Go For Grant Financing For Non-Profits
Bill Warner Sunday, June 07, 2009
With the stimulus money coming down hill like an avalanche on steroids, now is the time to really get familiar with the grant programs that your business might qualify for. Take a look at this article in entrepreneur.com that makes the point in detail. I am by far not an expert at getting grants, but I have gotten my first one for a new non-profit organization that we are creating to support entrepreneurs. As I think through the experience so far, there is a lot of similarity between filling out a grant application and writing a business plan.
Grant writing discipline
Just as in planning your business, preparing for a grant application has similar discipline:
- Establish quantitatively the market you intend to serve, and make sure it is focused on the consitituency that the grantor requires.
- Explain the service you will perform, insuring that it truly meets the needs of the market cited.
- Show that you will be performing a unique and differentiated service. You cannot be redundant with other organizations.
- Clearly identify the results you will achieve over time, usually expressed as jobs or revenue created. You would be surprised at how many applications don’t nail this one.
- Lay out a clear plan of launching your service and executing the plan you are committing.
- Create a well thought out budget that ties to your plan of execution, clearly showing your use of the grant funds.
All of this sounds pretty familiar right. Well it is. Use the same concepts as if you were writing a business plan.
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Investors Focus On Management Teams
Bill Warner Sunday, June 07, 2009
All said and done, when raising money, the most critical hurdle the entrepreneur has to leap over is gaining the confidence of the investors. You can have the most attractive market, with the most innovative and competitive product or service, but if the investors do not believe that you can execute your business plan, they will walk. Read more about this perspective at Startable.com.
What investors look for
With respect to the management of the company, including the CEO and the other main players, investors just simply have to believe that you have the right team. This is often a very delicate judgment they make, sometimes with clear facts and sometimes on gut feel. The management team has to “click” with the investors, or it’s over. Here are some of the things they are looking for:
- Start-up experience
- Relevant industry experience
- Management team has worked together before
- Successful exits where they made money for investors
- Superior communications ability
- Demonstrated ability to build a team
- Establishes great working relationships with partners and customers
- Clear understanding of the business model and how to achieve it
Create the right management team
Entrepreneurs have to be very diligent in pulling together the best management team possible. It’s the most important set of decisions they make. Make sure you are getting the kind of people that can take you substantially down the path to success and have the skills that are needed to get there. Investors pay a lot of attention to entrepreneurs that have made them money, or at least have made money for other investors. Nothing speaks stronger than past success. Keep that in mind and try to assemble a team that has proven they can get the job done.
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Venture Capital Firms Declining
Bill Warner Friday, June 05, 2009
The National Venture Capital Association just reported that the number of venture capital principles has declined by 15 percent since the end of 2007. These are the folks that do the due diligence on investment opportunities and make the investment decisions within venture capital firms. The number of venture capital firms has dropped by 13 percent. Take a look at the WSJ article that gives the full details.
Massive Exodus
Some of the best of the best are heading out the door. Large firms like Sequoia Capital and Bessemer Venture Partners, along with smaller firms like Atlas Venture, Advanced Technology Ventures and VantagePoint Venture Partners, have lost partner level people. This is all a natural outcome of the decline of the venture capital market, and is why we are seeing new business models emerging.
The underlying problem with venture capital
For most of its recent history, venture capital deals have been structured with the requirement for a big payout upon exit, based on an initial public offering (IPO) or acquisition. IPO’s have nearly dried up to nothing and acquisitions have suffered a tremendous decline over the last year or more. As a result, venture firms are left holding onto investments that have no viable way to achieve liquidity in order to pocket their returns.
On top of this, with the rapid economic downturn at the start of the Obama administration, the institutions that fund venture capital have had to back away from this asset class. These institutions have lost up to 40 percent of their value, with some recovery recently, but have been in the mode of selling off their venture investments. Some have even had to withdraw their capital commitments to some venture firms. This has also put the brakes on venture firms that need to raise more money.
The dilemma for venture capital
If a venture firm has recently raised a fund, they may have a chance to get through this economic downturn, assuming it recovers sometime next year. To survive, many are simply protecting the best companies in their portfolios, and are making few if any new company investments.
If a venture firm is nearly out of money, they are going to have a heck of a time raising a new fund in this market, and are faced with simply going out of business.
An unwanted outcome
Despite what you read, this is not a natural evolution of the venture capital market. This is a forced outcome as a result of the economic downturn that has now nearly destroyed the venture capital business. This all goes back to the fundamental causes of the bank failures that was driven by mismanagement, government meddling and oversight failures.
