Writing. It’s a word that can evoke strong feelings of angst and emotional turmoil.
Even if you’re a seasoned professional or literary scholar, it can still create feelings of dread. In some cases, a full blown panic attack.
It can trigger dark memories from comments made on your Year 8 English report…“room for improvement”…“reads more like a plot than a story”…“Ben has a tendency to daydream.” Hang on.
It doesn’t have to be this way though. You can reduce the anxiety of writing for your business or career just by putting some structure into your work. And you can do that using the Rule of Three.
Three Billy Goats Gruff
This was one of my favourite childhood stories as a kid.
“Trip, trap, trip, trap. Who’s that tripping over my bridge?” The plot…“Eat-me-when-I’m-fatter”.
The story ends with the third bigger goat flying at the troll on the bridge, poking his eyes out with his horns, and crushing him to “bits, body and bones.” And finally kicking him off the bridge into the river.
Now there’s a bedtime you won’t forget. You know the one. And probably many other as well…
Even artists and designers use the rule of thirds—derived from the Golden Mean or Golden Ratio—for composition.
Most of the time it is just self-evident. Like a natural law.
Four items seems to be one too many for people to hold in their memory. But a proposal, a report, or any other piece of business writing feels inadequate when it’s supported by only one or two points.
So How Can You Put It To Use in Your Writing?
Well, you can start by writing down your three main points as full sentences BEFORE YOU START WRITING. And spell out your logic as clearly as you can.
This way you’ll force yourself to think through your reasons for recommending a vendor, for example, or pitching an offer to a client—and you’ll make a stronger case.
If you try to ‘feel’ things out as you write then you’ll get lost. You won’t know yet what you’re hoping your reader will think or do.
You’ll carry on and on, gradually clarifying your point as you make several runs at it. A few of my aunties come to mind here :)
In the end, after multiple attempts, you may finally figure out what it is you want to say. But you probably won’t say it in a way that you’re reader can follow.
An Example of Finding Your Focus
Let’s say your name is Dot, and you work at a large earth moving business. Your boss, Bob, owns the business and is considering acquiring a 1000-square-foot industrial premise at 427 Burke Lane as the new HQ.
Bob has asked you to think through the logistics. This requires writing up your list of recommendations before the company makes an offer to purchase the new building.
PANIC! No don’t panic.
BEFORE you write your memo, put your crazy person face on and brainstorm a list of considerations:
Bob’s Responsibilities (before acquisition):
It can also take a bit of legwork and sniffing around—for example, talking to similar companies that have recently moved.
Can’t find any such companies? Then think outside the box. A commercial real estate agent will know someone who has.
For each stage above, you can see we have listed three important considerations.
Now Look at How Easy it is to Begin Writing Your Memo…
Re: Possible Purchase of 240 Burke Lane
Date: February 20, 2018
As requested, I’ve thought through the logistics of purchasing and moving into the Burke Lane property. Here are my suggestions for each stage of the process.
I’d like your approval to tackle the following tasks immediately because they’ll give us a more complete picture of how expensive the acquisition and move would be:
While I’m attending to the details above, you may want to:
Phew. Heart rate back at rest. No panic attack required. No need to hide in the toilets looking at your Facebook account.
You can see that PRE-WRITING in three lines paved the way for a clear, useful memo. It helped prevent writer’s block, organise the material, and make concise, well thought out recommendations.
A Three Bullet Point Summary…
If you’d like a 30 Minute Consultation on how to you can use the Rule of Three more effectively in your business then please get in touch with me—contact details below.
You might need a website re-write, a landing page, an email, an important memo or business plan drafted. The list is endless in the Information Age. Let me help you stand out from the crowd and stop walking the tightrope of language.
If you’d just like to connect and say hello then please do so via firstname.lastname@example.org or call me direct on +61 403 757 226. I love nothing more than hearing about other people’s entrepreneurial exploits or career ambitions.
It’s common practice among financial advisors to rely heavily on referral networks and organic traffic to attract new clients to their business.
Any mention of paid advertising garners a mixed reaction. Everything from ‘waste of money’ to, ‘I spent more than I earned’ is the norm.
Rarely will you hear ‘paid advertising is the most incredible investment I ever made in my business.’
And with good reason.
The cost per lead on direct mail campaigns, radio advertisements, TV ads and print ads can be very expensive. For example, the typical cost per lead for direct mail is in the range of $200 to $300.
If the average annual fees for a client are around $5,000 to $6,000 then $300 on ad spend is a good investment. But the stakes are high. One spelling mistake or an offer that doesn’t resonate and it could be $10,000 down the toilet.
A simple way to overcome this risk is to test the market first before committing large chunks of money to paid advertising. And the best way to do that is using Facebook Ads.
More Than 2 Billion Users and Counting
Facebook Ads are another source of consternation for a number of advisors. It’s a glancing in the distance, eyes-rolling-slowly with segue-into-AFL chat type reaction.
The figures are hard to ignore though. There are now more than 2.2 billion monthly active users on Facebook. That’s one third of the planet. And the fastest growing segment of users are baby boomers aged 55+.
Chances are your favourite high income/wealth delegate/non-price sensitive clients are on there waiting for you to say hello. But how do you attack it?
How do you build a sales funnel consistently producing high quality leads for your advisory practice with a small ad?
Well, here’s a three step process you can use to get the ball rolling today.
Step 1 - Ask: Who are the 4% of people you are most adept at serving?
Yes 4%. Not, ‘everyone is my client’.
4% is derived from Pareto’s 80/20 principle. So first you look at the 20% of clients who produce 80% of your revenue. This might be high income earners aged 35-45 or couples aged 55+ with lots of free cash flow. Then you take this 20% and multiply it by 20% to get 4%.
Now we are very focused on a valuable customer segment that we can offer something of value to. This brings us to…
Step 2 – Identify your audiences…
An example, ‘I’m worried I’m not going to have enough savings for retirement. I hate having to read the business pages to keep track of my share portfolio. I want enough savings for retirement and I don’t want to have to worry about managing my share portfolio’.
And on, and on…
You know your clients better than anyone so this step should be a cinch.
Step 3 – Is offering really specific information to your audience
Information has officially been commoditized. So much so it has become a paradox. It seems the more information we have the less we know and the more confused we get.
So how do you stand out from the crowd?
Well, you need to craft what’s called a lead magnet. Not just any old lead magnet. It has to take into account the factors you identified in step two and be highly valued by your prospect.
You can use the following four letter acronym, courtesy of Facebook Ad King Nicholas Kusmich, to satisfy ‘highly valued’. According to Nick, your lead magnet should be a simple document that is:
Built On Solid Ground
This three step process builds the foundation for an online sales funnel you can roll-out using paid ads on Facebook. The funnel from start to finish can be as simple as follows:
Of course, you might still be thinking…what on earth can I offer in the form of a lead magnet that truly resonates with my prospective audience?
There’s no point re-inventing the wheel here. The following documents have proven to be highly effective lead magnets time and time again:
In most cases you are already sitting on your most valuable content. Think of the most popular blog or podcast you’ve done. This will usually suffice as a valuable lead magnet once packaged up for your prospects.
If not, then put yourself in your client’s shoes and think about what’s really valuable to them.
Stepping Into the Cauldron
The next step and most important step is to get into the market and test your ad and funnel. You can do this with as little as $100 of ad spend on Facebook. You can set a budget for as little as $3 a day and get in front of prospects who look exactly like your most valuable clients.
The cost per lead is unmatched using Facebook Ads compared to traditional advertising methods. I know of advisors paying $35-$65 per lead using simple ads with a static image. That’s on the high side for Facebook Ads but very much on the low side for financial advisors.
Once you start getting clicks and downloads you can up your ad spend to $1,000 per month. Imagine getting 15-30 highly quality leads a month for every $1,000 you spend. And once you have a list built you can retarget these people and promote upcoming seminars and all manner of products and asset management capabilities. This is a subject best left for another day though.
For now, just remember the three step formula above so you can start bringing in high quality leads on autopilot for your advisory business today.
Ben Hucker is the founder and principal of iEvoke. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on helping financial advisors with their digital marketing needs and uses his passion for writing and business to help advisors get new clients and scale funds under advice.
Preaching to startups in the midst of raising capital about what to prepare and what to say to investors is all well and good.
But without some rock-solid case studies then the pander becomes nothing more than rhetoric.
Every entrepreneur who has attempted to raise capital from investors knows how difficult the process can be. The endless round of emails, phone calls, meetings and coffees—not to mention running your actual business—means the capital raising process can quickly spiral into your worst nightmare.
Yes it's hard. But if you can get your message right in the first place then you can make your capital raising project a lot easier.
So if you're a young startup with very little operating history then keep reading. If you've recently secured much needed oxygen for your startup then you may also want to keep reading.
Lost, Now Found
About a month ago now I caught up with, John Anderton, one of the co-founder's of a young startup called FINDIT.ID. John is also the founder of Butterfly Creative—listed in the BRW Fast 100 in 2012.
FINDIT.ID has recently been able to close its $100,000 seed raise oversubscribed (nearly 2X). The funding came from a handful of angel investors.
The seed raise is the result of an enormous amount of hours finding, meeting, greeting and pitching to investors over the past two months.
Closing oversubscribed with very little operating history was an outstanding result for the FINDIT.ID founders. And a key component of their pitch was using the presentation materials prepared via our premium service offering at iEvoke.
This service is designed for startups that need to build a compelling investment case targeted at angel investors and sometimes institutional investors. More on this later though.
Where to Next?
FINDIT.ID came to us last year with a problem—how to structure and pitch their story to investors? We were happy to offer assistance because helping startups craft a compelling business case is what we do best.
