Let’s face it — if you could borrow enough money to grow your business, you would.
Equity capital, such as corporate venture capital funds, private venture capital funds, investment banking funds, mezzanine funds and SBICs, can be an alternative to borrowing. However, according to the National Venture Capital Association, Ohio companies attracted just 0.4 percent of the total U.S. venture capital investments in 2001.
Fortunately, angel capital, a less publicized form of equity capital, is readily available in Ohio. Angel capital sources are generally corporate executives seeking high return on investment opportunities within industries in which they have experience and contacts.
How do you put yourself in a position to locate and communicate with anonymous angel investors? Here are the steps:
1. Establish a team of advisers. The benefits of having an experienced team, including a lawyer, a CPA, an industry expert and other professionals who have taken companies through the private investment process before, far outweigh the cost. Experienced advice will save you headaches and greatly increase your chances of success. These advisers are already networking in the same circles with angel investors, who typically locate prospective investment opportunities via those circles.
2. Fine-tune your business plan. It will play a crucial role in the process of gaining this type of equity capital. Involve your advisers in reviewing the plan. Make sure it is brief and includes a “value proposition” (the compelling reason for investing in your venture) that is clear and easily understood by a person outside of your industry.
The plan should focus on sales and marketing issues. Highlight immediate financial projections and cash flow issues that will directly affect the investor’s risk.
3. Read “Crossing the Chasm” by Geoffrey Moore, based on the experiences of companies trying to establish their product. It may help you make changes to your marketing strategy and business plan, and help you market your business as a worthy investment.
4. Practice makes perfect. Practice your investment presentation on a tough audience. Advisers and impartial industry-knowledgeable third parties are a good start. Prepare a 20-minute “Conference Room Presentation,” that clearly focuses on your value proposition, and a 30-second “Elevator Presentation” that quickly communicates who you are, what you do and why an investor will make money.
You’re ready to meet angel investors. Ask for personal introductions and seek out seed capital funds (formal angel groups) that sponsor forums, like the Innovest Conference in Akron May 8-9. Gary Salhany is a manager at Cohen & Co. with experience in equity capital issues. He can be reached at (330) 374-1040.