start ups

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The Three Profits of SME's WCP 2013

YOUR CHECK LIST FOR RAISING CAPITAL

As check lists go this one has been kept pretty minimal, see it more as a thought starter for a list of your own! 

Check your must do list!

 

  • Have all your legal documents prepared and in order including all of your corporate information (ABNs, taxation summaries, core financials, assumptions, insurance, contracts etc) centralised and easily accessible so that it can be supplied to potential investors upon request.

  • Ensure the information you provide to potential investors is easily understandable, clear and accurate. The business may seem simple and straight forward to you but remember it may well be complex to them. Keep your presentation simple but ALWAYS have every detail close to hand for the investor who asks that curly question. With cloud storage solutions and tablet mobility there can be no excuses for poor preparation.

  • If successful you will end up in a relationship with these investors, so make sure your new partners and you both have the same goals (equity splits, exit strategy, founders’ roles etc) and that the culture is right.

  • Be prepared to negotiate and give some ground to get a deal done.

 

Understand your don’t do list!

 

  • Don’t think you have the investor’s cash in the bank until it’s in the bank

  • Don’t be cocky. You need to show investors that you not only have a good idea, but are willing to listen and learn off them. Most of the time, they are investing 80 per cent in you and 20 per cent in the product.

  • Don’t hold to an unrealistic goal on valuation – its always better to have 10 per cent of something than 100 per cent of nothing.

Yes it’s a very small list, perhaps the missing advice is that wherever possible seek experienced professional advice, yes it will cost you but long term it will prove to be a very sound investment.

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By, Neil Steggall

The Barking Mad Blog

Business Advice with Bite

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Crowdfunding - WCP 2014

 

Raising Capital is a lot like Internet Dating!

Raising capital is stressful and incredibly time consuming. It’s a full time job. So if you embark on a money raising mission, make sure your business is at a stage where it can survive (and hopefully flourish) with minimal input from you. The capital raise will demand most of your time and attention for the next little while.

It’s actually a lot like internet dating. You write a profile (information memorandum) you go on a first date (swipe right), you decide if you’d like to see each other again, (thank-you text), one party plays hard to get (valuation), meet the parents (due diligence), buy a ring (appoint lawyers), ask the question, (term sheet) and get married (settlement).

Once you’ve got a little seed money to work with, it really then becomes an issue of timing. If you go to the market looking for money before you have a concept or product, you don’t have as much leverage with investors and could potentially be beaten down on your valuation. So founders are generally better off building the product and getting as much traction as possible before courting significant further investment to reduce the risk profile of their venture.

The longer you can hold off, the more leverage you have with investors. But the longer you wait, the more risk there is that your competitors will land funds and get the jump on you. And it can be hard to play catch up.

Preparing the business for a capital raise correctly is critical. My advice is to find yourself someone who knows what they are doing, has experience in the area and importantly is respected by the VC community.

A skilled and trusted advisor is worth their weight in gold, they provide invaluable advice on how to groom the business for a capital raise, such as having an attractive shareholders agreement, employment agreements, and commitment from the founders in place.

Once you have a data room prepared with an information memorandum and financial model  hit the pavement and talk to investors.

Let your advisor’s line up 10 or so meetings, target verbal commitments from these early potential investors. The best way to describe this part is that no one is ‘in’ until they sign a term sheet. Have one of these prepared and printed in your back pocket. Don’t be afraid to put it in front of them to sign. You’ll quickly work out their position.

If you are aiming to raise $1.5 million the hardest part will be getting that first chunk signed away. No investor wants to be the first $50,000, they want to be the last $500,000. So it’s important to lock down some foundation investors, and use them and their name to secure other investors. It’s all part of the gamesmanship and you need to have your strategy down pat before you got out to market.