Our solution on this occasion was to put together a business case that not only captured the attention of investors but also resonated with their hopes and desires, i.e. making money and being a part of something big.
What Did we Do to Help?
We put together a package of materials with the following key elements:
It’s important to note that we didn’t waste FINDIT.ID’s time putting together a lengthy and verbose document like a business plan or information memorandum—especially at this early stage (NOTE: the offer was targeted at sophisticated investors so a formal offer document wasn't required).
We focused on what matters.
What matters the most is having a clear and concise message for investors that elicits an emotional response via a story.
The Power of a Story
Of course that story can’t just be any old story—a work of fiction. FINDIT.ID’s story had to be substantiated with a war chest of supporting data and research since they had no operating history at the time they came to us.
Their story also had to be made memorable.
We’re happy to disclose that the secret to making your startup story memorable is contained in a single word: brevity.
And to build a story you need a plot. There are number of plots you can use to build the backbone of a story but the most effective framework to use when it comes to raising capital is the age-old plot of:
You know the structure well. The good guy defeats the bad guy and everyone lives happily ever after. Think Batman and the Joker, Luke Skywalker and Darth Vader, Superman and Lex Luthor, Erin Brokovich and Pacific Gas and Electric.
Making it Resonate
The next step is bringing the characters in that story to life.
In the case of FINDIT.ID, the bad guy (problem) is the billion dollar industry called “lost property”. And the good guy (solution)—a free, easy system for returning lost objects from ‘finders-back-to-owners’.
We built this story into FINDIT’s presentation materials. The procedure for presenting to investors was then transformed into a 3 Step Formula that looked as follows:
Rinse and repeat for each investor.
This proved to be a simple procedure for what is typically an exhaustive and complex process. And by putting together a concise set of materials, FINDIT.ID was able to go to investors with clarity and conviction.
The Underlying Message was Clear
“Billions of dollars of personal items go missing every year…” (PROBLEM)
“We’ve developed a free, easy system for returning lost objects from finders-back-to-owners…” (SOLUTION)
“This is how we expect investors to benefit 1. 2. 3. etc…” (HAPPY EVER AFTER)
And there were no awkward follow-up calls along the lines of, “Hi Mr high net worth. Did you get time to read through our business plan?."
The typical high net worth response is, “Ah what business plan?” or, “Uh, yeah but I only looked at the front cover and skimmed the rest so can you tell me more.”
Making it Stick
With a clear and compelling message, FINDIT.ID was able to achieve what a lot of startups fail to achieve—raise seed funding so they can grow their business and achieve their startup dreams and ambitions.
FINDIT.ID is now ramping up its human and I.T. resources in an attempt to bring its idea to reality.
If you’d like to know more about our premium service offering for startups like FINDIT.ID then please head to iEvoke.com.au. If you’ve lost your luggage or other personal items then head to FINDIT.ID to see what they can do for you.
And if you haven't already done so, please feel free to DOWNLOAD your FREE REPORT: “6 Capital Raising Myths Exposed” by clicking CLICKING HERE.
Ben Hucker is the founder and principal of iEvoke. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on being an active member of the startup community and uses his passion for writing and business to help clients create a powerful business case for investors.
An information memorandum (IM) is one of the first things an investor will ask for when you begin your capital raising mission.
An IM lays the foundation for your capital raising and sheds light on the past, present and future plans for your business.
Following is an outline of the main headings you will need at a minimum when preparing an information memorandum for your capital raising:
1. Letter to Investors
This can be a Chairman’s Letter or Director’s Letter. This letter gives a summary of where you’ve been and where you plan to go. Keep it short and punchy and no more than a page in length.
2. Investment Highlights
Pretty self explanatory. This can be five bullet points on what sort of return investors can expect if all goes to plan. It’s not just about the numbers though. If you are one of a few accredited providers of a product or service then this can indicate high barriers to entry for competitors, for example.
3. Executive Summary
This section is basically a short excerpt of all the proceeding sections. It is designed to give a snapshot of your business and why you want to raise capital. It saves prospective investors the time of reading through an entire document. You want to give enough info here to keep investors interested but it is not meant to be comprehensive by any means. Think of it as a teaser to the rest of the content in your document. It is also a chance to cover some milestones that your business has achieved to date.
4. Business plan and growth strategy
Now you’re getting into the nitty-gritty. This section can be a cut paste job from your business plan that you prepared before starting your new venture. Of course your business may have changed significantly since you last looked at your business plan so you want to update as appropriate. You want to give specific detail on the following aspects of your business at the very least:
Unless you are selling government bonds, then there is such a thing as risk. Even if you have a monopoly position or license to print money, you are still exposed to risk. It comes in many different shapes and forms, some of which you have control over and some of which you have none. Here you want to talk about risk factors related to:
6. Executive Team
This is a big one for SMEs. It is a good chance to extol the value of your senior management team. You also want to give more detail on your board of directors or advisory board members. Having a good management team is a big point of leverage as it shows reduced reliance on one key person with the backing, hopefully, of key executives via your board of directors or advisory board.
7. The Investment Offer
Time to go into detail with regard to your investment offering. What will investors receive in return for investment in your business? If you’re generating healthy profits and cash flow then your focus will be on an appropriate earnings multiple combined with an assessment of strategic value to find a valuation. 2x profits is the starting point for most private companies when discussing valuation. If you are an early stage company with little revenue then you will be more focused on strategic value by itself. This could be a database of subscribers, a patent, a signed contract from a potential buyer, a trademark, successful clinical trials, etc.
8. Financial Statements
Most investors will want to see at least two years of operating history including Balance Sheet, P&L and Cash Flow statements. Pre-revenue start-ups with little operating history need to focus on forward looking estimates for these items. When you are done forecasting, cut your revenue projections in half and double your expenses. Be realistic. You want to round out this section with some comments or assumptions underlying your financials.
9. How to Invest
Time to see the light and tell your prospective investors how they can apply for securities. Relevant instructions on how to access your application form are included here. Other details will include information on:
Here you want to highlight key terms and provide definitions. This is especially important for tech based companies in manufacturing or biotech for example.
11. Corporate Directory
Include details here for your solicitor, accountant, auditor, company secretary, registered office and provide a link to your website.
12. Application Form
This provides a chance to collect key information from prospective investors and provide an efficient means by which they can apply for securities and deposit funds.
The outline above at least gives you an idea of the minimum level of information required when raising capital. The bulk of this you can prepare on your own. Assistance may be needed when it comes to preparing financials, both historical and forecast, and when drafting relevant disclaimers.
The internet is littered with examples of effective IMs and disclosure documents so time to get googling if you want to see some real life examples.
Ben Hucker is the founder and principal of iEvoke. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on being an active member of the start-up and small business community and uses his passion for writing and business to help clients create a powerful business case for investors.
If you need help crafting your Information Memorandum to ensure you attract the right investors, for your business or property development, contact me for a no obligation quote at email@example.com or 0403 757 226.
This article is general in nature and cannot be regarded as legal advice. It is general commentary only. You should not rely on the contents of this article without consulting professional advice from a corporate lawyer or adviser.
So you've been up seven nights in a row burning the midnight oil writing a business plan that you can take to prospective investors.
You've also spent a mountain of time creating a pitch deck presentation and rehearsing an accompanying dialogue.
All this while running your business day-to-day and looking after the millennia of other items that quickly dispel the apparent ideals of freedom and liberty that come with running your own business.
It's time now though for you and your team to get out there and start presenting your business case to investors so you can secure some much needed oxygen for your startup.
But where exactly do you go to find these mystical investors that the media always keeps referring to as if they grow on trees down at the local park?
You can't just head on down to Woolies and start whispering in the ear of random strangers "I have a secret". Well you can, but you'll probably get locked up. So where do you go?
In my previous job as a matchmaker for startups and investors it was my job to find as many high net worth individuals (commonly referred to as angel investors) as I could.
There always seemed to be an inverse correlation between the wealth of an investor and their discover-ability so the big fish can be hard to catch. This doesn't mean it is an impossible task though.
In fact, it is a common myth among first time entrepreneurs that they don't know any investors. Nothing could be further from the truth.
You'll actually find that you aren't that far removed from finding your next investment partner. They may even be living in your neighborhood, or living next door watching re-runs of the Wonder Years.
To make the job of building a shortlist of investors a little easier, I wanted to highlight some resources that I used in my previous job to find the sometimes elusive high net worth individual. Here they are in no order of importance:
1. Your Local Accountant
Your friendly accountant is one of the best intermediaries you can use when it comes to finding suitable investment partners for your startup. If you haven't got an accountant then get one.
Accountants have intimate knowledge of their clients balance sheet and P&L, not that they will ever disclose any of these details to you.
They are perfectly placed though to give you a friendly introduction or referral to someone they think might be a suitable investment partner for your business.
2. Commercial Lawyers
Ditto for this group. They have intimate knowledge of every aspect of their clients business but they will never disclose any of this to you.
They might be able to arrange a friendly introduction for you though depending on suitability and capital requirements.
3. Business Colleagues
It is only natural that your business colleagues would have an interest in your new startup or business. Ask around with your current workmates if still employed, former colleagues if not, close business associates, and even the colleagues of your spouse, de-facto, family or friends.
A small allocation to high-risk venture capital investments is looking more and more attractive for superannuation accounts post the release of the Government's Innovation Statement. So this method is not so far reaching and the appetite for startup investment is expected to grow.
Here's a great article here from Sydney-based accelerator Blue Chilli that goes into more detail on the expected impact of the Australian Government's new stance on innovation.
4. University Professors
University (college in the US) professors are some of the most networked people on the planet—some make Anthony Robbins look like a loafer when it comes to networking.
