Quote of the Week:

If you don't have a dream, how are you going to make a dream come true?

~ Oscar Hammerstein

Feature Article:

 KEYS TO THE VAULT: Raising Investment Capital

 by Keith Cunningham

Most of us have had the experience of raising or borrowing money, whether it’s for a new car, buying a house or starting a new venture. Raising money for most people can be frustrating, confusing as well as traumatic. My experience, having structured and negotiated deals worth over $1 billion, is that the reason raising money is so confusing and intimidating is because most people don’t understand the psychology or the point of view of the investor. 

Usually, people trying to raise money don’t or won’t do the necessary work to be able to successfully get all of the money they want and need. In other words, people tend to think that if they have a better idea or have created a better, faster, cheaper, revolutionary, higher quality gizmo or service, then it must be obvious to everyone that it is a forgone conclusion that it will be successful, that everyone will, of course, love it and the big bucks will start rolling in.

The reality is that most entrepreneurs fall in love with their ideas or inventions to the point that they are blinded by their own brilliance and thus are incapable of seeing the risks and potential downside or problems that any business venture will face.

Given that there is no shortage of investment capital available (the last figure that I saw was about $175 billion was raised in the U.S by Venture Capital funds last year and $72 billion was waiting to be invested in deals) and given that there is no shortage of new ventures being created that need or are looking to get funded, why is it that only one out of every hundred deals that a venture firm or an angel investor sees gets funded?

The answer is not as hard as you might guess. Investors MUST invest and lenders MUST lend. That is what they are in business to do. They make no money unless they put their money to work. The fundamental problem, it seems to me, is that most people trying to raise capital are not on the investors wavelength…they don’t know what an investor is looking for or even how to talk to him.

The best way to approach this problem is for you to write the following down on a piece of paper: “I have $10,000,000 to invest and I MUST invest it.”  Now, suppose I bring you a deal and I want you to invest in my new company. What questions will you ask me? What specific issues will you want addressed?  What are you looking for? What would be important for you to learn from me that will give you confidence that I have a shot at making this deal work?

The answer to these questions should be addressed in a well thought out, comprehensive business plan. Your business plan is a great sales tool and is your road map to your new venture. A well thought-out business plan should answer/address fifteen key points:

1)  Who are you? Who are the players, the management? What is your experience?

2)  Where are you? What is the status of your venture? Do you have a working prototype or has anyone tested your product/idea?

3)  Where are you going? What is your goal?

4)  What is it? What is your product or service? This must be very easy to understand, even if it is complex. Investors will not invest in something they do not understand.

5)  Who wants it? Who is your target market?

6)  Why do they want it? What is the problem being solved?  What itch are you scratching? What is your value add proposition?

7)  How many might want it? What is your potential market size? 

8)  How do you know they want it? What testing/research/studies have you done that confirm your belief that “if you build it, they will come”?

9)  How will you tell them about it? What is your marketing plan?

10)  Who else has it? Who is your competition? Don’t ever say that you have no competition. If you have no competition, you have no market.

11)  How are you different? What is your niche? What will keep your competition from duplicating your idea and crushing you?

12)  What are the risks? What could go wrong?

13)  What are the rewards? This is where you talk about the numbers/projections.

14)  What do you want? What is the deal? You should propose a deal and an amount of money…enough to get you to the next significant milestone.  Good = we need $3 million to reach our next milestone.  Bad = whatever you give us is fine.

15)  What is the exit?  How does an investor cash out of this deal?

It is not at all uncommon to spend six months researching and preparing a business plan. Remember, your goal in raising capital is to get funded. You will not even receive a return telephone call, much less get a face to face meeting, if you haven’t done your homework

Most new entrepreneurs make two common mistakes in raising money. First, they believe that since investors are numbers guys, the projections are the most important thing. Nothing could be further from the truth! Any fool with Excel can string together a set of projections. The numbers are a reflection of management decisions.  Good decisions = good numbers. The people making the decisions are the management team.

All deals hit bumps, detours, and roadblocks. No business plan has ever been perfectly executed. The unforeseen and the unknown always arise. Who deals with these problems?  Management. People make the deal work. MONEY FOLLOWS MANAGEMENT, and money loves a track record. To give you an idea of the power of this, would you be willing to invest in one of Bill Gates’ new ventures? I know I would love to be a partner with Bill because he has demonstrated that he knows how to successfully start and run a company.