Once you’ve locked down the funds, management now becomes a priority. Most investors don’t just hand over cash and then walk away. They will set benchmarks, timelines and other KPI’s. You need to keep them in the loop, so regular corporate updates are critical. Ask them what they want to know and how often if you are unsure. Don’t be afraid to ask advice from them, leverage them and their networks as much as possible. You’ll sometimes be amazed at how much of their time they are willing to give.

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By, Neil Steggall

The Barking Mad Blog

http://www.neilsteggall.org/?p=1235

Business Advice with Bite

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Why is my business stalling?

Business Stalls - WCP 2014

If you were to receive a substantial capital investment into your business would you engage outside expertise to help further develop and improve your business? There are few business leaders I know who would seriously answer no to this question, which if you really think it through is very odd.

Why is it odd? Because if you need help after receiving a substantial capital investment you needed it even more before that receipt!

The conundrum is the reluctance of small to mid-cap businesses to spend money on the sound professional advice which they need. Within larger organisations external advice is sourced as a matter of course; marketing, strategic, structural, legal and accounting advice is outsourced on a regular basis.

A recent Forbes article stated:-

  1. 98% of Small-Caps or Start-Ups seeking equity investment fail to attract it

  2. Over 95% of Small-Caps or Start-Ups fail to proffer a business or investment plan suitable to allow a measured investment decision or to attract funding.

These statistics hurt because for a relatively small investment these businesses could have been funded.

As an example at WCP we are frequently sent IM’s or funding requests from entrepreneurs seeking to fund growth or a start-up and after reading  through pages of technical and product detail we seriously have to ask: “what exactly does your business do and how are revenues generated?”

The idea may be sound but the presentation is poor. I and many others like me simply do not have the time to invest in learning what potential might lay behind a poor document. As a consequence I miss out on making good investments and the entrepreneur misses out on a capital raising.

A very high percentage, 90%+ of new client enquiries we receive at WCP are from businesses which have generally:-

  1. Left their approach to us too late

  2. Lack a sufficient skill base or framework to meet their business goals

  3. Run perilously short of working capital

  4. Failed to develop a professional support structure

Most of these businesses are sound, most of the entrepreneurs are intelligent, most can be helped but why did they not seek professional external advice from day one?

After asking the question many times over the past 25 years there are two main answers given:

  1. There are so many shonky “consultants” we were sceptical

  2. We did not think we could carry the expenditure

Both easily addressed! Take the last question first; you simply cannot afford to build your business in the dark, budget for professional assistance and let that assistance enhance your revenues. As to the first question do your research, how long has the consultancy been in business, will it provide testimonials, what are its core competencies, which team member will handle your business and how good a fit is that person?

Good professional advice should be a self-funding proposition. Seeking advice and engaging a consultant is not an admission of failure it is the corporate equivalent of using your doctor, dentist, tailor or hairdresser – you use them to stay on top!

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By, Neil Steggall

 The Barking Mad Blog

Business Advice with Bite

http://wp.me/p401Wv-iV

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Startups Wardour

5 Tips for a SUCCESSFUL Start-up

Starting a new business is an exciting and challenging task, one in which success brings a variety of rewards and yet failure can be a painful and damaging experience. Despite this there are 2.0 million SME’s in Australia and new start-ups opening every day.

This is the entrepreneurial drive at work, the human need to try new things and to stretch and grow. The SME is the economic life force and breeding ground of business. Of the many small start-ups some will go on to become multinational corporations, this isn’t everyone’s choice, or objective and statistically most start-ups will fail within the first three years of operation

Understandably starting a new business is full of challenges and I am often asked how I went about starting my first business and what tips I can offer. Starting a business for most entrepreneurs means a huge amount of sacrifice, hard work, risk and belief in your concept.

My first business came about via a combination of accident, hope and “nearness” to opportunity but if I was to start again I would take these points into consideration:-

1.       Think carefully about the business you choose:

Last week at a conference I was asked the question “what business would you choose if you were starting again?” A very good question and yet one I felt confident in answering. I would choose:-

  1. A high volume established industry with proven customer demand
  2. An industry with a relatively low cost of entry
  3. A location very close to an established business in the same industry
  4. I would price my product at the market price or slightly higher
  5. And this is the WINNER I would out-service and outperform the competition in terms of customer satisfaction.

