us for an online social community for wool growers of the Sahara.
Here’s a list of links that you should have a look at before sending in you application:
- “b-to-v FAQs for Ventures” by b-to-v
- “The Zen of Business Plans” by Guy Kawasaki
- “What should I send to investors? Part 3: Business Plans, NDAs, and Traction.” from Venture Hacks
- “Get venture capital” by Tim Schoolley from the Pittsburgh BusinessTimes
- “10 Pragmatic Steps to raising Venture Capital” by Bill Burnham
- “Post Money Value: More favorite VC phrases” by Rick Segal of The Post Money Value
- “The Top 10 Mistakes Entrepreneurs make whan seeking cash from VC companies” by Paragon Ventures
- …and many more!
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