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your case. Also remember to preview and practice the presentation before so-
liciting the investors. Two heads are always better than one; three are better
than two; so present as a team, and during the presentation maintain eye
contact and positive body language, and be selective about word choice. Of
like importance is the clarity of your vision, of what you™re trying to accom-
plish with your charts and graphics, and of the connection between your
presentation and the investor™s values. Don™t ask for the money too quickly,
but remember to ask for it. Don™t underestimate the courtesy of a follow-up
note. And don™t forget to update your database.
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The Solution: A Strategy That Works


EXHIBIT 3.7 Selling Process

• Face-to-face
• Mind-set (attitude about money, rejection)
• Informed (venture, investor)
• Be prepared for questions/objections
• Select “best” person to present
• Preview before soliciting
• Present as a team
• Eye contact, body language, and word choice
• Content: clear vision/value connection
• Timing: do not ask too quickly
• Ask for the money
• Send a thank you note or give a follow-up call
• Update database

Source: International Capital Resources


Furthermore, selling remains an activity; therefore, if there is no activity
being managed, the result is no sale. Fundamental to the sale is understand-
ing the funnel and the pipeline. The funnel represents the need to have a large
number of targeted prospects interested in the deal, affluent enough to afford
it, located reasonably close to you so that you can follow up, and savvy
enough to understand your message when contacting them.
The funnel works like this: You need about 100 contacts in order to
identify 10 interested parties. You need those 10 in order to get into 5 meet-
ings with prospective investors. Those 5 meetings will lead to 3 presenta-
tions, from which you can initiate negotiations and finally close 1 investor.
Then you will need the next 100 contacts so you can start over again. And,
as we warned earlier, successfully raising capital involves being able to deal
with rejection while persisting in your objective.
Once you have identified a qualified, interested prospect, the pipeline
comes into play. You must begin to manage the prospect, moving the deal
forward daily, if not hourly. Critical in managing the pipeline is fulfilling in-
vestor inquiries, getting documents to interested investors in a timely fash-
ion, and getting the right documents to them based on their requests.
Inherent in this step is listening closely to what the investor is asking for, as
opposed to what you think the investor must need, then identifying and con-
vincingly responding to objections and moving the prospective investor for-
ward to a decision.
You must understand and manage the funnel and the pipeline in order to
position yourself for the close.
Since sooner or later the handshake will occur, Exhibit 3.8 delineates
68 THE CHALLENGE AND THE SOLUTIONS


what the principles are behind the close. Basically, closing simply involves
asking for the decision. For most people, trying to close a deal becomes a
specter on the horizon. But in order to get into the position to ask for a deci-
sion, you™re going to have to invest some time in the investors and listen
closely to what they have to say. Remember, you can™t rush things without
coming off as desperate. Remember, too, that the key differences between
private investors and traditional investors is that private investors don™t have
to invest. Therefore, doesn™t it make sense to focus on their interests, on their
criteria? And don™t forget that what you™re selling here is a high-risk, illiquid
“story” security. So keep in mind that high-risk, illiquid story securities are
not bought; they are sold. And what is selling? Successfully closing and ask-
ing for the decision.



Manage the Close
In order to manage the close of your transaction, you must understand the
sales process. Selling involves a minimum of eight activities: (1) prospecting,
(2) qualifying, (3) building rapport, (4) making the presentation, (5) over-
coming objections, (6) using trial closes, (7) closing the sale, and (8) follow-
ing up.
The close is only one link in the chain, but as the penultimate step, it de-
pends on your having successfully managed the previous steps. To success-
fully manage the close, you must understand its single purpose: getting a
decision.


EXHIBIT 3.8 The Principles Behind the Close

• Ask for the decision.
• Invest time in the investor. Listen!
• Do not rush the close. By doing so, you come off as desperate.
• Private investors do not have to invest. Focus on their interests, criteria.
• High-risk illiquid story securities are not bought, they are sold!
• Understand the sales “funnel”: generate leads and manage the “pipeline” (selling
process).
• Always know where you are in the sales process.
• No sales activity = no close.
• Prepare exhaustively for every investor interview.
• Do telephone follow-up with investor after all meetings.
• Participate actively in negotiation.
• Put any offer in correct legal form.

