5 Quick & Easy Ways to Improve Your Website


 

Your website is a critical component of your marketing strategy. If set up properly, your website can be the source of tons of new customer leads. And even if they hear of you elsewhere, in many cases, customers will still visit your website to learn more about you.

So here are 5 quick and easy ways to make your website more effective.

#1: Establish a blog


Setting up a blog is the easiest way for you to continually add new content to your website.

And each piece of content you add is another opportunity for someone to do a search (on Google.com, etc.) and find your company.

Also, your blog posts can be used to show your subject matter credibility, and further prove to prospective customers that you are the best provider in the market.

#2: Promote your blog posts


In addition to adding new blog posts (ideally once per week, and at a minimum twice per month), make sure to promote your posts.

You can promote your posts by posting them on Facebook, Twitter and other social media sites.

Your goal is to drive more traffic to your blog posts. Also, try to get visitors to comment and/or ask questions about your posts. And then, respond to their questions and comments.

Finally, remember that each question posed by your visitors may be a great topic for a future blog post.

#3: Create videos

Particularly if you don't like to write, create videos.

Videos that teach prospective customers how to do something are extremely valuable. And they can be used to "soft-sell" your product and/or services.

For example, let's say you offer carpet cleaning services. A short video teaching people how to tell if their carpet is in need of cleaning would be extremely valuable. And, people who watched it would be prone to purchase your service.

#4: Add sharing buttons


Particularly if the content on your blog is good, make sure it's easy for visitors to share it.

You can quickly and easily accomplish this by adding buttons that allow people to share your posts on Facebook, Twitter, LinkedIn, StumbleUpon, and other social media networks.

This is how blog posts go viral; by making it easy for others to share them.

#5: Make your website mobile and tablet friendly

More and more people are visiting websites from their mobile devices and tablets. But not all website look good on these sources.

Make sure your website does. If it doesn't, there are some inexpensive services that manage this for you. Such services can tell when a visitor is not coming from a desktop, and will automatically push them to a version of your website (which they create and host) that is more mobile/tablet friendly.

Each of these five tips can be implemented very quickly and easily. And they will result in more customers and sales. So make completing this a priority.

 

Suggested Resource: Want to learn my complete strategy for methodically maximizing your online traffic, leads, sales and profits? Then check out my Ultimate Internet Marketing System.

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Is Crowdfunding Better than Peer-to-Peer Lending?


 

Both Crowdfunding and Peer-to-Peer Lending are great new ways to raise money for your business. Below I explain the differences, and some of the advantages and disadvantages of each. I end by determining which is better.

Peer-to-Peer Lending

Peer-to-Peer (or P2P) Lending is one person lending money to another person at a pre-defined interest rate. It's basically debt capital without the bank or traditional "middle man."

The benefit of P2P Lending is that 1) the interest rates are typically lower, and 2) the likelihood of getting the loan is greater than the likelihood of getting a traditional bank loan.

There are several popular websites that connect borrowers and lenders directly. The biggest two are:

  • Prosper.com
  • LendingClub.com


The downside of P2P lending is that you need to repay the loan and that there are limits to how much you can raise (generally only $25K at a time).
 
Crowdfunding

Crowdfunding is raising money from the "crowd" or general population. In Crowdfunding, you don't need to repay the amount raised. Rather, you give rewards (usually the product you want to develop) or equity to those who fund you.

The most established rewards-based Crowdfunding websites are:

  • Kickstarter is the largest Crowdfunding site. The downside of Kickstarter is that not every project is accepted and they charge a success fee of 8% in the event you get funding.

  • Rockethub is primarily for funding creative projects. Their network is not as large as Kickstarter's, but is still pretty big. They accept more projects, and also have a success fee of 8%.

  • GoFundMe is a large and growing Crowdfunding site. It is unique in that it doesn't charge a success fee if you get funded. GoFundMe does charge a $9 fixed monthly fee.

  • IndieGoGo is another very large Crowdfunding platform. It has more creative (e.g., film, music) projects than some of the other sites.


On the equity side, Crowdfunding if still extremely new and still only limited to accredited investors (expect this to change shortly). Crowdfunder is one of the leaders in the equity based Crowdfunding market now. We will see how it grows and other sites pop-up as non-accredited investors enter the market in 2014.

So, Which is Better?

I prefer Crowdfunding over Peer to Peer Lending because of the potential to raise more money through a larger group of people, and not having to pay the money back. I also like that all the people who crowdfund you 1) are potential future customers, and 2) can spread the word about your business.

However, the two funding sources are NOT mutually exclusive, so definitely consider using BOTH Crowdfunding and Peer to Peer Lending, since both are great forms of funding.

 

Suggested Resource: Do you want Crowdfunding? If so, don't try to raise it from scratch -- the 14-step blueprint already exists. Get the Crowdfunding blueprint here.

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The Big Secret to Raising Venture Capital


 

Years ago I served on a funding panel with Tom Clancy. At the time, Tom was a partner at Enterprise Partners Venture Capital in San Diego.

At the time (around 2003), many venture capital firms were licking their wounds. They had funded a ton of companies during the tech bubble phase, and most of them had failed.
 
This led Clancy to make an important decision. He said that going forward, Enterprise Partners would wait at least six months before funding any new company they met.

The rationale was solid. During the six months, he would see what the entrepreneur was able to accomplish. If the entrepreneur accomplished the milestones set forth in their business plan, than they were deemed worthy and would receive funding. If not, they would not.

So what is the entrepreneur to do during the six months in order to get the investor to write them a check?

Obviously they need to achieve milestones... But what else?

Before I give you an answer, I want you to know how crucially important this is, not only in raising capital, but in securing key partnership and gaining key customers.

