Recently, I had the great fortune of interviewing Mark DiPaola, an extremely accomplished entrepreneur.
As the founder of Vantage Media Corp., Mark raised a $70 million Series A financing, which is still on record as one of the largest Series A raises in history. And in 2007, his company generated $68 million in revenues.
As president of D3 Ventures, Mark also functions as an investor.
As a person with such success on both sides of the table - investing in growing businesses, and actually founding and growing businesses himself, I couldn't wait to interview him about entrepreneurship and raising capital.
During the interview, Mark went into great detail as he recounted his own experiences on raising capital for Vantage Media. One thing he emphasized was how important it is to know your business inside and out, and how this knowledge impacts not only your ability to grow your business, but also to achieve sales breakthroughs and get the attention of investors.
Mark revealed one website for job postings which helped him assemble a 35 -person team that brought in $40 million/year in revenue -- and it's not the website you might think! We discussed hiring strategies, the number one factor to look for in job candidates, and when it's time to bring in a highly-experienced management team.
Regarding his role as an angel investor, Mark shared the qualities he looks for in a company before making an angel investment, and why it's important that entrepreneurs are referred to investors.
Growthink University members can listen to the interview here:
For those who have not yet joined, you can listen to the first five minutes by clicking the blue triangle below:
What does this all sum up to? The Beatles say it much better than I ever could:
Little darling, it's been a long cold lonely winter
Little darling, it feels like years since it's been here
Here comes the sun, here comes the sun
and I say it's all right
It is common knowledge that companies need business plans.
Business plans are critical for setting goals and mapping out your plan to achieve those goals. They are also critical in order to raise capital. Whether you are seeking a bank loan, or capital from angel investors, venture capitalists or corporate investors, a formal business plan is simply a requirement.
However, there are some investors that say they don’t need a business plan. Rather, they just want to see a company slide presentation and/or a 1-3 page Executive Summary.
So, at this point you are probably asking yourself, “So, do I, or do I not, need a business plan?”
The answer is a resounding “YES.” Let me explain.
To begin, the types of investors that typically do not want to see a formal business plan are an extremely unique bunch. They are typically the top 1% of angel investors or venture capitalists. These are the investors that see so many deals that they don’t have the time to read through business plans.
Perhaps more importantly, these are the investors that focus on investments that could be worth billions of dollars within a few short years.
They invest in companies like Facebook or Twitter; companies that have massive potential but which may not even have a real revenue model in place yet. For companies like these, that are potential “game-changers,” creating financial projections or analyzing the current marketplace are much less important than for other businesses. As such, formal business plans with this information is less important.
Another key reason for creating a formal business plan is the knowledge that comes out of it. Specifically, the business plan process forces you to make a lot of key decisions about your business. For instance, writing down your marketing plan forces you to determine the marketing tactics you will employ.
Likewise, the business plan development process forces you to assess your market, identify customer segments and customer needs, and determine the strengths and weaknesses of your competitors. This is all critical information that you need to successfully operate your business.
The U.S. Small Business Administration, in a study called “The Small Business Economy,” found a direct correlation between a business’ success and its creation of a formal business plan. That’s because the business plan development process forces you to really think through the business and make informed decisions.
Likewise, the business plan development process gives you the information that you need to include in your investor slide presentation and Executive Summary. For example, one slide needs to include your financial projections and uses of funding. Another slide must talk about your marketing plan. All of this information comes directly from your business plan.
And what about information that is in your business plan, but which you omit from your slide presentation -- is that wasted information? NO. Before they invest, investors will bombard you with questions about your business, your market, your customers, your competition and so on.
Having completed, read and re-read your business plan, you will be able to quickly and correctly answer all of these questions.
So, when investors say they don’t need a business plan, they are NOT saying that they don’t want you to create a formal business plan. Rather, they are saying that the way they want you to communicate your vision and concept to them is not through a long written document, but via another format, mainly a slide presentation and/or 1-3 page Executive Summary.