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A New Breed of Entrepreneur
Bill Warner Thursday, June 04, 2009
We are hearing more and more about many people starting businesses because they are out of work and cannot find a job. This is really happening. It’s a different form of passion driven out of the necessity to have an income. It may be as strong as the passion any entrepeneur has for bringing a technology to market, solving an important industry problem, or changing the world in some material way. Tim Barry talks about this briefly in Entrepreneur.com.
The rules are the same
This new breed of entrepreneur is really good news for the economy, but the rules of the road are the same as for any entrepreneur. They need a well thought out business model that:
- Cites an attractive market opportunity
- Focuses on real buyers
- Is competitive
- Spells out a clear marketing and sales path to success
- Is managed effectively
- Has the necessary financing to get to a positive cash flow position
Give them support
These new entrepreneurs need our help. Give them support and advice as they try to crack into the business world. It is likely they are very concerned about how they are going to succeed at something they have never done and their support structure is pretty lean. Chances are you will get something in return down the road.
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Venture Capital Correcting Valuations
Bill Warner Monday, June 01, 2009
Venture capital firms are finally making corrections in their valuations in response to the downturn in the economy late last year. Read about the details in the WSJ, but this decline in valuations represents an adjustment to the value they place on their portfolios and to any company they are considering for new investments.
The adjustments are not uniform
The sharpest decline is occurring with later stage companies whose valuations declined about 43%, dropping from a median of $56.1 million in the fourth quarter to $32 million in the first quarter, all of which is pretty comparable to the decline in public markets last year. The median for the third quarter was $64 million. Likewise, their limited partners have felt the squeeze as well in that their portfolio values have dropped a similar amount.
Second round companies had a similar drop from $16.1million in the fourth quarter to $10 million in the first. But, first round companies faired well by rising from $6.6 million in the fourth quarter to $7 million in the first, but usually show less volatility to changes in the public markets.
Venture firms are buffering their pain
In the first quarter, 57% of all venture rounds were done by the current investors, giving them the chance to tamp down the pain of the write-down thus protecting the fund’s performance. New investors would be much more likely to want a more aggressive reduction in valuations.
Good and bad news for entrepreneurs
Entrepreneurs of start-ups that are going for their first venture round should expect valuations that track consistently from the last two quarters. Unfortunately, this is a bad time to have to go out to raise later stage VC money. The company will probably be faced with a down round where the company’s value is less than what it was at the time of the last round, and it’s all due to the economy. The hard thing to swallow is that even if the company performed well and met all its milestones, it still will get punished with a lower valuation.
If you need the money though, you have to do it. This is where tightening the belt and conserving cash pays off.
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Find the Right Angel Investors
Bill Warner Monday, June 01, 2009
Entrepreneurs need to take care to choose angel investors that are going to add value to their business in addition to the cash infusion. Believe it or not, there are some bad choices of angels. The trick is to avoid the angels that might cause you some problems in the future.
Bad Angels
Just because they can write you a check, doesn’t make them your best choice for a business partner. Entrepreneurs need to take a deeper look into the background of potential angel investors and find out who they really are. Here’s what you need to avoid:
- The predator – is an angel who is going to take full advantage of the economic situation, the entrepreneur’s need for money, and perhaps the entrepreneur’s lack of experience and construct a deal that is so one-sided that the entrepreneur is left out in the cold. In addition, they will have the tendency to take you to court when the going gets tough, knowing that you cannot afford to defend yourself.
- The rookie – will waste your time with endless due diligence and meddling in your business that he may not be worth taking the money. He is more of a drain on your time than a help in moving your business forward.
- The ex-executive – is a former high level corporate executive that has an ego as large as a barn and not a lot of experience in start-up companies. They have an attitude of being superior to the entrepreneur and will often lead the entrepreneur down the wrong business path.
- The meddler – takes up your time by requiring too many controls on the entrepreneur and the business. In addition, they may actually take a management role in the company just so they can see what is going on.
- The dullard – is perhaps an angel that just doesn’t have the savvy required to run a business, and has never done so. They got their money from stock options or inheritance and want to try something new. They will waste your time.
- The broken angel – has tapped out with too many loses, or is awaiting exits. This angel will take up a lot of your time but never actually make the investment.
- The broker – is quite common. They make you believe they are investors with a syndicate of investors they lead, but they are really people that want to make retainer and success fees off of the entrepreneur. It is rare that they add value to an angel deal, and most real angels don’t want to have anything to do with them.