A select few have a serious commercial streak as well, despite their preference for the hallways of academia.
The professors inside the Technology and Innovation departments of city and regional universities are especially fruitful. Start reaching out with some of your old professors, or professors at your local university.
5. University Alumni
Have a think about the people you used to go to university with. There's bound to be someone who is interested in what you're doing.
If you didn't go to uni then think about friends from high school. Some of those early dropouts that everyone laughed at can turn out be very successful business people so you might want to do a brainstorming session here.
6. Other Start-Ups
This method is often overlooked but it can be a treasure trove of introductions and referrals.
Think about a startup who has recently raised capital. Chance are they have had a 100+ coffee meetings with investors. One investor among the 100+ that they have met with might be a perfectly good fit for your startup.
Get in the habit of asking other startups if they know of anyone that might be interested in investing in your business.
7. Online Media
I read an article the other day about how Sherpa—a peer-to-peer delivery platform—closed a $1.2 million funding round from private investors including Hotels Combined co-founder Michael Doubinski.
This tells me that Michael Doubinksi has an appetite for marketplaces like Sherpa that connect private couriers with customers via an app.
If you have startup with a similar business model but in a different vertical—say on-demand graphic design projects via an app—then it might be wise to try and reach out to someone like Michael Doubinksi. If he's not interested then he might know someone who is.
Go to Twitter or LinkedIn to find a common connection or even an email address so you can get in touch. The world is pretty small these days so don't view this as an impossible task. This is a good article on how to connect with online influencers.
You can rinse and repeat this cycle a number of times using the daily gamut of media updates on companies that are closing out funding rounds.
The Hard Part
Marketing guru and serial entrepreneur Seth Godin says you should always ask yourself what the hard part is when starting a business—the easy part is building a website, setting up a company, doing your business cards, designing a logo. The hard part is marketing your business and finding customers.
The same holds true when trying to raise capital for your business—the easy part (by easy I mean it is only 20% of the process) is putting together a business plan, slide deck and one-page summary.
The hard part is finding investors.
"Everyday I'm Hustling"
The above list provides seven methods for finding investors. They are all viable methods but there is definitely no short cuts. You really have to hustle your butt off to find the right investment partner.
I haven't even talked about online Angel investment groups. This is deliberate. The methods listed above will get you connecting with real people and get you building real relationships.
I hope you can use this list to find your next investment partner, or partners.
The process isn't easy but if your business has serious traction—customers, sales, a good business model—then you'll probably find that investors start falling over themselves to get a piece of your business once you start spreading the word.
Just remember it takes 6-9 months on average to raise capital for your startup so stay patient and persevere.
Happy hunting and comment below if you are in the midst of raising capital for your business, or have raised capital in the past and you want to share some of your own experiences.
DOWNLOAD your FREE REPORT: “6 Capital Raising Myths Exposed” by clicking CLICKING HERE.
Ben Hucker is the founder and principal of iEvoke. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on being an active member of the start-up and small business community and uses his passion for writing and business to help clients create a powerful business case for investors.
Any man (or lady) who can take a relatively boring subject like corporate finance and make it sound interesting deserves respect.
One such man is Bill Ferriss (pictured left), Co-Chairman and Co-Founder of CHAMP Private Equity and author of Inside Private Equity.
Inside Private Equity is a ripping read for anyone working in the PE industry, or anyone working in business for that matter.
Bill is Harvard MBA graduate and is arguably the founder of Australia’s venture capital industry having founded the country’s first venture capital company in 1970.
Bill later teamed up with close friend Joseph Skrzynski to form Australian Mezzanine Investments Pty Ltd (AMIL) in 1987.
AMIL achieved outstanding success during the 1990s with investments in Datacraft, Austal Ships, LookSmart, Fingerscan, Seek and many others.
Bill has been the chairman of the successor company to AMIL, CHAMP Private Equity since 2000.
He has stepped backed from the day-to-day to management of billions of dollars of investors’ money at CHAMP but his hard-learned lessons in the roller-coaster world of private equity investment are still just as relevant in today's business world.
You could write a novel on the lessons learned by Bill over his extensive career but today I wanted to share a clever 3 Step Process that Bill used to assess the merits of any business or venture prior to investing.
These criteria could apply equally to any business or venture seeking equity funding from investors. The three components that he typically focused on were:
1. Core Proposition
What is the core proposition of the deal?
Bill would always ask why he could expect to make exceptional returns from an investment. To answer this he looked at what was so different or superior about a product or service that would ensure above average profits and a sustainable competitive position. He would also assess if there was protectable intellectual property. And importantly, each core proposition must have been capable of articulation in less than one A4 page of text.
2. Key People
Who are the key executives that can make it rain?
And Bill’s first question to assess this? do the owners of this business have their life on the line for this? He would then look at what experience, contacts and existing business opportunities they could bring to the table? Finally, he gave careful attention to whether key executives were people of integrity?
Chiefly, what do the numbers look like and are they credible?
If the core proposition is exciting and the people check out, Bill would ask how good the numbers were in reality and if everything went according to plan then what are the likely financial returns? And how disastrous will they be if things go badly? How do these various upside and downside cases or scenarios correlate with the nature of the risks involved? In other words, does the risk/reward profile really warrant the exposure of time and money?
That was it. Millions upon millions of VC investment made on the basis of a 3 Step Process. Obviously it was collated using a war chest of qualitative and quantitative information but the 3 step process provides a simple formula for assessing any business in any industry.
Success or failure for Bill and his portfolio of investment companies could usually be sheeted home to the degree to which the pre-analysis of the critical components actually applied in practice—always acknowledging that luck invariably played a key role “sometime wonderfully, and sometimes horribly”, according to Bill.
In any case he always had the same philosophical outlook before making an investment in any business, “Nothing ventured, nothing gained.”
How would your business look through the prism of Bill’s three components of investment analysis?
Knowing what structure to use when communicating your company’s story can be a giant headache for busy entrepreneurs and company executives.
Whether it’s securing that big government department as a client, or an industry leader who you need to engage as a strategic partner—or even private investors who you need to raise capital from—the challenge of telling your company’s story can be met with an uneasy sense of foreboding,
Sometime it’s a genuine fear that you might get the message wrong, or worse, lose valuable clients or big partnership opportunities because you did nothing but confuse or muddle your audience.
It doesn’t have to be that painful.
Now being a busy entrepreneur or executive, it is likely that you don’t always have a lot of time to prepare a slick presentation, a blog article, a white paper, a brochure, copy for your website, etc., so here are three simple steps you can use to prepare virtually any presentation or document relatively quickly:
Basic elements to include in your story:
Give examples that are meaningful and relevant to your audience and remember one thing: story is sequential—“This one-time this happened, and then this happened, and therefore this happened, and so on.”
Add Salt & Pepper
Structure is great but using the principle of contrast is one of the best ways to add some flavour to your story as well.
You can build contrast into your story by taking your audience on a journey that introduces conflict (the problem) and then resolves that conflict (your solution).
If you can do this, then you’ll be streaks ahead of the pack who simply recall talking points and recite lists of information.
Audiences tend to forget rote lists of information and vague CEO-speak, but stories come naturally to us because that’s what we’ve done since the dawn of man: tell stories.
Take the following message as a quick example to illustrate the point further:
“Our mission is to become the international leader in the space industry through maximum team-centred innovation and strategically targeted aerospace initiatives.”
“…put a man on the moon and return him safely by the end of the decade.”
The first message is incomprehensible to most, let alone memorable.
The second message—which is actually from a master communicator, John F. Kennedy—motivated a nation toward a specific goal that changed the world.
JFK (or his speechwriter) new all too well, that abstractions and CEO-speak are not memorable, nor do they motivate. Yet how many times do you see references in presentations and other corporate material to “maximizing shareholder value, company deliverables, blah, blah, blah”…....“making shareholders money at any expense” is more to the point but no CEO would ever say that.
The Need for Narrative
Story is an important way to engage your audience—typically customers, partners, or investors in the corporate world—and appeals to our human need for logic and structure in addition to emotion.
A 2003 a Harvard Business Review article on the power of story hits the nail on the head. It says storytelling is actually the key to effective leadership andcommunication in business:
“Forget Powerpoint and statistics, to involve people at the deepest level you need to tell stories.”
You should not fight your natural inclination to frame experiences into a story; instead, embrace this and tell the story of your company to your audience using the simple structure outlined above.
This will help you sign your dream clients, strategic partners, and/or investors.
We’re keen to hear some feedback from readers of this article, specifically:
It’s a typical situation: entrepreneur has great business idea, or solid proof-of-concept, but entrepreneur needs to raise capital to scale their business and compete.
So they need to raise some seed, or expansion funding to take their business to the next level.
Entrepreneur puts together a lengthy business plan and begins firing it off to investors en masse--otherwise known as the scattergun approach to finding investors.
Hang on…is that the sound of crickets?
All those hours spent knocking together a beautiful business plan covering every last detail of your future ambitions and not a sole is interested.
This is a soul crushing experience for entrepreneurs and an uncomfortable experience for seasoned investors who are on the receiving end of your solicitation to invest (usually via a cold call, or cold email).
This is the common approach to finding investors for your startup. We’re here to eradicate that approach.
A little knowledge goes a long way and a lack of knowledge regarding startup investment has to be one explanation for the continued use of this ineffective method.
Or it could just be the sheer excitement of knowing that you’ve discovered the Elixir of Life and you just want to tell the world one email, or phone call, at a time.
The number one way to overcome this problem is to stop firing off emails and phone calls to Johnny Longpockets (don’t worry, I am guilty of this) and his cronies immediately.
