Why they say YES ... or no Featured

9:41am EDT July 22, 2002

You’ve got this great idea for a company, and you even have a well documented business plan to go with it. Now all you need is the money.

And it’s out there. In fact, local venture capital firms have hundreds of millions of dollars available, and a well-organized angel investor community has millions more to invest. As you likely will learn the hard way, none of that matters — even if you’re an Internet company — if your plan doesn’t meet a host of stringent criteria set forth by most private funding sources. So says Chester Fisher, a principal at Equity Catalyst LLC, a company that assists early-stage companies in preparing for their first round of outside financing.

Fisher, at a recent M.I.T. Enterprise Forum program for high-tech entrepreneurs, laid out his 10-point mandate for early-stage companies to follow. He says,companies had better score well on most of them if they want to raise enough capital to forge ahead with their ventures.

Ask the following questions:

1. Does your company offer a compelling value proposition? “Is there a component where customers have to buy it?” Fisher asks.

2. Have you differentiated your product enough? In other words, could the success of the technology prove very disruptive to your competitors? Says Fisher: “Discontinuity is important in your market.”

3. Can you “taste” a business that will grow to at least $50 million in the next 5 years?

4. Are there sales already to customers, and do the customers really care?

5. Who represents your management team, and how experienced are they?

6. Can your team sell? “If they can’t sell, then you don’t have a company,” he says.

7. Has someone already invested capital in your company, which might add credibility to the venture?

8. Has anyone on your team had past entrepreneurial successes? Has anyone successfully started a company and taken it to market?

9. Is there a clear exit strategy, such as being acquired or launching an initial public offering?

10. Do you have clear, simple communications strategies in place that allow investors to stay informed?

Get most of those right, Fisher says, and you’re in pretty good shape for angel investment. If not, these points at least provide a guidebook to change. Daniel Bates (dbates@sbnnet.com) is editor of SBN.