<p>STERN The 13 most costly mistakes C-level executives make raising capital Save yourself time, money, and heartache by avoiding these all-too-common pitfalls and set yourself up for success before you even start Your business plan should be the crux of your presentation; the foundation, if you will. This will demonstrate to investors exactly who you are, what you bring to the table, how you’re different and the overall health of your company – all of which they will use when considering whether to take a chance on you. Skimping on this piece of the puzzle will indicate to your proposed investors that you either don’t know what you’re doing or you simply didn’t care enough to make an effort, neither of which will make a good impression. Invest the time and resources into developing a solid, comprehensive business plan complete with all the necessary elements, including company description, nancial projections, unique value proposition and a competitive analysis. That being said, don’t overload your prospects either. Your plan should contain all the pertinent information in a succinct format to quickly and accurately tell target investors your story. If you want potential investors to buy your pitch, you’ve got to do much more than just ask them for money. You’ve got to clearly dene and demonstrate exactly what that money is going to be used for. Without specic milestones, your investors won’t be able to recognize the value in your proposition. Instead of simply stating how much you want, focus on exactly what you will deliver with that amount. Likewise, if your projected milestones or timelines are so unrealistic that it’s highly unlikely you’ll achieve them, investors aren’t going to be willing to take that chance. Venture capitalist Richard Harroch states, “If you show me projections where you are at $500 million in three years, I will just think you are unrealistic, especially if you are at zero in revenues today.” End of conversation. Unclear or Unrealistic Milestones 13 Incomplete or Inadequate Business Plan 12 Over or Undervaluation 11 Properly valuing your business needs and opportunities is essential if you’re going to land enough capital to achieve your short and longterm goals. The problem is, many business owners make the mistake of either overest imating their future revenue forecasts, underest imating var iable expenses or both. The result is a valuation that is inaccurate and unlikely to come to fruition. Quality investors – especially those that are experienced in your particular eld – can spot a miscalculation a mile away and they won’t be likely to take a chance as a result. Whether you’re trying to raise money for an early-stage startup or an established enterprise, you may benet by asking a seasoned professional who’s been through the process to help you reach an accurate valuation. Or, better yet, allow competing lead investors to help set your price. Your pitch should clearly indicate that while your milestones may seem challenging, you can – and will – be able to achieve them based on your particular value proposition, whether it’s skill, technology, experience or the like. To complicate matters even more, making the actual pitch to investors is something that doesn’t necessarily come naturally to many, regardless of role or career status. In these instances, it can be helpful to know what not to do in order to hone and perfect your strategy. Backed by years of industry experience and an over $250 million track-record of success, this in-depth white paper identies the 13 most costly mistakes even C-level executives make when raising capital. Save yourself time, money, and heartache by avoiding these all-too-common pitfalls and set yourself up for success before you even start. 1 Raising capital for your business can be an incredibly overwhelming process. In fact, most business executives end up paralyzed by questions like: Where do I start ? Who can I trust ? What does the right investment partner look like ? How do I get the deal that’s right for me in front of multiple decision makers ? STERN Great Idea, No Execution 10 You may have the greatest idea since sliced bread, but if you can’t present it effectively, you won’t get the capital you’re looking for. Investors receive dozens of pitches in a given week. If you want yours to hit the mark, you’ve got to make it stand out. Don’t assume that your presentation is perfect or that your product or service alone is enough to win them over. Look at other executive summaries and pitch decks that have been successful and use these ideas to inspire and improve your proposal. If you know any other investors, business advisors or executives who have had success pitching proposals, tap into that knowledge base. Ask for samples, ideas and best practices that they may be willing to share and then use that information to further hone and improve your own presentation. Asking for Too Little or Too Much Money 9 Most investors already have a pretty good handle on how much capital it takes to fund a given set of milestones, so if you come in asking for too much or not enough, chances are you’ll miss the mark altogether. Under or overestimating your needs indicates to your prospective investors that you don’t know enough about running and/or growing a business to be trusted with capital. This is a scenario Josh Elman of Greylock Partners sees all the time. "At the end of the pitch, entrepreneurs share how much money they are trying to raise," comments Elman. "However, when they explain why they chose a certain amount, they talk about how long it gets them, or how big a team they can hire. Instead, they should focus on results- with X amount of money, I should be able to drive the business to these signicant milestones. That's all investors care about--how much money does it take to get to the next proof point.“ In preparation of meeting with investors, conduct ample research to determine exactly what amount of money you’ll need to achieve your objectives. Remember that raising too much money will result in greater dilution, while not raising enough will prove costly to the business and to the investor. Adequate research, valuation and projection should help you achieve capital efciency. 