Second, it’s time to smarten up and start thinking like a pro.
Third, is knowing that the best way to engage with investors is to establish CREDIBILITY before you start talking to them.
Without this crucial third step, Mr or Mrs Investor will be less concerned with your Elixir, and more concerned as to the reason why you are talking to them in the first place.
Until you get past the issue of credibility, the investor you are talking to will not listen to what you have to say. If it seems like they are, then they are just being polite, trust me.
A better way...
If you are giving your elevator pitch to an investor for the first time then chances are you have had some type of conversation leading up to it.
During that initial conversation you must establish credibility in such a way that the investor knows exactly why you are talking to them.
The conversation might go something like this, “Hello, I am Bill Smith, and I was referred to you by Johnny Longpockets who mentioned you might be interested in…”
If you have a name that means something to this person then use it (of course, you will need permission from that person first).
If you have not been referred to an investor then the conversation might go something like this instead, “Hello, my name is Bill Smith, and I read in the Financial Review that you have an interest in…”
You need to take whatever link you can that allows an investor to see why you have specifically targeted them with your proposal.
No investor is going to listen to you until you do this. If you’re Bill Gates then feel free to just introduce yourself as Bill Gates. But if you’re not, then don’t.
It is highly likely that you will need to borrow some credibility from some firm, or person, who has a fair amount of salience with your investor.
For example, “Hi Johnny, I bumped into Peter Jones, your accountant, and he encouraged me to give you a call about…”
It doesn’t have to be the local accountant. This will work with a friend of the investor, a former colleague, a nephew, a niece, a law firm, or simply a social contact, such as a golf or tennis partner.
If you don’t get out much then sites like LinkedIn and Xing are great tools for discovering common connections.
There are also sites like Crunchbase, AngelList, Gust, Angels Den, etc. that have profiles for investors made available once you’ve registered with them.
In Australia, similar sites include the Australian Investment Network, AAAI,Melbourne Angels, and Sydney Angels.
Even a simple Google search will often turn-up mutual connections.
By researching investors online you are likely to see where they have worked in the past and with which businesses they have partnered.
Chances are you know someone, who knows someone, who knows someone. All you need is a link. The world isn’t that big anymore (just think 6 degrees of Kevin Bacon when you’re prospecting).
Any common ground with your targeted investor can allow you to borrow sufficient credibility.
Finding and then referencing this common ground at the outset of your initial conversation is essential to your prospects of starting a relationship and securing investment.
Time for some feedback.
We’re keen to hear from entrepreneurs who are going through the process of raising seed or expansion funding for their startup, specifically:
Happy hunting and don’t forget to establish your CREDIBILITY before you start talking to investors.
Have you DOWNLOADED your FREE REPORT yet? “6 Capital Raising Myths Exposed”. CLICK HERE to fix that.
Well the time has come.
The amount of verbiage that gets bandied around in the media and even well-meaning friends and family (we forgive them) about how to raise capital for your startup, or business, is beyond reproach (slight exaggeration but not far from reality).
We thought it is about time that a few truths were told regarding the capital raising process.
Entrepreneurs are continually mislead about the true essence of the capital raising process and what it takes to capture the attention of private investors.
We've produced a report called "6 Capital Raising Myths Exposed" to try and combat this problem.
Here's a sneak peak of the full report:
"Numbers alone are enough to attract investors."
Entrepreneurs have somehow been led to believe that investing and investment decisions are all a matter of arithmetic. Facts, numbers alone, do not persuade. In order to persuade an investor, entrepreneurs have to be able to tell their stories...
"Investors will read your business plan."
Hundreds of would-be entrepreneurs have been taught that writing a long and polished business plan is necessary to raise investment capital. This is absolutely wrong. Find out exactly why this is the case...
"I don't know any angel investors"
If you live in Siberia then this may be the case, but otherwise, this is simply not true. Of course, you cannot open a phone book and look under angel investors. This type of investor is not recognised by most lawmakers and they tend to keep a low profile. Find out exactly where to find them...
"No means no more talking."
When an investor gives you a resounding "NO" after you have pitched them for investment, your natural response as an entrepreneur is to move on, with the view that they offer no additional value to your business building. This is probably the biggest mistake you can make when trying to raise startup funds. Find out why...
"Valuation doesn't matter."
There is a common misconception that your initial valuation doesn't matter because you'll make up ground as the business grows and receive higher valuations in the future. If only that was the case...
"The deal is done when an investor says yes"
It is natural to assume that, once everything is completely agreed and only signature signing and paper shuffling remain, your capital raising will close of its own volition. Nothing could be further from the truth...
That's just a small taste of the six most common capital raising myths. CLICK HERE to download the full report for FREE.
The full report goes into much more detail and explains the rationale behind each myth based on significant experience working in private capital markets.
We hope you find it useful and I'm keen to hear some comments and feedback from entrepreneurs or investors in the midst of raising capital, or who've been there, done that, in the past.
My contact details are on the final page of the report so feel free to give me a call or send me an email to discuss further, or comment in the field below.
And that DOWNLOAD link again.
I came across a link on Twitter the other day to a great article on writing an effective business plan.
80% of updates on Twitter are rubbish but every now and then you get a gold nugget like this which perhaps justifies being on Twitter in the first place.
The article and was first published in the Harvard Business Review in the late 90s (yes that is last century) but the content of the article is still relevant in today’s fast-paced digital world.
The author was William A. Sahlman. Will is the "Head Proff" of Business Administration at Harvard so he is a man worth listening to.
A sentence in the very first paragraph from Will’s article about writing a good business plan struck me:
Indeed, judging by all the hoopla surrounding business plans, you would think that the only things standing between a would-be entrepreneur and spectacular success are glossy five-color charts, a bundle of meticulous-looking spreadsheets, and a decade of month-by-month financial projections.
Will goes on to say that nothing could be further from the truth and in his experience with hundreds of entrepreneurial start-ups:
Business plans rank no higher than 2—on a scale from 1 to 10—as a predictor of a new venture’s success. And sometimes, in fact, the more elaborately crafted the document, the more likely the venture is to, well, flop, for lack of a more euphemistic word.
I couldn’t agree more and have actually written about this subject in a previous article. I also get clients asking me all the time if we prepare our documents using InDesign. The answer? No.
We have a preference for substance over style—provided your document doesn’t look like a complete dog’s breakfast in the first place.
If style and formatting isn’t the problem when it comes to crafting a good business plan, then what is the problem with business plans?
According to Will, the answer is relatively straightforward:
Most waste too much ink on numbers and devote too little to the information that really matters to intelligent investors. As every seasoned investor knows, financial projections for a new company—especially detailed, month-by-month projections that stretch out for more than a year—are an act of imagination.
That doesn’t mean your business plan shouldn’t include any numbers at all. It just means that it shouldn’t be the major focus of your business plan:
Numbers deserve a couple of pages in any business plan but somewhere near the back of the document. Not the front.
Instead of focusing on the numbers, Will teaches his MBA students to structure their business plan around the following ingredients:
Will concludes the article by making it clear that business plans are a necessity but definitely not the "be all and end all" when it comes to securing investment:
There is little doubt that crafting a business plan so that it thoroughly and candidly addresses the ingredients of success—people, opportunity, context, and the risk/reward picture—is vitally important. In the absence of a crystal ball, in fact, a business plan built of the right information and analysis can only be called indispensable.
In short, great businesses have the four parts of Will’s framework completely covered. If only reality was so complicit.
Something a little more visual this week. We've taken Dave McClure's original "How to Pitch a VC" deck on Slideshare and zazzed it up a little bit.
Dave is the founder of the venerable 500 Startups in San Francisco. He is also an entrepreneur and prominent angel investor.
Thanks also to Tomas Bay from Slides that Rock for his guidance on all things slide deck design.
Now the deck.
How to Pitch a VC in 10 Slides or Less (redesigned).
1. Elevator Pitch
2. The Problem
3. The Solution
4, Market Size
5. Business Model
6. Proprietary Tech
8. Marketing Plan
Pitching to a venture capital fund or angel investors can be a daunting task. Not knowing how to prepare a pitch or how to structure that pitch is hard enough without having to sweat on the presentation itself.
Hopefully this deck can help you prepare and present your pitch with more conviction.
If you’re looking to raise money for your startup then no doubt you have given thought to securing investment from a venture capital (VC) fund. But what are VC funds actually look for?
Consider the following items to see if your business might be a good fit for VC investment:
1. You can demonstrate strong proof-of-concept
If you are raising money so you can quit your job, pay the bills and put food on the table then you are off to a bad start. You are deluding yourself into thinking you’ll raise money in this situation. Why?
Professional investors aren’t interested in having a punt. They are interested in adding rocket fuel to a rocket that has already taken off. They don’t want to help you launch your rocket. That’s your job.
2. You have a publicly listed competitor
Are there listed companies doing roughly what you do? If so, you are a good chance of raising venture capital. Very few companies create a new kind of business. Most startups disrupt an existing business.
Think realestate.com.au and the disruption to classified advertising for real estate. Carsales.com.au is another good example in a different vertical.
A VC’s job is to invest in companies that can return a significant multiple on their initial investment. Very few startups achieve this outcome but it needs to be a possibility, and that means you need to be disrupting a pretty big market in the first place.
3. You’re not building a feature of another product
Many startups think if they create one great feature for a big product, then naturally they would be a good acquisition target for a bigger fish. In reality, a big company will just build that feature themselves with no outside help.
Relying on acquisition as your only exit strategy is fraught with danger and kind of like high-stakes gambling.
4. Your traction is fast and rapid
VCs have to justify their appetite for high-risk, early-stage ventures. And to do that they need to invest in startups experiencing exponential growth, not steady-as-she goes linear growth.