Source: International Capital Resources
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The Solution: A Strategy That Works


Important in the relationship between the sales process and closing is
knowing how near you are to a close. Therefore, you need to understand the
steps in the sales process to close at the right time. Not surprisingly, if you do
not know where you are in the sales process, you will not get to the place you
want to be”closing the investor. Closing is the result of moving the investor
to a decision. Therefore, if there are no sales, you have not positioned your-
self to obtain a close. An indicator of whether you are positioning yourself
for a close will come from monitoring your selling activity.
It is important to have a clear vision about the venture”its present and
its future. Ask yourself what the value of the investment is to this investor.
Fund-raisers understand the values of the people they contact. They under-
stand, as should you, that different investors have different values. Approach
each accordingly. Be able to explain the connection between your venture
and the personal values of the investor.
Once a qualified, interested investor has been identified, you should re-
quest an appointment, normally by phone, to describe the investment di-
rectly to the investor. After setting the appointment, confirm it with a letter.
If you are inexperienced and alone in your venture, bring along to the
closing meeting your investment banker, other advisers, and other investors
involved in the deal, if possible. Do not go in alone. Always present as a
team; the power of a team effort works. Always practice and preview the
close with your associates before you meet with the investor. Get a sense of
exactly how the team will move to the close. Your team should review the
business plan, other venture documents, and data on the investment.
Principal authors of the material should attend the meeting with the investor
to answer questions. In other words, prepare exhaustively for every investor
interview and closing as if these were your only opportunities. If you do not,
they will be.
Select the best salesperson to effect the close; do not close simply because
you have the time or because you are the CEO. When the team meets with
the investor”preferably at the company™s location”members should ex-
press their appreciation for the investor™s time and trouble but move quickly
to the business at hand. Explain how the investor™s investment will be used
and how much money is needed. Review the proposal page by page, answer-
ing any questions.
Exhibit 3.9 lists the elements of a successful presentation to investors.
As we indicated, essential to any close is having the guts to ask the tough
questions. These critical questions should include the following: Are you an
accredited investor? Is this deal of interest to you? Do you have the liquidity
to make this investment? What portion of your portfolio are you putting into
high-risk ventures? What is your minimum investment? When can you in-
vest? What might be your financial capability to participate in the next
70 THE CHALLENGE AND THE SOLUTIONS


EXHIBIT 3.9 Preparing for the Investor Presentation

1. Qualify investors.
2. Present investment opportunity in bite-size pieces, and explain how these pieces
fit together.
3. Focus on return on investment.
4. Present your story logically:
• Overview
• Your moneymaking track record
• Basics: what, when, how, how much
• Describe the market opportunity
• Demonstration
• Close with emphasis on your unique position in the market.
5. Use multimedia in your presentation.
6. Present realistic, defensible pro forma financial statements and assumptions.
Present an accurate, realistic profit-making scenario.
7. Q&A”Be sincere, enthusiastic, professional, and listen to investor™s comments,
questions, and pay attention to nonverbal clues.
8. Practice over and over, every chance you get.


round? Has our documentation made clear what the administrative steps are
in putting your money into the transaction? These are the difficult questions.
But they must be asked.
What qualities make a private investor a true prospect? The list is brief:
investing capacity, interest in your deal, congruity between his or her pre-
ferred level of activity and the level of activity comfortable for you. In addi-
tion, the true prospect will have a tolerance for risk, a willingness to spend
time on due diligence, an openness to developing a relationship, and an in-
terpersonal response to the entrepreneurial team.
Near the end of the meeting, ask if you can call on the investor again to
answer any questions and to learn of a decision. Set a date and time for a re-
turn visit. Thank the investor once again. Here are some things to keep in
mind: Ask for the money face to face. Do not ask for it in a letter or over the
telephone. Asking for money also demands that you justify your request, but
accept a rejection gracefully, using it as an opportunity to clarify the in-
vestor™s inevitable objections and concerns. Again, prepare for those objec-
tions and concerns by knowing your venture. Remember that the private
investor does not have to invest.
The essence of the close is asking for the money. So be certain the in-
vestor understands the procedure for investing money in the venture. Do not,
however, rush the close. Rushing the close, that is, attempting to close before
completing all the other steps in the selling process, will result in your being
perceived as desperate and, as we have warned, desperation can quickly
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The Solution: A Strategy That Works