2 "THAT'S ALL INVESTORS CARE ABOUT--HOW MUCH MONEY DOES IT TAKE TO GET TO THE NEXT PROOF POINT." Josh Elman, Greylock Partners STERN 3 Bad (or No) Legal Advice 8 When working within a certain budget, many executives are tempted to forgo legal counsel due to cost reasons. Others either rely too much on their advisors or don’t do enough due diligence to ensure the lawyers they hire are competent. Like it or not, there are a lot of critical legal aspects involved in closing an investment deal, and if you don’t have all your ducks in a row, it very well might cost you dearly. Unwinding a bad or biased agreement is agonizing and a waste of management attention. Not only could a dispute over an investment cause headaches in the present, but it could also hinder your ability to raise additional capital in the future. Prepare ahead of time by seeking out and hiring qualied, experienced legal professionals that can help keep you on the right side of the law. Poor Cash Flow 7 If you don’t have adequate control over the cash ow of your business now, why in the world would an investor give you more money to waste? Yet, many executives make the mistake of seeking money without a proven track record. If your cash ow issues are the result of factors beyond your control, such as economic downturns or delays in materials delivery, it may not be cause for too much concern. Overspending, poor revenue management and inaccurate income/expense forecasts, on the other hand, will serve as a huge red ag to would-be investors. Make sure you’re able to demonstrate your executive team’s ability to manage money if you want people to send some your way. Too Few Target Investors 6 To be successful in any big deal – whether setting your prices in the market or pitching your request to investors – creating a competitive environment is key. If you don’t have enough target investors, you won’t have any leverage. Some executives even go so far as to bluff about the number of offers they have in an attempt to create a sense of urgency and force the hand of a prospective investor. Unfortunately, most learn the hard way that this can quickly go south. Legitimate, healthy competition can help provide more of a rich pool of investors from which to choose, and can even attract the interest of investors that previously seemed off limits. You’d be surprised how quickly the schedule of that hard-to-reach investment rm opens up once they catch wind that you’ve received offers from multiple bidders. Failure to Acknowledge Competition 5 Every valuable business proposal has some type of healthy competition, whether it’s direct, indirect or some type of substitute. Overcondent business owners make the mistake of going into a pitch indicating they have no real competitors. What they fail to realize is that without competition, there’s no opportunity, which makes their proposal not worth considering. As seasoned venture capitalist Bryan Stolle puts it, “If you don’t know your competition and the customer’s view of the alternatives available to them, you aren’t ready to raise capital yet.“ Before heading into any meeting with an investor, be sure you’ve done your homework and developed a comprehensive competitive analysis. Not only does this validate your knowledge, but it also provides the ideal opportunity to show would-be investors why and how what you have to offer is better. “If you don’t know your competition and the customer’s view of the alternatives available to them, you aren’t ready to raise capital yet.“ Bryan Stolle, Mohr Davidow Ventures STERN 4 Bad Timing…Too Early or Too Late 4 Perhaps there is no scenario for which the term “timing is everything” applies more than in raising money for your business. If you try to raise capital too early, you will inevitably sacrice leverage. Waiting too long to raise money, on the other hand, may make it difcult, if not impossible to get investors to come on board. For instance, if you head into a proposal looking for money to fund a milestone that’s 2 weeks away, chances are slim you’ll get any bites. The odds are even worse if you have a short runway and are in desperate need of operating capital. The goal should be to raise as much money as you can on your own, through bootstrapping and hard work. This will allow you to establish a more stable business environment prior to seeking investment offers. At the same time, you should also be preparing to raise capital at least 9-12 months in the future. This will allow you to nd the right target investors, start cultivating relationships with them and develop a strong, comprehensive pitch. Not Knowing Your Audience 3 Before heading into any meeting, you should prepare ahead of time. Perhaps no situation is this more critical than when attempting to raise capital. While you m a y b e a b l e t o i m p r o v i s e t h e presentation portion, you’l l be i l l - prepared to handle the inevitable barrage of questions from your would-be investors. As a result, your audience will be less than impressed. Do your research ahead of time to get a clear understanding of who you will be pitching to so you can walk in prepared to wow them. It’s also important to point out that your pitch shouldn’t be one-dimensional or rigid. Not every approach will work with every investor. When you know exactly who you’ll be presenting to, you can adapt and hone your strategy accordingly to improve your chances of success. DEVELOP THE RIGHT PARTNERSHIPS WITH INSTITUTIONS WHO SHARE YOUR GROWTH OBJECTIVES STERN 5 Failing to Follow Up 2 Once you’ve wa lked out o f the boardroom after an investment meeting, the waiting game begins. What many executives fail to realize is the importance of following up after the fact. Not only does this keep your proposal at the top of your investors’ minds, but it also creates a sense of urgency that may move things along faster. At the very least, sending a follow-up email to thank your audience for their time is just good business