Steady linear growth is a noble way to build a bootstrapped business, especially if you are doing it on the side. But if you want to get funding for your company, you need explosive growth.
Many startups think they need funding to get exponential growth. This is a myth. Funding almost never changes the growth trajectory of a company from linear to exponential. If you’re not experiencing exponential growth, your startup is probably not solving a problem that really needs to be solved.
5. You have a team of co-founders
Although many funded startups have one founder, the great majority have two or three. Why is it important to investors? For many reasons: What if you get hit by a bus? The investor wants to mitigate his or her risk.
Also, do other people believe in you? Having co-founders serves as a strong form of social proof. Nobody can do everything on their own and brilliant developers are usually terrible at sales.
6. You’re generating cash
There is a misconception among tech startups that if you are making too much money then you will get valued in terms of an earnings multiple. In some rare cases, this is true. Twitter and Facebook are two very rare exceptions.
Revenue and cash flow are the lifeblood of a company though. You can raise money without it, but typically it is a major factor in determining whether you will secure investment. Your ability to generate revenue demonstrates that you have some commercial acumen, not just an idea.
7. You’re solving a problem that people know they have
The most important part of understanding your customers is understanding their hopes, fears and desires. Often, a founder thinks their idea is the “bee’s knees” without any further evaluation.
If your startup idea doesn’t solve a real problem though, no matter how clever it is, it will almost surely fade into the abyss. Facebook solved the problem of knowing what your friends are up to. The more primal the need you are solving, the more investable your startup.
So will you get the attention of a VC fund?
Just because you want, or think you need, investment from a VC fund doesn’t mean you will get it. Not every company is investable and if you are unable to articulate your story and substantiate your story with solid metrics then you may find it difficult to secure investment from a venture capital fund.
There is no doubt that great presentations are like magic. They captivate and thrill their audiences. Think JFK, Martin Luther King, Winston Churchill, Barrack Obama (not Tony Abbot) and many others.
And great presenters are like magicians. In addition to doing an enormous of amount of preparation and rehearsal, both are reluctant to reveal the secrets behind their performance.
We can let you on a little secret today though with thanks to Tomas Bay from Hong Kong based design firm, Slides that Rock. Bay is dedicated to the design of powerful slide deck presentations for his Sillicon Valley client base.
Bay believes that you need to take into account three key elements before you begin drafting your next presentation. But first and foremost, he believes you should remember one thing: your audience is your hero.
A fatal mistake you can make when presenting to an audience is forgetting that your presentation is not about you. Who is it about then? It is about the people sitting or standing in front of you: your audience.
Without an engaged audience, you and your business, or idea, might fade into the abyss along with countless other game-changing ideas that failed to see the light of day.
With that in mind, Bay believes you then need to know three essential things about your audience, they include:
What is your audiences’ pain point? Or even better, what keeps them awake at night? This will depend on the type of audience that you are presenting to. Most external presentations in the corporate world are given to one of three audiences:
Now you need to consider what your audiences’ main goal is? What do they really want? To answer this you need to consider what their biggest dream is. People respond to emotions.
Don't sell products and services, sell dreams. Click here to see Martin Luther King’s “I have a dream speech” for some inspiration.
Our key focus at IEvoke Communications is entrepreneurs and start-ups in the midst of raising capital for their business.
This group typically has to front-up to private and institutional investors who want to invest in "the next big thing" and grow their capital base. Finding the next big thing is every investor’s dream.
Now consider how can you help solve your audiences’ main problem? Diagnose their problem then suggest how you can make their life better. Making their life better is much more compelling than selling another everyday product or service.
Reinventing the phone
The king of the slide deck in the corporate world was arguably the late Steve Jobs. Jobs had an uncanny ability to make audience engagement appear simple and natural.
His presentations captured an audience’s undivided attention for an hour and a half or more—something that very few presenters are able to do.
Click here to see a video of Jobs’ launch of the iPhone in 2007 as a good example of a presentation that takes into account the elements outline above.
To sum up
In order to successfully connect with your audience you need to know three things about your audience:
Thank you to Tomas Bay and Slides the Rock for sharing their presentation philosophy.
There is a common belief among start-ups and even well meaning advisors that fact and figures alone are enough to secure funds from investors.
Nothing could be further from the truth. Numbers and supporting evidence are very important but they are not the be-all-and-end-all when it come securing seed or expansion funds for your business.
Facts and figures show proof-of-concept and give us some type of certainty. That could be one of the reasons for believing that they are enough to persuade investors to tip some cash into your business. But like most things in life, there is a little more to it than that.
Finding the Animal within
An important element to take into consideration is the art creating a powerful storyline and the impact that has on the human psyche. Take the following quote from the book Animal Instincts, by George A. Akerlof and Robert J. Shiller:
The human mind is built to think in terms of narratives, of sequences of events with an internal logic and dynamic that appears as a unified whole. In turn, much of human motivation comes from living through a story of our lives, a story that we tell ourselves and that creates a framework for motivation. Life could be just one damn thing after another if it weren’t for such stories. The same is true for confidence in a nation, a company, or an institution. Great leaders are first and foremost creators of stories.Effective storytelling, far from being some trick of persuasion, is hard-wired into the human mind. It is inescapable and ubiquitous across all of society and culture.
Another quote from the famed American author of children’s books, Ursula K. Le Guin, sums it up nicely:
The story—from Rumpelstiltskin to War and Peace—is one of the basic tools invented by the human mind for the purpose of understanding. There have been great societies that did not use the wheel, but there have been no societies that did not tell stories.Of course great business stories are never going to be works of pure fiction. You may entertain investors with a clever narrative but they will not invest in your business based on a story alone. Getting the initial story elements right though is critical.
An investor who is captivated by your story will often go out and find the research and the numbers that supports their itch to invest in you and your idea. This happens a lot in sales of big ticket items as well, not just start-up investment.
In the world of psychology this tendency to go fishing for supporting evidence actually has a name: selective exposure. After making a decision we tend to seek out information that supports our decision. But the decision is sometimes already made, in the heat of the moment, triggered by an investor’s intuition or animal instincts, which is moved by your creation of an ancient, compelling storyline.
In the Real World
More evidence of the power of stories is found directly at the home of tech and innovation. Nancy Duarte, the founder of the largest design firm in Silicon Valley, is a massive believer in the power of stories. She even wrote a book about it calledResonate. Her client base includes half of the world’s top 50 companies and its most innovative thinkers.
Duarte constantly makes reference in her book to the contrast between ‘the way thing are’—problem— and ‘the way things could be’—solution—and how bouncing between these dynamics can help affect change in an audience.
Duarte’s specialty is slide deck presentations, for example, Al Gore’s presentation on climate change that was used in his Academy Award winning documentary, An Inconvenient Truth. Duarte makes reference to the power of stories in the opening page of her book:
It all starts with becoming a better storyteller. Possessing the power to influence the beliefs of others and create acceptance of new ideas is timeless. The value of storytelling transcends language and culture. As we move rapidly toward a future of improved connections between people, cross-pollinated creativity, and digital effects, stories still represent the most compelling platform we have for managing our imaginations—and our infinite data. More than any other form of communication, the art of telling stories is an integral part of the human experience. Those who master it are often afforded great influence and enduring legacy. You can have piles of facts and still fail to make an impact on your audience. It’s not the information itself that’s important but the emotional impact of that information. This doesn’t mean that you should abandon facts entirely. Use plenty of facts, but accompany them with emotional appeal.
Take it from another master communicator, Seth Godin, founder of Squidoo and a prolific author and speaker to boot. Godin wrote an article on his blog in 2010 titled “Too much Data leads to not enough belief”. Following is a small extract from his blog article:
"The problem is this: No spreadsheet, no bibliography and no list of resources is sufficient proof to someone who chooses not to believe. The skeptic will always find a reason, even if it’s one the rest of us don’t think is a good one. Relying too much on proof distracts you from the real mission—which is emotional connection."
Telling a powerful story, substantiating your story, and making your story memorable will provide you with the ammunition that you need to raise capital from investors. Facts, numbers alone, do not persuade. Stories get results. Just remember that your story can’t be a work of pure fiction.
There is a lot of discourse in the financial media these days about how to go about raising capital for your business, investor expectations, getting pitch-ready, etc. But there is little if any chatter on what to expect in the event that you actually become one of the golden eggs who manages to secure funding from investors.
T.S Eliot once wrote that “the end is where we start from”, and this is definitely the case for start-ups post the end of a successful capital raising program.The capital raising process is exhaustive to say the least. About 300-500 conversations are required in order to get the right introductions to the right people. Another 100-200 conversations are required with investors in order to secure funding.
It is no surprise then that a new lick of funding can have you popping the cork on the champagne bottle. But this moment in time really is just the beginning.
The headaches for an entrepreneur typically ferment when they jump at the first offer of equity from an investor, without giving proper consideration to the terms that are negotiated with that investor.
Show me the money!
Rushing through the negotiation process—in an effort get much needed funding down the wire and into your bank account—can mean giving up important economic and control rights without you even knowing.
If this is the case then you might be in the gun for a few headaches down the track, or worse, watch your start-up ambitions fade like a ghost in the night.
But it’s not all bad if you take into consideration some key terms before you sign a marriage certificate with your new investor. Your business is your baby after all so losing control is akin to giving your child up for adoption in some cases.
Don’t be a victim. By taking a breath and pausing for a moment, it is possible to build a happy marriage with your new investor(s).
When you do finally get a seat at the negotiating table with an investor, then you're at a distinct disadvantage right from the get-go. Why? They have likely done this a lot more times than you have.