quash a deal. Timing the close well means not asking too early, but this does
not mean that you should avoid an early close if one is in the offing.
Initiate return calls to the investor and any follow-up meetings only by
mutual agreement. Keep communicating until you receive that final decision.
But regardless of the outcome of the meeting, always send a thank you note.
This will keep the door open for future contact. Once the investor has been
closed, acknowledge him or her by expressing your appreciation in person
and in writing. Reaffirm directly to the investor that the investment will
make a difference in the venture.
Finally, update your database with the information you have drawn
from the meeting.
Another principle behind the close”and we™ve mentioned this before”
involves investing time in the investor and time in developing a relationship
if you want the investor to invest money in you. Private investors do not in-
vest unless asked. In the investment process, they expect gratitude, respect,
appreciation, dignified treatment, thoughtful use of their time, sincere inter-
est in them as people, homework done on their background, some involve-
ment in the venture, and a focus on their interests. In short, they expect
planning, time, and attention. Attending to these details will bring investors
into a meaningful relationship with the principals and increase the chances
of an investment in the venture. Significant angel investments rarely come
from strangers. Whether old or new, these investors have become friends.


DREAMERS AND DREAM MAKERS
As we declared at the outset, funding is an arduous task. But a lesson we
have learned along the way may encourage you in your search for angels.
Investors and entrepreneurs are people on opposite sides of a transaction, al-
though they have more in common than might be obvious. For what is the
real difference between founders with the dream of commercializing their
idea into a $100-million-a-year company and the dream maker who antici-
pates a return 20 times over an initial investment?
Using the documented statistics on performance of the venture capital
industry, let us try to demonstrate this point. Based on the Thomson Venture
Economic U.S. Private Equity Index, early/seed fund types returned a nega-
tive 18.3 percent for one year, and negative 26.3 percent for three years be-
fore providing positive returns of 54.1 percent for five years with an
investment horizon of 2003. The Private Equity Performance Index is based
on analysis of cash flows and returns for more than 1,600 U.S. venture cap-
ital and private equity partnerships. According to Forbes™s Richard
Karlgaard, 75 percent of venture capital firms will be gone in five years, and
72 THE CHALLENGE AND THE SOLUTIONS


it is estimated that 27 percent of venture capital firms formed during the past
six years will not be able to raise a second fund. Clearly, early-stage investing
has been affected more than later-stage and public-equity markets by eco-
nomic conditions and other factors.
Small Business Association (SBA) studies have shown that just 50 per-
cent of all start-ups survive their first year, and only 10 percent survive a
decade. The statistics for investment failure in the venture capital industry
run higher than the failures made by private investors.
The primary reason for such statistics rests on the obligation of pro-
fessional venture capitalists to invest the money under their management. In
this sense, venture capitalists are much like bankers who must lend money
deposited with the bank to make margin profits, and, because of such pres-
sure, make “bad” loans. Fund managers must invest, causing them to be-
come entangled in bad investments as they stretch for a clear winner. Private
investors, on the other hand, do not have to invest. From this fact arises an-
other: Experienced, prudent, private investors concentrate on avoiding a bad
choice instead of trying to strike gold on the two, three, or four investments
they have made. Another factor is the venture capitalists™ focus on the exit,
“swinging for the fence,” and commensurate high rates of return associated
with exit, while angels focus on building sustainable companies. Angels un-
derstand that as long as a sustainable company prevails, they are assured of
getting their money out, as well as earning a return over time either from
cash flows or ultimate sale, or merger or acquisition.
But regardless of the number of investments, regardless of whether the
investor is a self-made millionaire or an inheritor of wealth, each, like you,

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