etiquette. Of course, not every response you receive will be favorable, but in either case, knowing where you stand sooner rather than later is much better than waiting in limbo. Accepting Capital from the Wrong Strategic Partners 1 Believe it or not, you don’t have to take money from the rst investor that offers it. It may seem counterintuitive, but not every investor you pitch to will be the right t. There’s nothing more painful than being tied to a institution or nancial partner who places their own interests ahead of yours. In fact, the goal is to nd someone that brings more to the table than just cash alone. You should be looking for a longterm partner, not just a y-by-night cash cow; someone who will have a vested interest and the proven ability to help facilitate your ongoing success. Many business owners fail to realize the importance of targeting investors that have specic industry experience. Not only is it ok to be selective when choosing an investor, but it’s imperative to the success of your venture. It’s also important to note, however, that investors who are already involved with your direct competition should be approached prudently to assess genuine intention and avoid potential conict of interest. Foster competitive demand ... with your company at the center STERN STERN 6 Even for a successful company, raising strategic capital can be a real challenge. In fact, according to the Harvard Business Review, fewer than 1% of US companies have successfully raised money th rough venture capi ta l i sm. Furthermore, obtaining funds alone isn’t enough. It’s even more crucial that you receive funding from an investor who shares your growth objectives, under the terms that protect your best interests. These are the proven results we deliver at Stern Ventures. With an extensive network of 6,750 nancial institutions, 12,900 U.S. and 16,410 international C-level executives, we can match you with the right investment partner who earns your trust because the partner you select aligns with your strategic goals while offering the most competitive terms. Contact us today to discuss your strategic goals, the resulting capital needs, and how we can help. Conclusion Contact Information SECURE YOUR INITIAL CONSULTATION WITH STERN VENTURES VIA EMAIL TO advisors@sternventures.com Linking executives to strategic capital 415-309-8987 275 5th Street, San Francisco, CA 94103 advisors@sternventures.com www.sternventures.com STERN STERN STERN WE DELIVER THE DEAL THAT’S RIGHT FOR YOU ... WITH AN INVESTMENT PARTNER WHO EARNS YOUR TRUST About Stern Ventures Stern Ventures is an end-to-end investment bank dedicated to raising capital and brokering strategic partnerships from $5 to $300 million for technology and media companies. Stern Ventures guides clients through the entire deal process from strategic planning to successful closing, with care and integrity. We add value for our clients by identifying and negotiating with the best qualied institutional partners and streamlining the due diligence process. Stern Ventures leverages deep industry expertise and connections to help clients achieve their strategic objectives. Our network of over 36,060 capital decision makers and C-level executives forces investors to compete for your business. Here’s what Stern Ventures helps you achieve. 12.9 K 16.4 K US Finance Executives US Tech Executives International Tech Executives However, what really sets Stern Ventures apart is our head, heart, and hands philosophy. Why Us ? Our network ... and your success Our robust network of 36,060 managing and C-level connections means that your prospective partners aren’t just pre-qualied, but will ac tually compete for your business. 6.7 K The right e xperience ... to determine your optimal nancial needs. Head The right c ommitment ... to dedicate ourselves to your best interests. Heart The right c onnections ... to deliver competitive results that help you succeed. Hands Stern Ventures, through Independent Investment Bankers Corp., a registered brokerdealer, offers the following services: CAPITAL RAISING If you’re a CEO, CFO, or COO with at least $5 million in current revenue requiring signicant investment capital to grow your business, Stern Ventures links you with our network of over 6,750 nancial institutions. By getting the right offer in front of multiple decision makers, we help our clients identify and arrange equity and debt nancing between $5 million and $300 million for expansion, acquisitions, or recapitalization. MERGERS & ACQUISITIONS With C-level contacts at 12,900 U.S. domestic and 16,410 internat ional corporate development departments, Stern Ventures facilitates your optimal M&A exit. Whether you’re in the information technology, media, telecom, or mobile sector, we specialize in both sell-side and buy-side M&A guiding you through the entire process. By leveraging our contacts in a competitive atmosphere, you get the most from your current holdings and avoid the risk of leaving “money on the table.” LEVERAGED & MANAGEMENT BUYOUT For buyouts, Stern Ventures helps LBO/MBO sponsor and debt investors craft a nancing structure that meets your investment objectives ... as well as those of your stakeholders. We listen and reect our clients’ need for a strategic plan that provides targets with nancial exibility to operate and grow your business post buyout. SHAREHOLDER LIQUIDITY If your existing shareholders are looking to sell their equity, Stern Ventures provides a 6-9 month liquidity process ... without having to wait for an IPO or M&A event. By facilitating secondary offerings, Stern Ventures enables exiting shareholders to monetize illiquid holdings while your company’s current capital structure stays in place. SECURE YOUR INITIAL CONSULTATION WITH STERN VENTURES VIA EMAIL TO advisors@sternventures.com Securities offered through I ndependent Investment Bankers Corp., a broker-dealer, Member F INRA/ S IPC. Stern Ventures is not afliated with Independent Investment Bankers Corp. 415-309-8987 275 5th Street, San Francisco, CA 94103 advisors@sternventures.com www.sternventures.com STERN </p>