But in general, an investor’s needs aren't that scary and can usually be broken down into two broad categories: economic needs and control needs.
An investor needs some type of certainty in order to be fairly rewarded for their investment in an early-stage business like yours. This means whey will need some type of secured interest if your business fails. This fulfills their economic need.
Second, they will want a say in major decisions about how your company spends money. This fulfills their need for control.
Deal terms have become ever more complex in the past decade, but the bulk of terms spawn from the two basic needs mentioned above. And this is where a commercial lawyer really starts to earn their keep—a good one is worth their weight in gold.
Economic needs that you need to discuss with your lawyer include:
No other point of your agreement will be more fiercely negotiated, and no other point will have such a profound and pervasive impact on the future of your business, and you personally.
Your initial valuation establishes a one hundred ton anchor in the ocean that will exert influence on what the market thinks your company is worth long after your first round of funding.
A fine balancing act
You have to remember that investors have their own self-interests in mind, not yours, when negotiating terms with you. Your goal as an entrepreneur is to give the investor everything they need—not what they want—in order to alleviate this.
The investor also has an incentive to focus on risk, and in general, you as the entrepreneur have the incentive to focus on opportunity.
Further, an investor will be inclined to believe that they are worthy of special treatment. But in general, you as the entrepreneur have the right to argue that you are the leader of a business, building a team, and teamwork requires fair play. This is one negotiating position that the investor doesn’t have.
How you use this negotiating position to reach an agreement on investment terms can determine the success or failure of your business, and even your own economic future.
Getting it right, or being aware of it at the very least, can hopefully create a few less headaches down the track. As if building a business isn’t hard enough. Don’t let your start-up ambitions die with the ink of a pen.
This article is general in nature and some of its content cannot be regarded as legal advice. It is general commentary only. You should not rely on the contents of this article without consulting professional advice from a commercial lawyer or corporate advisor.
A number of start-ups in the midst of raising capital can fail miserably when it comes to capturing the attention of investors. One of the common reasons that I see is an inability on behalf of the entrepreneur to articulate a distinct problem that they are trying to solve.
If you are unable to articulate a definable problem then no one—let alone investors—is going to be interested in your solution. And you cannot raise capital for a business that does not address a definable problem.
Got a problem?
Your problem needs to be thought of as the bad guy. Who is the bad guy that your business seeks to conquer?
Defining your problem is the very first step in your journey as an entrepreneur. If youare able to articulate a definitive problem then what is your solution? Or better, who is the good guy in your story?
How is your good guy—solution—going to beat your bad guy—problem? Of course all good stories have a happy ending. In the case of raising capital, the ending needs to be a happy financial ending for investors. Your goal in life might be world peace but the end-game for investors is making money.
Once you have clearly articulated a definable problem that you are trying to solve, then you have not only past first-base, you have also taken the first step in defining a compelling plot for your company’s story.
Oldie but a goodie
For a business story, far and away the best structure to adopt is the familiar one of bad guy, good guy, and happy ending. The good-guy-beats-bad-guy plot is older than time immemorial. Think Superman and Lex Luther; Batman and the Joker, Luke Skywalker and Darth Vader, Erin Brokovich and Pacific Gas and Electric. You get the drift.
When it comes to your company’s story, the bad guy does not need to be a human. It could be inefficiency, loneliness, hunger, inertia, ignorance or excessive waste. The same can be said of your good guy. Your good guy could be efficiency, inclusion, food, movement, education, or less waste.
This can sound simplistic, and it is. That’s the beauty of it. The essence of your company’s storyline is its simplicity. Billion dollar industries can be examined via this simple prism. Medicine? The happy ending is a longer life. Insurance? The bad guy is catastrophic loss. Banking? Well your money is safer than it is under the mattress—presumably.
So your good guy fights the bad guy and your good guy wins. Everybody’s happy. If you force yourself to look at your own business idea and make it conform to this centuries old story structure, you actually strip away all but the essential drivers of your business. Picture a Ferrari without the body-kit.
It is essential that you think long and hard about this simple story structure and how it relates to your business idea. And ideally before you invest any time and energy in any other business-building activity.
Renowned author and entrepreneur, Bill Fisher, goes as far as saying that if you don’t get this part right then almost nothing else you can do will make any difference to your success.
If you do get it right, i.e. you have a compelling bad guy (problem), good guy (solution), and happy ending, then you not only have the keys to the castle, you have an inherently exciting business story, and the most powerful tools in the business-building trade.
The yellow brick road
Let’s apply this mode of thinking to some successful modern-day companies to bring this principle to life.
Who is the bad guy in Uber’s business story? Modern, real-time, dispatch of taxi services. “It is so hard to get a taxi sometimes, it takes so long and then I have to put up with poor quality service and pay undisclosed fees at the end”.
The good guy in Uber’s story? Showing customers where Taxis are in real-time via a mobile app, getting the taxi driver as close as possible to customer demand, and providing a convenient and seamless payment solution that requires no exchange with the taxi driver.
And the happy ending? Billions of people across the globe with access to better quality taxi services, and a more efficient means for payment of such services. This has created a colossal company with nearly $10 billion in revenue inside its first four years of operation. Yes $10 billion!
In his book, The 6 Secrets of Raising Capital, Bill Fisher uses the example of Google. Who is the bad guy in the Google business story? Lack of access to information. “I know the answers to my questions are out there somewhere, but I can’t find them, and so I remain in the dark”.
Who was the good guy? Google’s search algorithms and technology that collect and make available an unprecedented amount of information to billions of people. And that is the happy ending: Billions of people, performing billions of searches and, in the process, creating one of the most profitable companies in the history of commerce.
Make sure you have a long hard think about the problem you are trying to solve. This is the bad guy that you need to conquer and defeat. It’s the very first step in your journey as an entrepreneur. Knowing this will help you build a compelling story-line that better engages investors.
And remember, there is no civilization in the history of time that hasn’t told stories. Stories came before the wheel and they help us teach, influence, and bind people together. And hopefully they can help communicate your company’s story more effectively.
Ben Hucker is the founder and principal of IEvoke Communications. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on being an active member of the start-up and small business community and uses his passion for writing and business to help clients create a powerful message for investors.
One of the great capital raising myths is that investors will carefully dissect the contents of your business plan before they decide to commit funds to your business.
The same belief holds true for the business plan’s partner in crime—the information memorandum (IM)—the more common disclosure document used by private companies in Australia when raising capital.
Start-ups and emerging companies have been lead to believe that these documents are a necessity. NEWS FLASH—investors are busy and they don’t have time to read these documents.
An IM is an IM, is an IM
While writing a business plan or IM may help you think through some of the more complex assumptions of your business, no serious investor will ever read it. By writing a business plan, entrepreneurs can identify potential holes in their business idea, but a lengthy business plan will not be of any real value to investors.
Business schools the world over teach their eager students (myself included) to write business plans because it can be broken down into a list of steps that are easy to teach, test, and grade. In the academic world, writing and publishing papers is how success is usually defined.
In the real word, clarity mixed with brevity is far more important when it comes to the art of raising capital. This doesn’t mean you have to sacrifice on substance or quality. You can get the same results with a more targeted set of presentation materials.
Of course, when we are talking about disclosure, we are not referring to a prospectus—a compulsory document required by limited companies when raising capital from retail investors in Australia—we are talking about the requirements for proprietary limited companies; Pty Ltd, the primary vehicle of choice for start-ups while in their infancy.
Chapter 6D of the Corporations Act—better known as the ‘fundraising provisions’—regulates the way in which capital can be raised in Australia without issuing a formal disclosure document. A disclosure document is required in most cases but there are two very important exceptions.
If you are raising less than $2 million, from less than 20 investors, in any rolling 12 month period, then you are not required to issue a disclosure document. The same holds true if you are raising capital from sophisticated investors—people with more than $2.5 million in net assets, or whose gross income for the past two financial years is at least $250,000 per annum.
This legislation is set to change soon with the introduction for new rules for crowdfunding platforms. But these are the key provisions for now. And they clearly state that a formal disclosure document is not required in some circumstances.
Throwing the book at you
Nearly 10 years working in financial markets, and heavy involvement with a number of start-ups attempting to secure seed or expansion capital, tells me that formal documents are the last thing on the mind of investors’ before they invest in your business.
Investors will not read your business plan for the same reason that you don’t buy the first book that you are interested in buying. What you buy initially is the title and the look of the cover; then, if interested, you might proceed to the blurb on the back cover, made up of lavish praise from high-profile individuals, or perhaps go to Amazon and read some online reviews first.
If you’re still interested, you might read the summary of the book on the inside of the book jacket, or maybe even read a few paragraphs from the opening chapter. Then you might make up your mind. But reading the entire book? Forget it.
Reading a book front-to-cover is an entirely different matter, something that happens much later, or perhaps never, as many lonely books gathering dust on your bookshelf can attest to. And even when you do read the book, it typically happens long after you have purchased it.
Say more with less
So if producing a business plan or IM for investors is a futile exercise then what do you do?
At IEVOKE, we work with clients one-on-one to help them produce an essential kit of presentation materials. These include:
If you don’t get to your point quickly then investors will ignore you—just as you tend to ignore long rambling messages when you receive them. Investors have little if any sense of duty to read what you put before them. And remember one thing: investors are busy--very busy.
This article is general in nature and some of its content cannot be regarded as legal advice. It is general commentary only. You should not rely on the contents of this article without consulting professional advice from a commercial lawyer or advisor.
There is a common trait among leading CEOs and entrepreneurs that sometimes goes unnoticed in mainstream media.