The second biggest mistake that most people make in raising capital is they are product fixated. They fall in love with the idea or the gizmo. Investors know that a great product is not necessary, and it does not insure success.

Apple Computer is generally acknowledged to have a better operating system than Microsoft, and yet Microsoft is worth 50 times more than Apple. All of us can think of places we would rather eat than McDonalds, but you can not name a restaurant that makes more money than McDonalds. Timex makes a lot more money than Rolex even though Rolex makes a better watch.

You must have a strategy to tell your customers what your value-add is or what problem you solve. This is called Marketing. It is differentiating you from the competition, and it is filling a need. It is finding your niche. McDonalds’ niche is not hamburgers but rather cheap, fast, consistent, clean. Nike’s niche is not tennis shoes but rather attitude. Eastman Kodak is not film but rather memories. Federal Express is not delivery but rather absolutely, positively dependability. In each of the instances above, the niche that these companies have found is not necessarily the product but rather is something intangible and emotional related to the owning of the product. It is this intangible that has differentiated them from the pack and made them outstandingly successful companies.

While I have only touched on the most basic components of raising capital, my experience is that the fundamentals are what most people are missing. 

About Keith Cunningham: Keith has negotiated over two hundred deals in excess of $1 million each and raised over $1 billion of financing for his various business ventures. He is a keen financial strategist who has negotiated deals on Wall Street and throughout the media community of North America.  If you are interested in receiving one-on-one coaching and mentoring with a small group of entrepreneurs that will enable you to take your business and your life to the next level, then you are encouraged to take a hard look at this program. Remember, there are only two things in life: results or reasons. Successful people tend to have lots of results.

Trading Tips: 

Peak Performance Trading Tips from Dr. Van K. Tharp. 
Look For A New Tip Each Week.

This is a new section featuring Peak Performance Trading Tips. These won’t be tips on some hot new investment. Instead, they’ll be tips on how you get yourself in the best possible condition mentally to perform at a peak level. You may have heard some of them in one form or another before, but you can never apply them enough. As a result, these tips should become second nature to you.

Keep It Simple 
By Van K. Tharp

This applies to so many things in life and it also applies to anything you might do in trading or investing. Keep things simple.

Your mind only has a conscious capacity of about seven chunks of information. You cannot hold anything more than that in consciousness. If you attempt to do complex things with the market that require you to use more capacity than you have, then you’ll probably fail.

Now, keeping it simple doesn’t mean that you can’t use a computer to sort through the vast amount of information available about the market. On the contrary, I highly recommend it. However, it simply means that your methodology and your daily tasks do not have to be rocket science. In fact, the more you try to do, the less likely you are to succeed.

I recently did a profile consultation with a broker/trader that ranked in the bottom 1% of all investors who had taken the profile. He had high stress, a lot of internal conflict, poor organization, no system, a negative attitude—and probably everything else you could possibly name. We only had 10 minutes to do the consultation and he needed several days. However, the key issue for him was how overwhelmed he felt by everything that came across his desk. How could he find good stocks when there are so many stocks? How could he follow any given plan when his clients all had conflicting goals and motivations? His life was a mess.

This broker needed a lot of psychological work first. His life was in chaos, because his mind was in a state of chaos. Simplify the chaos in your mind and you’ll simplify the chaos in your life.

Secondly, he needed a simple system to track his own trading—preferably a long term system that only gave him a few signals each week and that only required that he look at the market after the close. That way his personal decisions only had to be made once each day and they could be done away from the chaos of the market. That system could be something as simple as buying on a 110 day channel breakout; use the weekly volatility as a worst case exit; trail it from the close as a profit taking stop; and don’t risk more than 1% of his equity on any trade.

Third, he needed to do a mental rehearsal for the day at the beginning of each day and a daily debriefing at the end—these are two of the more important tasks in the ten tasks of trading. But they are simple. You merely ask yourself some questions like "What could go wrong today that I’m not prepared for?" If you come up with some potential problems, then you need to come up with some solutions and rehearse them in your mind. Similarly, at the end of the day you need to ask yourself, "Did I make any mistakes today?" (Where a mistake has to do with not following your rules.) And if you have no rules, then everything you do is a mistake. If no mistakes were made, pat yourself on the back. However, if you did make a mistake, then plan and rehearse how you will avoid that mistake in the future.

These are all simple steps. Success comes from following simple steps. When you understand that and practice it, your performance will improve dramatically.

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