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What you should expect in a term sheet? What should be in your business plan & executive summary? What kinds of customer and revenue requirements investors require? What kinds of technology would work for me? Which kind of capital to raise, and, of course, should you be raising Venture or Angel Capital or using some other sort of financing options like factoring?
Wow. That’s just about every questions concerning raising capital that you can ask. For most of these, there is no exact answer, but Ill give it a shot.
What you should expect in a term sheet?
Basically, these are the terms the investor has come up with when he gives you a check. It’s sorta like the contract. For this amount of money, you will give me x% of your company, a board seat, this many warrants, and first right of refusal on future rounds. The exact terms vary with each investment. Depending on how far along you are and how much money you are raising determines the x% and everything else. Its how much you are valued at (your valuation).
What should be in your business plan & executive summary?
While people only write a biz plan when they are raising capital, the business plan is something that is really written for YOU. It’s a plan on how to run your business. You need to include how the business operates and makes money, your financials (3 year is fine), some info on your market, and your management team. I usually hear investors say they read business plans from the back to the front, reading your management team first. Your exec summary is the same, only shorter. You need to explain your business in 1 page. This should be an easy to read document that entices an investor to want more. And if you can't explain your business in one page, don't bother talking to an investor until you can.
What kinds of customer and revenue requirements investors require?
Varies with each investor and each deal. However, investors usually want to see that someone out there will buy your product. So having one customer and $50 in revenue is 1000% better than no customers.
What kinds of technology would work for me?
Um, I have no idea what you do. But in most cases you need a website (97% of the time) You need to get the word out there and start getting customers, or people who will read your updates. You should collect email addresses and demographics and keep in touch with your customers. If you have a website and you are not doing this, Shame on you! Here is a great resource: www.GotForm.com. This site will let you put email and demographic collection on your existing website without knowing much about HTML programming... It also gives you tell-a-friend (for viral marketing) and a contact us form (to let your customers conveniently email you.) Its all easily customizable through the GotForm website. In fact, we use it on THIS website. See the “Join my mailing list” text on the left? That’s gotform!
Which kind of capital to raise, and, of course, should you be raising Venture or Angel Capital or using some other sort of financing options like factoring?
Well it depends on what you do, how much you need and what you need the money for. If you need $200,000 you don’t need venture capital you need an Angel Investor or 2. If you need $6,000,000 you need VCs. If you are operating your business but you are finding that your customers are paying in 45-60 days and it’s putting you in a cash crunch, you should consider factoring. You’ll get paid immediately (minus a small %) There are also other options such as PO financing, Venture Equipment Leasing, and of course, grants and bank loans.
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