2.       Market your business well – Marketing is your cash engine

If you have taken my advice and set up your business virtually next door to an existing similar business you already have potential customers passing your door so how do you convert them. You need a plan of attack:-

I.             Check out your competition and look at weak points in their product offering, customer service, display, staff training, customer handling etc. Then do the reverse and observe their strengths.

II.            Build your strategy around out servicing your competition; choose customer service and customer satisfaction as your point of difference. A company we have worked with “Chilligin” is a successful on-line and pop-up retailer of fashion accessories, scarves, handbags etc. Chilligin’s founder and director Nikki Gilhome decided from day one to offer Chilligin customers great products, at affordable prices and to package every item whether ordered on line or in store beautifully. “I wanted the customer to have a lovely surprise when they open their home delivery, or for in store customers something to look forward to when they return home” says Nikki. Small details such as carefully designing wrapping paper, stickers and ribbons, tags etc turn the ordinary into an occasion.  Effectively the customer gets a double hit of pleasure first the purchase decision and later a beautiful package to unwrap.

III.           Train your sales staff to meet and greet customers with genuine warmth, use quiet times to rehearse the perfect approach.

IV.          Wherever possible over deliver on customer expectations, the more a customer enjoys doing business with you the more they will return

3.       Employ the best staff: 

When starting a business we need to be careful of costs but a really good staff member is a key asset and a valuable part of your strategy. Don’t cut costs here.

Chose staff who share your vision, who want to grow, who will absorb your training and guidance. Respect and reward them. Encouragement and respect are amazing rewards, how do your competitors reward staff? There are many ways to reward beyond the pure financial and most people I know would rather work for a little less in a great environment than for more in an uncomfortable environment.

4.       Review Progress and Question – Can we do better?

If your business strategy is to outperform your competition by offering better service and customer satisfaction you must work hard at it to keep at the top of your game. Constantly check your competition, both locally and via the internet, overseas. Read everything you can find for new ideas, engage with your customers, listen and learn. Constantly review every single aspect of your business questioning how you can improve the customer proposal, to satisfy and engage more closely.

Your stock and services must always be current and adjusted as closely as possible to your customer needs. Use stock analysis tools so that you know which items are moving and which are slow. Respond very quickly to avoid wastage, move quickly to special out and move any slow stock. Slow stock is dead money and loosing you sales. Buy more of the fast moving items and consider expanding that part of your range with more options.

Change your web presence or store displays daily to build and maintain customer interest. Collect email addresses via direct questions as you input receipt data, small competitions, draws etc. Communicate directly with your customers, be innovative, informative and “the place to go”.

5.       Think carefully about finance & assistance:

Most businesses will involve you assuming responsibility for some level of debt, make sure you understand the obligations here and your responsibilities. Debt isn’t just a loan, it includes your supplier credit, your rental or lease obligations etc.

It’s important to know which type of financing is right for your business and always try to hold three to six months cash in reserve. Are you willing to give away equity in exchange for cash? Are you looking just for an investor or also for a mentor? Is your business plan solid enough to secure a bank loan?

All important questions to consider and remember with an investor you often gain an experienced mentor as well. If I was starting out again today I would look for an experienced investor who could guide and mentor me over any other form of external funding.

 

 

We are fortunate to live in an age when so much information, knowledge and experience is available for those who want to search for it. Eric Schmidt, executive chairman of Google, said: “There’s a new way to do marketing, and it’s to do it with numbers. People do marketing to bring in revenue, to have an impact, and with these new systems you can measure this. The technology the internet brings means you should be able to measure almost everything.”

If you are thinking of a start-up read and absorb, plan and then follow through and your chances of success are high.

Neil Steggall

The Barking Mad Blog

SME Advice with Bite!

http://wp.me/p401Wv-au