What to look for in a good angel
The angels you want bring considerable business value and are the kinds of people with whom you want to have a long term relationship with. The value comes in various forms:
- Deep knowledge of your industry
- Relevant and successful business experience in your market
- Influential position in your community and industry
- Industry contacts that can turn into customers or partners
- Solid management and leadership wisdom to coach you through tough times
As you search for angel investors, look for the ones with the wings that can really take you to where you need to go. By all means, make sure you have your attorney create the investment documents. That way, you know they are right.
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Are You Ready To Be An Entrepreneur?
Bill Warner Friday, May 29, 2009
In reading Michelle Goodman’s article in nwjobs, it reminds me how important it is that any would-be entrepreneur do a “self-check” to make sure they are ready for it. With more and more people thinking about starting a business, a good self-examination is needed. This is not for the faint of heart.
The checklist
Ask yourself certain questions about your readiness to be an entrepreneur. Here are the must-haves:
- Do you really have the passion for the business you are about to get into? Above everything else, this will determine your success. You have to want to get up every morning and work on the business.
- Are you the entrepreneurial type? Entrepreneurs are curious, outgoing, risk taking and persuasive people. They see the art of the possible before others do. They are great problem solvers and have the determination of a bull dozer. They are also the best sales people for their ideas and have the self-confidence to do most anything. In other words, they don’t know of anything they can’t do.
- Do you have the business knowledge and market understanding to successfully start and grow a company? You really need to create a plan for your business and determine if there is really a business worth pursuing and test your personal ability to create it.
- Do you have the drive and energy to pull it off? You will be working 12-14 hour days with little free time otherwise. Sleep will be at a premium. The physical and mental demands are tremendous.
- Is your family ready for this? You will be spending more time with your business than your family. Will they support that? This will put significant pressure on your relationship with family members.
- Do you have the finances to get it started? Before you put another mortgage on your house, make sure you and your family are ready for the risk and understand exactly what you are going to do with the money. Statistics say that you have a big chance of losing it.
Go after this with discipline
Now that you have proven that you are ready. Go after your business endeavor with focused business discipline:
- Research your market and determine if your idea makes business sense
- Understand your customer in detail
- Know how to beat your competitors
- Create a winning product and/or service
- Absolutely know how you are going to take it to market
- Project the financial dynamics of your business
- Pull together an “A” number one management team
If you are going to put the kind of energy that it takes to create a successful business, do the right planning up front so that you know that you have a good chance of succeeding.
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Venture Capital Has Focused Optimism
Bill Warner Tuesday, April 21, 2009
CED’s Venture Conference is getting off to an optimistic but also sobering start with Tuesday night’s investor-only dinner in Pinehurst.
CED showing leadership
Joan Rose, President of CED, highlighted the evening with good news about the expected attendance at over 500 people, citing that this is extraordinary given the impact the economy has had on the companies and firms that are sending people to the conference. Actually, more individual companies will be attending this year than last year even though the overall attendance is down somewhat. In addition, CED membership is up considerably over last year, indicating that entrepreneurship is alive and well and that more and more companies want to learn about building successful businesses.
The venture capital world speaks up
The featured speaker was Mark Heesen, President of the National Venture Capital Association. He gave a very balanced update of the state of venture capital in the US. He didn’t try to sugarcoat the situation, but gave a very fair accounting of what is strong, what is weak and what we can expect in the near term.
Investing is down but still huge
With respect to the limited partners, over $4.3B was raised in the last quarter. The highlight though is that a substantial amount of the money came from Europe, Asia and the Middle East. Venture investing is down the last quarter, falling to $3.0B from $4.3B the previous quarter. He explained that most venture firms will not be raising further money this year and that we will continue to see fallout of venture firms throughout the year. He basically confirmed what we already know about the reduced chances companies have in raising venture capital money for the foreseeable future.
IPO’s may see a new dawn
On the IPO front, there has been one IPO since last August and only 26 companies are registered with the SEC. It will be unlikely that the IPO market will see much progress this year. However, Mr. Heesen cited some potential progress through new partnerships between the venture capital world and the boutique investment banking world that might open up a new avenue for IPO’s. Stay tuned.
Clean tech may save them all
Mr Heesen was bullish on “clean tech.” In his view, clean tech will be emerging as the darling of the venture capital world. He is not talking about the ill-conceived wind farms, biofuel plants and vast solar grids. He cited technological innovations in all walks of life, including building architecture, lighting, efficient air handling, fuel usage efficiency and many more. He was very excited about the innovation he is seeing and that there is increasing momentum in both the private and public sector to move this kind of innovation forward. He wasn’t talking about the near religious zealotry of sustainability gurus, but solid technology companies that bring demonstrable and profitable value to the market that improves our environment. The good news is that the venture capital world is seeing a business in clean technology innovation.
