April 23, 2012
This is the first in a series of two blog posts regarding five key questions to consider as you prepare to raise capital.
Often great ideas or proven concepts fail to attract quality capital partners purely based on the message delivery or lack of preparation. If an investor has to work too hard in order to understand how your product or service answers five key questions, they often will just move on to the next deal. You have spent all of this time, sweat and resources to build your “mouse trap,” now it is time to prepare to sell your story.
What problem do you solve and how does it differ from or improve what is currently being done? What is the market need and how does your product or service fill that need. Make certain you fully understand the competitive landscape and can clearly articulate why what you do is better than current (and future) options. A good Investment Banking firm will get you in front of the “right” capital partners, partners who know your space and can add value to your future plans. You need to know the space better than the potential investor.
- Tip: If your product is regulated, like a medical device product, search the FDA website for recent filings. Often the competitive landscape encompasses products that have not yet been commercialized.
What is your revenue model (how do you make money)? Answering this question goes beyond a simple we will charge customers “this” and it will cost us “that.” You need to understand and be able to articulate such things as what does it cost you to acquire new customers, what is each customer worth and what is the value proposition for the customer. If growth or scale can significantly improve your revenue model, you have an advantage that others vying for the same capital may not have. Prepare a financial model which captures how profitability improves with scale. Investors will want to you to be able to talk in terms of “Once we reach this threshold (a certain level of revenue or certain number of customers, etc), each incremental dollar will drop .X dollars to the bottom line,” as an example.
- Tip: Clearly articulating your revenue model and related projections is critical to securing capital. If this is not your strong suit, make the investment to get the appropriate financial resources to assist with these models.