Energy, passion, risk-taker, competitor, ambitious, street-smart and other adjectives are all used to describe successful entrepreneurs and corporate executives.
A less typical description is ‘plain-speaking’. The ability to speak plain English is a mark of simplicity and sophistication—and is a lot easier said than done when it comes to business.
The Oracle of Omaha
The king of plain-speak is arguably the world’s most successful long-term investor, Warren Buffett. Buffett's writings and annual shareholder letters are legendary for containing quotes from sources as wide ranging as the Bible and Mae West.
Buffett also delivers advice in a folksy Midwestern style with a sharp wit and canny sense of humour. This is not by accident though. Buffett is a man who takes his financial writing very seriously and he is well regarded as an expert storyteller by communication experts.
Buffett consistently tries to picture his sisters as his main audience—the reason? Intelligent non-finance people should be able to understand what he is saying.
Apples Ain’t Apples
The actual quote, “Simplicity is the ultimate sophistication” was used by a business leader who utterly transformed the lives of billions of people. The late Steve Jobs was a bastion for the plain-speak movement.
Jobs borrowed the phrase from another master of elegance, Leonardo Da Vinci, to promote the first line of Apple products in the late 1970s.
Jobs stayed consistent with this approach to simplicity throughout his working life. Take the launch of the iPhone in 2007 as an example—the slogan used for the launch of this new product? “Apple iPhone: Reinventing the phone”. That’s it.
Thousands of years of gradual advancements in technology and Jobs summed up the launch of one of the most successful consumer products in history in three words.
Jobs stacked up quite well against his contemporaries when it came to using simple language. A number of studies have been conducted on the language used by Jobs, Bill Gates and Michael Dell.
Studies have consistently shown that Bill Gates mirrors the vocabulary of a university student—Michael Dell—a high school student, and Steve Jobs? When Jobs spoke and promoted a new product, it was found that he mirrored the vocabulary of a 5th grade student.
It's hard to think that one of the most successful entrepreneurs in history could have comfortably waxed lyrical with a classroom full of fifth-graders.
Further evidence of the link between plain-speaking CEOs and their success as business leaders is highlighted in the book, Why Business People Speak Like Idiots: A Bull Fighter’s Guide, authored by Brian Fugere.
Fugere makes note of the close link between plain-speaking CEOs and resulting admiration among their peers. On the contrary, Fugere found that CEOs who are difficult to understand can be closely linked with scandalous behavior.
Fugere used the Flesch Reading Ease test to assess the language from annual shareholder letters written by a number of different CEOs. The results:
CEOs of admired companies / Flesch Reading Ease Score
That Cat Sat on the Hat
Writing and speaking in a plain manner does not mean you have to sacrifice on meaning and tone—equivalent to dumbing-it-down. Using simple language means you should be expressing ideas in the most straight forward manner that you possibly can.
Doing this is particularly relevant when attempting to communicate with private and institutional investors. Having a clear, succinct and compelling message can be the difference between raising capital, and not raising capital.
Adding more weight—verbose and lengthy prose is usually an indicator that something other than getting a point across is the end-game. It can be the case that the writer just wants to sound impressive, or is attempting to obscure a hidden motive, or make cover for the fact that they aren’t entirely sure what they talking about—as was the case with Enron.
There is a practical way to test the readability of the language that you use in your everyday business dealings. For example, you can use Microsoft Word to conduct a language assessment at the end of every spellcheck by following the instructions in this link. This assessment will tell you what your Flesch Reading Ease score is, along with a bunch of other stats.
If your audience is highly technical and they have a good understanding of what you actually do then measuring your Flesch reading ease is not relevant. It is super important if you are attempting to communicate your story with private investors for the first time though.
Keep It Simple
To sum up: if you are trying to raise capital for your business—or communicating with important stakeholders in general—then aim to write your story as naturally as possible. If you weren’t born as a corporate entity then there is a good chance that you are at least one thing: human. Don’t leave your personality at the front door each morning.
And the Flesch reading ease for this article? 50/100—with a very healthy average of 15.8 words per sentence—well below the maximum recommended average of 20. I hope you enjoyed it. Remember to keep it simple.
Being a good storyteller may not be high on your list of priorities as an astute businessman or woman. It may even be something you hold in low esteem.
I can tell you now though that you will not succeed in raising capital and building your business until you become an effective storyteller. The good news? Storytelling is a skill that can be cultivated and learned.
Great business ideas are not enough, especially when it comes to raising capital. At IEvoke Communications, we have a firm belief that great business stories get funded—not great business ideas.
There is evidence to support this. In his book, The Six Secrets of Raising Capital, entrepreneur and investor, Bill Fisher, makes the point that Intuit—the US$30 billion accounting software giant—was unable to raise a single dollar of venture capital despite several years of desperate attempts to do so.
He goes on to point out that, Hotmail, another hugely successful tech giant, was also unable to raise a single dollar of venture capital funding despite several years pitching to investors.
On the other side of the coin, recent research shows that three-out-of-four companies that secure funding from venture capital funds, fail within the first five years of receiving investment.
There is clearly something else at play—other than the intrinsic idea for a business—if hugely successful companies like Intuit and Hotmail were unable to secure any form of venture capital funding. Their eventual success tells us they had a great business idea.
And if three-out-of-four companies fail within five years of receiving venture capital funding then they couldn’t have been great business ideas in the first place?
So if great business ideas do not get funded, then what does get funded? Human psychology and the notion of “animal spirits” may provide some explanation.
The term “animal spirits” was coined by the famed British economist, John Maynard Keynes. Keynes believed that “business decisions……can only be taken as a result of animal spirits”.
What is that triggers our animal spirits, what moves human emotions? Is it facts alone?
Let me illustrate with a small narrative: Facts: a lady died, and a man died. Story: A lady died, and her husband died of a broken heart.
Which sentence made your pulse run? Which method of telling gave you a rush of emotion? Notice the second sentence does not exclude the facts, it builds the facts into a story.
There can be no doubt that humans are motivated and moved by emotion. If you intend to transform your business dream into a reality then you will need to master the art of storytelling.
Great business stories have three essential elements according to author Bill Fisher—Bill single handedly raised more than US$500 million for a succession of start-up companies over a 15 year period—these include:
If you can master these core elements, then you can raise capital for your new venture or existing business.
People have been led to believe that investing and investment decisions are all a matter of arithmetic. These elements by themselves are not enough to persuade wealthy investors though.
In order to persuade, entrepreneurs and executives have to be able to tell their story, substantiate that story, and make that story memorable.
Feel free to get in touch with us today to see how we can help create a high-impact investment case for your business.
A fatal mistake you can make as an entrepreneur or executive when presenting to an audience is forgetting that a presentation is NOT ABOUT YOU!
Who is it about then? It is about the people sitting or standing in front of you - YOUR AUDIENCE. Without an engaged audience, you and your business, or idea, are nothing.
Before you tell your story, before you do your slides and before you go on stage, you need to know three things:
What is your audiences major pain, or even better, what keeps them awake at night? This will depend on the type of audience. Are you presenting to customers, partners or potential investors?
These groups are not the same audience. They have different pain points. You need to consider what the biggest problem is for each group. For investors, they want to invest in "the next big thing" and make more money.
Now you need to consider what your audiences main goal is? What do they really want? To answer this you need to consider what their biggest dream is. People respond to emotions. Don't sell products and services, sell dreams!
How can you help solve your audiences main problem? Diagnose their problem then suggest how you can make their life better. Making their life better is a much more compelling USP than selling another everyday product or service.
Once you know what your audience wants decide on three things you will give them. Write your story based on those three things, design your slide deck, deliver on stage and successfully connect with your audience!
Doing this exercise will improve the level of engagement with your audience tenfold.
In order to successfully connect with your audience you need to know three things about your audience:
For a visual representation of these 3 principles see the following slide deck from Tomas Bay, founder of a design company called Slides That Rock based in Hong Kong.
Those not familiar with the definition of a sophisticated investor may think of such people as those with a superior intellect to the masses. Or maybe as that guy you see reading the Financial Review at breakfast on a Saturday morning.
A quick check on some local stock forums indicates more confusion. One member defines a sophisticated investor as adviser speak for “I cant be bothered explaining the concept to you, if you dont understand the investment then this isnt for you” or “I dont know how it works so rather than embarrass myself I’ll have you believe this isn’t for you”. Another made comment that it “Can also mean HIGH RISK–best avoided” and “To become involved in Sophisticated Investments may I suggest wearing your best attire. I noticed a mass of sophisticated investors at the Melbourne Cup!”.
One forum participant “got serious” and stated that sophisticated investors are “Investment savvy” and “generally have a sound knowledge of the investments they are involved in. I guess to become one of these people you would gain as much knowledge and then a track record in an investment field or fields”.
I can tell you now that the correct definition of a sophisticated investor is “none of the above”. The bloke reading the Fin Review may well be a sophisticated investor but it’s not because he reads the Fin. ‘Sophisticated Investor’ actually has a statutory definition under Chapter 6D of the Corporations Act. A sophisticated investor is defined where:
At the same time, you can also see that a sophisticated investor is not exactly an investor who is sophisticated. I’ve known some pretty whacky marketing and business development execs earning a lot more than $250k per anumm. These people I would never give a single dollar of my savings to manage though. Certain AFL footballers also come to mind.
So why does an exemption exist for a sophisticated investor?
If a full disclosure document was required for every offering of equity/debt funding in private and listed companies then our biggest companies would be law firms, not banks. In fact, some in this category actively discourage regulation and consider any legislative disclosure to be an unwanted cost and a pain in the proverbial all together.