So, learn the format of business plan and complete your formal business plan. It will give you the information you need to create a winning business strategy and attract investors. And, in addition to your full business plan, create an Executive Summary (which should be the first section of your full business plan anyway) and a slide presentation, since these documents will be required in the capital-raising process.
"Those who cannot remember the past are condemned to repeat it" - George Santayana
The financial panic of 1873, which set off a severe nationwide economic depression that lasted for 6 years, included The New York Stock Exchange closing for 10 days, 89 of the country's 364 railroads going bankrupt, and unemployment as high as 14%. During this extremely challenging time, a gentleman by the name of Thomas Edison started a company called General Electric. You may have heard of both of them.
The Great Depression of the 1930's is even scarier in statistics than in legend. Industrial production fell by 45% between 1929 and 1932. Homebuilding dropped by 80%. 1,000 of the nation's 25,000 banks failed. US GDP fell by 30%.
And during these dark days, DuPont created new products and indsutries including rayon, enamels, and cellulose film. RCA invented television. And a little company called IBM started pouring research dollars into something called the computer.
The 1970's are commonly remembered as a dark period for American finance and business - stagflation, negative stock market returns for the decade, and hits to the national psyche including Vietnam, Watergate, and the Hostage Crisis. It was also the era that 2 ambitious and visionary young men named Bill Gates and Steve Jobs got their start.
My 20 years in angel investing, small business and entrepreneurship have taught me to separate the world into two kinds of people: Those that comment and complain on how things are and those that do something about it.
Unluckily for all of us, television and the always on Internet give those that comment and complain bigger megaphones than ever to spread their false prophesies of doom. It is only human nature to be affected, depressed, and even scared by their strident negativity.
Very, very luckily for all of us, however, there always be budding Bill Gates and Steve Jobs and Thomas Edisons and Thomas J. Watsons amongst us. And where are these future shining stars devoting their prodigious energies to these days? I promise you that most of them aren't working at General Motors, nor are they drawn to politics or working in the public sector, nor to non-profits.
No, they are capitalists. They are entrepreneurs. They start and work at Internet companies, they research alternative energy technologies they discover new drugs to make us all live longer and healthier lives. They are and they discover Black Swans. They - in the words of Voltaire - make "life throb to a swifter, stronger beat."
And you know what else? They're in it for the money. They want to build companies like Pure Digital (makers of the FlipCam) did and sell out to Cisco Systems for $590 million. Or Facebook, on the verge of a public offering that will make its early investors billions. Or Integreon, whose business plan was perfected in a small Growthink conference room 10 years ago, and is now the largest legal outsourcing firm in the world (and saving a lot of folks a lot of money on their legal bills).
With apologies to Doris Day, the future is in fact ours to see. As long as little boys and girls are raised to grow up to do something great with their lives, progress will march on. Technologies will be commercialized. New industries will arise. Companies will be born and will grow and grow and grow. Fortunes will be made.
The question, of course, is what will be in it for you? Will you be on the couch with the critics? Or will you be in the game with the builders and the doers?
Scott Shane, one of the world's most respected statisticians regarding entrepreneurship and angel investing, has a new book out - "Fools Gold? The Truth Behind Angel Investing in America." It is without question the finest compilation of statistics and cold, hard facts regarding the REALITIES - as opposed to the myths - of the keys to successful angel and emerging company investing. Some amazing statistical nuggets from Scott's book:
As working with and investing in entrepreneurial companies is my life's work, I read this book extremely closely and found it both invigorating and challenging. Invigorating in that it confirmed, with statistics, the superiority of private company investment returns vis a vis all other investment classes. And frustrating in that it starkly outlines the very basic mistakes that most private company investors make over and over again that prevent them from being a successful investor in this asset class.
My overall takeaway: If you want to invest in private company deals, only do so via one of two avenues: 1) Via a GOOD angel investment group like The Band of Angels or the Tech Coast Angels (if you can get in) or via a managed portfolio approach such as a private equity or venture capital fund targeted toward the space or via a hybrid, operational approach like Growthink.