Entrepreneurship is strong
Mrs. Rose brought the evening to a close by reminding us all that more companies made applications to present at the conference this year than ever before. This again shows that although the economy is stifling, it hasn’t stifled entrepreneurship in the southeast.
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Inflation Proof Your Business
Bill Warner Tuesday, April 21, 2009
I am certainly no economist or master of the US financial system, but when I see how much money is being poured into the economy by the Treasury, red flags of inflation flash in my face.
Take a look at the trends. What I think this data says is that by early 2008, the money supply had reached $4 trillion, by the 4th quarter of 2008, it had reached $5 trillion and it is being reported as over $8 trillion. Recent news reports add another trillion in March. By the beginning of 2008, the money supply had doubled since 2002. In one year, it has more than doubled again, with $4 trillion being added in the last few months. I don’t know about you, but that is frightening to me. Yes, we are in a recession, but I am worried that in short order the devalued dollar is going to leap into the forefront as an issue causing price increases and higher interest rates, the key elements of inflation. This recession might snap like a rubber band into a period of rapid inflation.
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Get Ready To Find Your Next Job
Bill Warner Monday, April 20, 2009
With the unemployment rate continuing to rise I am meeting more and more people who are looking for their next opportunity. Unfortunately, many are nowhere near ready to actually approach an employer. I see people who have not really thought through what they want to do next, assessed their strengths and determined where they would best fit, written an effective resume, and cannot answer the simplest of questions about the value they bring to the table. With so many people on the job market, only the best of the best are going to land any jobs that might be available.
Tips that might help
Here are some tips on what to do to be ready for your job search:
- Smell the coffee – First, take a breather after leaving your last job. You have worked hard; now it’s time to decompress. It’s time to gather your thoughts and get over any lingering frustration about losing your job. You need a clear mind to think about the future.
- Assess yourself – Do a full assessment of your strengths and weaknesses to determine what the basis is for your value proposition. Yes, you are marketing yourself in this process, so you need to determine what your value proposition is as you sell yourself to a potential employer. So, write down what your personal value proposition is.
- Determine fit – Determine what your best fit might be for your next opportunity. Are you a big organization kind of person? Do you work in start-ups? What roles will you be best suited for in whatever sized company and industry you will be pursuing? Answer these questions helps you narrow down what kind of opportunities you intend to chase.
- Establish family priorities – Talk to your family once you have figured out your value proposition and best fit alternatives. Get an understanding of the limits that your family has for your job search. Are they willing to move? Are they willing to get less money? Are they willing to see you travel a lot? Get their buy-in to the kind of job search you intend to undertake. Surprises are not a good thing. Hey Honey! We are moving to Boston!
- Prepare your resume – Write a results-oriented resume. Employers want to know what your objective is and what results you have achieved in previous jobs. I stress results; not just simple statements of what you worked on. You sold products. Well, how much? You created marketing programs. Well, how many leads did it generate? You increased revenue or profit. Well, by how much? Employers want to know what you got done, not so much what you did.
- Network – Get out of your house and voraciously meet people. Use your contacts to give you referrals to people you need to meet that might know about new job opportunities. Yes, this is networking with a purpose. Go to important networking events and meet companies. Make contacts with professional services firms that might know about job opportunities that are arising with their clients; like, attorneys, accountants, HR firms and business consultants. Make yourself known to search and staffing firms.
- Determine targets – Do enough research that you have a list of companies that you want to pursue. Use your contacts to possibly give you referrals to people inside the company. So, when asking a business associate for help, you are not taking a thoughtless approach of simply asking them what opportunities they see. Instead, you are telling them that you are chasing a specific opportunity and you want them to help with a referral. You get a lot more help that way, by showing that you have done your homework.
- Market your resume – Don’t send a resume into the blue sky. Instead, send resumes to targeted companies that you have researched, where you customize your cover letter and follow up with phone calls to inquire about openings.
- Use the Web – Do make a habit of following the major job boards on the Web. Use Linked-In to make yourself known to your network. Overall, use the power of the web to learn about opportunities and to market yourself.
- Practice your story – You need to clearly state your value proposition, what a best fit opportunity is for you, why you left your last job, what you are looking for next and your excitement about taking this next step in your career. These points have to roll off your tongue with enthusiasm, commitment and integrity.
Hunt with a purpose
The hunt for a new job is a major undertaking. Take it as seriously as you would take launching a new product or service in your last company. You need a well thought out marketing program that generates new opportunities that are right for you and then sell yourself into those opportunities using solid sales technique and know-how.