There are a lot of savvy individual investors who actively participate in capital raising’s for private companies without protection from the Corporations Act. This works in your favour as an entrepreneur or SME business owner that is trying to raise capital. That’s not to say it makes in any easier. It just means that you might not have to put together a lengthy and detailed disclosure document and it may be the case that you find investment via a series of private discussions. It can also mean you are getting more than a cheque – think knowledge, industry contacts, partnerships, etc.
To say that finding these people is ‘never easy’ would be an understatement. If you have a viable product or service though then it becomes much easier. In fact a sophisticated investor will probably find you first. If you are a Pty Ltd company trying to raise capital for your business then your only option is to comply with the 20/12 rule or to raise capital from sophisticated investors. So it is imperative that you take note of this group of investors as they might be the difference between global or local, exceptional or mediocre, new or old. Happy networking.
The fab four
Before I begin, it is worth clarifying exactly who can and can’t go about raising capital in Australia. Public companies (i.e. Ltd companies with more than 50 non-employee shareholders) can raise funds from the general public by issuing securities. Private companies (i.e. Pty Ltd companies that have less than 50 non-employee shareholders) can raise funds from:
As a general rule, if you are a Public Ltd company offering securities for sale then you must provide a disclosure document of some sort to potential investors. A disclosure document is the broad term used to describe all regulated fundraising documents for the issue of securities (for example shares or debentures).
There are four types of disclosure document:
A prospectus is the standard disclosure document for Ltd companies and has the broadest information requirements. If a prospectus offers securities that are listed on the ASX then it may not need to contain as much information as a normal prospectus. If a lot of information has already been provided to the public via an exchange like the ASX then a company can issue what is known as a short from prospectus. For more information please see ASIC Regulatory Guide 56 Prospectuses.
Offer information statements
An offer information statement (OIS) has lower disclosure requirements but can only be used for capital raising’s of no more than $10 million, that is, including any earlier raising’s under an OIS. If you want to use an OIS you must be able to include a copy of an audited financial report with a balance date no more than six months old.
A profile statement is a document setting out limited key information about the company and the offer. Companies can only use profile statements where ASIC has approved their use. There are currently no approved uses for profile statements so this one is a bit pointless.
What does it all mean?
Entrepreneurs and SMEs raising less than $2 million, in a 12 month period, among 20 shareholders or less, are not required to issue a disclosure document. The same is true if you are raising any amount of capital from sophisticated investors or other certain classes of investors. Despite this, prospective investors will still want to see some type of document like an Information Memorandum before they open up negotiations to provide capital. A Ltd company raising anything less than $10 million will need to provide an offer information statement. A full prospectus is required for Ltd companies raising any amount above $10 million whether publicly listed or publicly unlisted.
This article is general in nature and cannot be regarded as legal advice. It is general commentary only. You should not rely on the contents of this article without consulting professional advice from a corporate lawyer or adviser.
All this talk of angels and venture capital may be entirely unfamiliar for those starting a new business venture for the first time. Here I want to explain these terms and provide some clarity for those who think an angel investor comes from the clouds, or that venture capital is some type of financial scam. Those familiar with these terms may still want to know some of the nuances of each so please read on.
angels from the clouds
An angel, when used with reference to funding a new business, is actually an individual investor that typically invests at the very early, pre-revenue stage of a business. Like any investor, they want to see a return on their investment but they’re also motivated by a desire to see new and innovative businesses succeed – sometimes for the sake of innovation itself.
A typical angel investor will invest in a business that’s part of an industry that they understand intimately and are probably still involved in day-to-day. They will more than likely want to offer advice and support to the business they have invested in so it’s not just about the money. If you’re seeking money from an angel investor then it is perfectly normal to allow them some type of influence regarding strategy and direction.
The amount of money you might expect from an angel investor is in the range of $10,000 – $100,000. This could be even more if they are from an organised group of angels like the Australian Association of Angel Investors (AAAI). AAAI has sub groups in just about every major city in Australia.
In summary, an angel investor is:
The venture capitalists
So now your business is up and firing and you’ve built a solid platform that’s generating cash. You might now be in a position to seek funding from a venture capital fund. A venture capital fund is money that is managed on behalf of others – typically large institutions. Some venture capitalists like to invest in a business immediately after a business has moved beyond the initial angel investor stage. Others prefer to wait a bit longer before they invest and will only be interested after a business has received a first, or even second round of venture capital investment.
Venture capital firms will be focused heavily on financial returns and businesses that offer a lot less risk than early stage start-ups. While angel investors limit their investments to relatively small amounts, venture capitalists tend to think of a starting point for funding to be around $1 million.
You will find that a venture capital fund expects to exercise more direct control over your business. They will do this by setting achievable milestones for your business and by having at least one seat on your board.
In summary, a venture capital firm is:
Finding the right investor for you
Understanding the difference between an angel investor and a venture capital firm is pretty straight forward. You probably already have an idea of the one which is right for your business. Finding them and getting them to invest in your business is the difficult part. Those seeking Angel investment in Australia can get started with websites like:
CHAMP Ventures or CVC Ventures among others.
In addition, there are service providers that offer introductions to both Angels and venture capital firms like Wholesale Investor – where I currently work. Wholesale Investor has a subscriber base of over 8,600 High Net Worths including retired CEOs, C-Suite Execs, Family Office trusts, Entrepreneurs, and others.
Before you even think about raising capital for your business, there are three key questions you need to answer from the perspective of an investor. Every individual investor no matter what the size of their portfolio, or area of expertise, will be thinking something along these lines (in their own mind):
1. Will I lose my money?
Guide for business owner:
2. When will I get my money back?
Guide for business owner:
3. Will I make money?
Guide for business owner:
Assuming you have a unique product or service that has a market, an investor will basically want to see that you have everything at stake. The founding father of venture capital in Australia, Bill Ferris, who now runs CHAMP Private Equity went as far as asking, “Do the owners of this business have their life on the line for this?”. He used this as part of his checklist when assessing potential investment in private companies so it is no exaggeration.
If you can answer the questions above with objective facts then you will be in a much better position to raise capital from Angel Investors, Venture Capital funds, High Net Worth individuals, Family Office trusts, or any other form of surplus capital.
A shareholders’ agreement, or ‘business will’, is an agreement that attempts to regulate the conduct of those starting a new business venture. It is essential too for those seeking funds from new investors.
I wanted to focus this week on seven must-have terms for any shareholders agreement. To do this I spoke to Kristie Piniuta from Kubed Legal in Melbourne. A big thanks is due to Kristie who put together the list of seven based on her broad depth of experience as a corporate lawyer. This has included time spent working in-house for Boost Juice alongside Janine Allis. The seven must-haves include:
1. Only shareholders that hold more than a certain threshold or % of shares, say 20%, should be entitled to appoint a director.
You don’t want a new shareholder exerting too much control on the direction of your business if they are only a minority shareholder. A condition like this also increases the stakes for new investors and ensures that a larger investment is rewarded with greater authority via more seats on the board.
2. When a shareholder exits there should be an obligation on the director appointed by that shareholder to resign.
If an independent director has been appointed by a shareholder who later exits their investment then it would make sense for the director appointed by them to stand down. Their representation may no longer be justified if they represent the interests of someone who is no longer invested in your business.
3. Director decisions versus shareholder decisions.
You need to carefully consider what decisions are at the mercy of directors and those at the mercy of shareholders. For example, you don’t want to have to call a shareholder’s meeting to make a decision on the appointment of a new CEO. At the same time you don’t want to let a board of directors veto any important decisions made by shareholders. Jurisdiction on capex, business plans, budgets, asset purchases also need to be considered.
4. If a shareholder or director of a shareholder entity dies or suffers permanent disability, other shareholders should have a right to buy their shares
This situation occurs more often than you might think and can be overlooked very easily. If there is a clause in your contract that addresses this situation then it makes a traumatic event a lot less ambiguous. Ambiguous in the sense of what happens next for shareholders of the business.
5. Carefully consider events of default
A shareholder in breach of a shareholder agreement is said to be in default. It is important to include a right for non-defaulting shareholders to purchase the defaulting shareholder’s shares which if appropriate, may be discounted from fair market value (up to 20% in some cases).
6. Consider including drag-along and tag-along rights
Drag-along rights enable a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as any other seller. This ensures a clean sweep of of minority shareholders in the event of a full sale or acquisition.
Tag-along rights are used to protect minority shareholders. If a majority shareholder sells his or her stake, then the minority shareholder has the right to join the transaction and sell his or her minority stake in the company.
7. Include non-compete and confidentiality provisions.
This is especially important for businesses with a lot of intellectual property. That’s not to say it is any less important for other businesses who have lots of cash flow and very little IP. Non-compete periods have to be reasonable in scope and duration to ensure enforce-ability. A confidentiality clause is obvious for a number of reasons and it is a commonly used for other contractual agreements like employment agreements and non-disclosure agreements.
The cost of a full shareholder’s agreement “starts at about $A2,000-$A3,000″ according to Kristie from Kubed Legal. This is the bare minimum and the cost will increase depending on the complexity and number of shareholder requirements.
Hopefully the terms above highlight a few key points for business owners embarking on a capital raising mission for the first time. If all parties are fully informed and provisions are drafted appropriately, a shareholders agreement should be able to sit in the bottom drawer gathering dust until a situation arises where it needs to be consulted. The cost of the agreement pales in comparison to the cost of a legal dispute if an agreement is not put in place.
Please feel free to contact Kristie at Kubed Lawyers at firstname.lastname@example.org if you have any further questions or if you need a shareholder’s agreement drafted.
This article is general in nature and cannot be regarded as legal advice. It is general commentary only. You should not rely on the contents of this article without consulting professional advice from a corporate lawyer or adviser.