Have you ever heard of ZipSkinny.com?
If you go to the homepage of their site, you'll see a box that asks you to "enter your zip code to see U.S. Census data and comparisons with neighboring ZIPs."
Unless you're one of those people who gets excited about miscellaneous facts and figures, at first glance this might seem like an uneventful site.
But for those of you who provide products or services to local customers, the information available is *invaluable* in conducting market research for your business.
Once you type in your zip code and press enter, you'll see tons of great data on your local market. Such as the percentage of local residents who have graduate degrees or who are married. And, you’ll see economic indicators such as household income, and demographic information on race, age, and gender.
As an example, I've just typed in 10549, the zip code of our office here in Mount Kisco, a suburban town just outside of NYC. One fact that stands out to me right away is that 62.3% of residents have lived in the same home for 5+ years. Another is that the median household income is $75,761. Put these two statistics together, and you can deduce that this town is a fertile location for a business where both an affluent demographic and high customer retention are essential, such as a landscaping or cleaning business.
Whether you're looking to conduct preliminary market research before delving into a business, or examining markets into which you can expand your current venture, ZipSkinny is one of many tools that can help you with the process.
And in our recent report, "How to Quickly, Easily, & Expertly Conduct ZERO-COST Market Research For Your Business" I lay out this and several other tools to help you conduct the market research online at a level that is comparable the way it's done by experts with decades of experience.
As you might recall, I released this report at a STEEPLY discounted rate of one cent for each year of my wife's age, in honor of her birthday in March. And that discount is about to disappear forever.
On Thursday at midnight, the price is going up more than 100x, so as the subject of this blog post suggests, this is your last chance to get the information of market research experts for literally pennies.
If you are a Growthink University member, you can click here to grab your free copy of the report if you haven't done so already.
Otherwise to order now, click here. Or for more information, you can watch the brief video below:
Yesterday I had the opportunity to interview Brad Feld, who is considered among the elite investors in privately held companies.
For those of you who are not familiar with Brad, his background includes starting and selling his own software company, investing as an angel in 40 to 50 companies, and founding or co-founding three venture capital firms: Intensity Ventures, Mobius Venture Capital and Foundry Group, where he currently serves as Managing Director.
While there were several invaluable points for entrepreneurs seeking capital in the interview, I found the following to be most interesting:
1. Your VC firm is your partner.
Many first-time entrepreneurs view VCs simply as providers of capital. In actuality, VCs are partners. They exert control over your company. They have experience in product development or scaling companies, or both, and can provide significant value beyond the money they infuse in companies.
Because VCs are partners that exert control, you need to assess them much like you would other partners. Mainly, you need to make sure that there is a really good fit.
2. Angel investors are the friend of the first-time entrepreneur.
First time entrepreneurs should strongly consider angel investments prior to venture capital. Angel investors often have financing experience which can help entrepreneurs navigate the VC waters when they are ready (there are a ton of terms and issues involved with venture capital that most first-time entrepreneurs don't know about).
Angel investors also tend to have relationships with VCs. Also, angels often have the operational experience to help grow the entrepreneur's company. And finally, the angels' funding can help the company grow to a point where it is more suitable for venture capital.
However, when structuring angel deals, it is imperative to keep the pricing/valuation fair and the deal terms as simple as possible. If not, raising subsequent venture capital rounds becomes more challenging.
3. Don't look for investors who are not a good fit
Brad mentioned the 80/20 or even the 99/1 rule. Essentially, entrepreneurs should spend a ton of time on the 1% of investors who are a great fit. And not waste their effort on the other investors.
Two key aspects that Brad mentioned for ensuring a good fit are 1) geography (many VCs will only invest in certain geographic regions) and 2) sector (Foundry Group simply doesn't invest in Clean Tech; no matter how exciting the company looks). I would also add "stage" to this list as many VCs focus on companies at specific stages (e.g., some only want post-revenue companies, etc.)
You can listen to the full 30-minute interview by clicking the blue triangle on the audio player below: