More Michiganders than ever are starting technology companies and are in the market looking for private capital. The good news is that the sources of capital have diversified and expanded in the last decade, but that doesn’t mean that raising money is any easier. It used to be that two to three percent of companies were able to raise private dollars, it’s now closer to one percent.
It’s a tough call whether or not to raise private investment. Weigh the pros and cons before you make the decision. Bootstrapping is challenging, but outside capital is expensive and time consuming to raise. If you’ve chosen the course, be sure to prepare your company so that you can you buck the trend and access the capital to move your companies into the stratosphere. A few key tips are below:
Know who you’re pitching
When you want financing for an energy efficiency technology, pitching a VC firm that focuses primarily on the medical device sector is a waste of their time and your effort. A little web research can go a long way in helping you identify the investors most receptive to your type of deal. Most firms spell out their mission and areas of interest directly on their websites. In less than 10 minutes you’ll know whether the technical scope of your business matches their expertise, and if your deal size is appropriate for their type of investment (VC, PE, Mezzanine, etc.). Also, have a look at their portfolio and their team. If they’re a generalist fund who have done previous deals with energy or transportation focused companies, it may indicate a greater openness to your venture.
Interact with investors
Look for ways to broaden your network and forge relationships within the investing community before you need their capital. Building these relationships will give you insights into how venture capitalists evaluate opportunities, what their “hot button” issues are and how to speak in the vernacular of finance. These insights may pay real dividends in helping you to position yourself and reach the right people when it’s time for you to raise money.
Michigan has a number of events that focus on investors that are also open to the public. The Michigan Growth Capital Symposium and Accelerate Michigan Competition are two conferences that engage a wide swath of local and national investors and encourage entrepreneurs to attend. It might be worth your time and money to attend and see what warm leads you can create.
Give a tight pitch, with passion!
Entrepreneurs need to be über prepared, efficient with language and passionate about their value. Yes, there’s a high bar set in these meetings. Have your vision, strategy and data together and be primed for your pitches. Here’s how:
Start with your presentation. Do you belabor the description of your technology or its overwhelming multitude of features? Are there areas where you could tell the story far more concisely? Be spartan with your language and impactful with the points that you make. That first elevator pitch is meant to lead to a meeting and hook investors. Keep the hard-hitting information front and center (value proposition, revenue, customer numbers and corporate strategy). Ditch the fluff.
Practice your pitch repeatedly and out loud. Give your presentation to mentors, coaches, neighbors, baby sitters – whoever will let you! Pay attention to the presentation flow and your voice. Is it seamless or are you tripping over words? Is your delivery enthusiastic and energetic? The strongest sell is made by those who can communicate their deep sense of conviction and strong personal engagement.
Be tough and assured. These go hand-in-hand. Your job is to consistently show investors why your company is going to ascend to the top and why you are the person to take it there. While you need to have deep faith in your value proposition, you also need to recognize you will be turned down on a regular basis. This can be after the initial meeting, part way into due diligence or, at the final stages of investment. Don’t let these setbacks slow your determination.
Show off your credentials. You may recoil from name-dropping, but it’s a must when pitching investors. They want to know your connections, education, acumen and accomplishments. List your credentials boldly in your pitch as well as those of your advisors and board members.The investors are buying into you and your vision so it’s important to sell what you’ve got.
Seek counsel from business owners who have made it, and see if you can apply their strategies to scaling your company. Small start-ups can and do grow to multi-million dollar enterprises, but your potential investors want to see that you have the vision to take your company that far, even if it feels insanely large to you.
Capital markets are opening back up and options expanding. Companies can and should be more selective about the kind of investors they reach out to and who they choose to engage with. Understand venture or private equity investment is a very long term relationship, and know the relationship may be more intimate than you ever imagined. Investors need to understand your vision, and make sure that you understand theirs. Be bold and resolute when negotiating, otherwise you may face the unexpected prospect one day that it is your financial partner running your company, rather than yourself.
This phrase is music to an investor’s ears. It means that you’ve raised funds that that don’t water down the ownership of the business. These include corporate alliances, grants and government contracts. Tapping these funds reduces your need for equity, and enables you to advance a promising technology that’s still too raw for venture investment.
Even if you’re not a university-based start-up, your company can apply for a variety of federal grants from Department of Energy (DOE), US Department of Agriculture (USDA), US Department of Transportation (US DOT) and Defense Advanced Research Projects Agency (DARPA) – many of which have matching from Michigan-based sources. Before you apply for a Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grant, check with the Small Business Development Center for their matching grant. NextEnergy has an ARPA-E matching fund and the MacombOU Incubator has a DARPA matching funds program. Another Michigan based resource is BBC, etc. which can help your firm apply for federal grant applications with their educational seminars or one-on-one counseling. If you’re successful, you’ll build a broad portfolio of assets while minimizing dilution to your ownership and the stakes of your existing investors.
Trust your gut
And as you network, research, pitch, rinse and repeat, remember, there’s no exact science to this, and no cookie cutter template to follow. Every business has a unique persona and set of goals. So take the broader lessons of others and apply them as they apply to your business. Discard what remains.
For more information on Growth Capital Network and the Accelerate Michigan Competition click here.