Show Me The Money! Part 2 March 14, 2011 RICCentre By Tim Scott We want to help you secure funding for your next idea or innovation, and help you push into new and exciting markets. So last post we started to count down the “Top 10 Things You Must Do To Secure Funding For Your Business”. If you missed it, here’s a quick recap: Number 10: Have a detailed Business Plan Number 9: Be clear about your Financial Requirements Number 8: Be able to articulate your ideas in an Elevator Pitch Number 7: Present the strengths and weaknesses of your Management Team Number 6: Define your Business Strategies Let’s finish the Top 10 … Number 5 What is your Debt Structure Your debt structure depends on a number of variables, most importantly your own commitment to your plan. You should always be the first investor – your financial commitment to your idea is what every future investor looks for. Be engaged both personally and financially. Family and friends are typically the next stop when you’re looking for investment funds. Just be sure to treat them as you would any other investor – by providing them with clarity of purpose, detailed information, and a proper exit strategy so they can see how their money will be used and when they will see a return on their investment. The next level of investor is usually a bank or lending institution. Your last stop is with an Angel investor or a Venture Capital organization Number 4 Prepare a realistic Financial Forecast The Venture Capital organizations and lenders I’ve spoken with over the years say the single most disappointing element of any plan is that not enough critical thinking went into preparing the forecasts. So ask yourself, “How are our financials verified?” It’s easy to create a financial forecast based on a simple extrapolation of calculated market penetration – many people do that – but those who do are sorely disappointed when their plans don’t align with reality. Instead, make sure your roll-out strategy is consistent with realistic market uptake and a conservative cash flow. That will be more accurate and give you a better picture. Number 3 Define your Exit Strategy Simply put – how will your investors get their money back and how will you get out of this business. It sounds easy but in fact this is a difficult, time consuming and potentially painful exercise. The structure should take into account all investors, how each investment has been structured (straight investment to a note, convertible debenture, common class shares, preferred shares, etc.) as well as management ownership. All will have an impact on how an exit will, or could, work. Make sure you seek accounting and tax guidance and speak with experienced legal council to ensure the best results. Number 2 Show the Path of Sustainable Growth How are you going to feed the fire? What is your process of defining ongoing activities to ensure sustainable growth? Is your plan to grow organically or by partnering? What are the activities necessary to keep your product or innovation fresh? And finally … The Number 1 requirement that often makes or breaks funding success – Be Prepared! Obvious, yes, but taking the time to work through Numbers 10 – 2 – to define your plan and your strategy will bring you much closer to success. You may ask, “So if I follow all the steps above, will I always be successful in finding funding for my idea?” Maybe, maybe not. What you can be sure of is by following the guidelines above – you will have looked at your situation, your technology and your opportunities and come to a clear conclusion of real product-to-market potential. And keep in mind, just because one person or lending institution says No, does not mean you don’t have a great idea. Keep pursuing your dream, but follow the old Boy Scout motto, “Be Prepared”! If you have any questions about developing your new product or innovation, give me a call at 905-273-3530 or email me at firstname.lastname@example.org. I’m here to help you succeed! The RIC Centre (Research, Innovation, Commercialization) is a non-profit organization that provides business and technical services to small and medium enterprises (SMEs) to commercialize their innovation. Tim Scott is the RIC Centre’s Entrepreneur in Residence. In his capacity, he meets with early stage companies and advising them on moving their business models to the next level. RIC’s interests reside in the aerospace, advanced manufacturing, emerging technologies and life sciences sectors. Visit www.riccentre.com for more information.