Let me give you an example of an entrepreneur who successfully used this technique in order to get a key partner. This entrepreneur’s name was Chet Holmes. And one of the key reasons that Mr. Holmes achieved success was through his partnership with marketing guru Jay Abraham.

How did Holmes get the partnership with Abraham? Like many people, he tried to reach him by phone, fax and mail. But Holmes did it every other week...

...FOR TWO YEARS!!!

Then, he finally got a call from Abraham's business manager for a lunch appointment, flew to Los Angeles for lunch, and established a very profitable partnership.

So, what's the answer to the question of how to woo investors, customers, partners, advisors, key hires, and more over six months?

Effective and persistent communications. In other words...

FOLLOW UP.

You must consistently, over a period of time, hammer home your message to investors, key customers and others.

What exactly does this mean? For investors, once you meet them, you should follow-up with them at least twice per month to update them on your progress. For prospective customers, you should contact them on an ongoing basis to continually give them value and convince them of the benefits of working with you. And of course, don't forget to follow-up with your existing customers.

And a key here is that this follow-up should NEVER END unless or until the costs of the follow-up clearly outweigh the benefits.

Remember that people invest in, buy from, and partner with other people. So, who would you rather work with? Someone who has been contacting you for two years with quality messages regarding why you should partner with them, buy their product or invest in them? Or someone who you just met yesterday and tells you how great they are?

The answer is clear.

Don't stop at the first contact. Choose the appropriate frequency (i.e., you don't want to be perceived as too obnoxious or pushy to potential investors), craft quality messages, achieve your milestones, and convince investors and others to work with you over time.

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The Greatest Steal Ever


 

I grew up watching Larry Bird. My dad was a huge Boston Celtics fan (which is relatively odd considering he grew up in New York City). So, I became a huge Celtics fan too. And I was a big fan of the heart of the Celtics’ Larry Bird.
 
This guy never gave up.

In fact, if you watch this 40 second video - https://www.youtube.com/watch?v=H_RJ5XN8TK8 - you’ll see what I consider the greatest steal ever...

The Celtics were losing by 1 point with only 5 seconds left. And the other team had the ball. The game was essentially lost. But then Larry Bird intercepted the inbound pass and passed the ball to Dennis Johnson. Johnson scored the basket and they won the game.

While Larry Bird’s steal was phenomenal, if his teammate Dennis Johnson wasn’t in the right place and didn’t execute on his layup, Larry Bird’s efforts wouldn’t have resulted in a win.

As an entrepreneur, you also need great teammates. Since you can’t possibly build a great company by yourself.
 
In fact, great entrepreneurs are more like Larry Bird the coach (who “hired” and coached his players into being the best they could be) than Larry Bird the player (who performed key tasks and made his co-players better).
 
The key is this -- you need to find, hire and then train and coach the best people. Because there are TONS of bad people. I learned this very early on at Growthink. Years ago, I generally gave people the benefit of the doubt. If they said they could do something, I figured they could. And then I quickly realized that some people “have it” and some people don’t.
 
I think “having it” is the quality of people who “do what they say and say what they do” and always try to do their best. You want people who “have it” and at the same time people who are qualified and uniquely skilled at the position you need to fill. For example, while I believe I “have it,” there’s a whole bunch of positions that I’m not qualified to fulfill or which wouldn’t inspire me to do my best work.
 
So, how do you find these great people who “have it” and possess the skills you need. Here are my recommendations:
 
1. Event Networking:
great people have several common traits, one of which is their dedication to ongoing education. That’s why great people generally go to events and conferences. You also need to go to these events, where you’ll find some very talented individuals.
 
2. Being Sociable:
I’ve heard lots of stories of people meeting people at sports events, supermarkets, on a plane, etc., and striking up conversations that results in great hiring decisions. I must admit that I’m not the most sociable person outside of work; but I’m getting better at this.
 
3. LinkedIn:
LinkedIn is a great online network to find qualified people to come work for you. Join relevant LinkedIn groups to find folks with similar interests and who are looking to further their careers. And reach out to the best ones.
 
4. Recommendations & Referrals:
Oftentimes the best hires are the ones that were recommended to you by friends and colleagues. Send emails out to your network and advisors asking if they know someone with the skills you need. People generally only recommend people that they believe are competent, since their own reputations are on the line.
 
5. Executive Recruiters:
while this will cost more money in the short-term, executive recruiters (also known as “headhunters”) can find you great candidates. This is what they do. Importantly, they will often find you people who aren’t actively looking for a new job. These are often the best folks. I mean, would you rather hire an unemployed person looking for any company that will take them, or someone who’s thriving at a company but sees great opportunity in helping you grow your venture?
 
Importantly, in its relative infancy, eBay used executive recruiting firm Kindred Partners to find and hire Meg Whitman. Whitman turned eBay into a multi-billion dollar company and herself into a billionaire.
 
Using one or more of these five tactics will get you qualified job candidates. But, before you hire any, I highly suggest you give them two tests as follows:
 
1. A skills test:
whenever possible, you should test the skills of the job candidate. If you are hiring someone for a research job, give them a research assignment. If you are hiring someone to be a receptionist, do mock calls with them. Etc. I realize that for some jobs, it may be harder to test, but get creative since you want to make sure they will be able to perform.
 
2. A culture test:
if someone comes highly recommended and passes a skills test, it still doesn’t mean they’re the right hire. They MUST match with your company’s culture. For instance, if they’re a stiff, and your company thrives on fun and creativity, then they’re not the right match. Your company culture is critical, so don’t ignore this key test.
 
Hiring the right players for your team is critical to your success. There are no wildly successful 1-person companies that I know of. Imagine for a moment if you had a dream team; a group of employees that were so talented your competitors would be in awe. How good would your company become? How much faster would you accomplish your goals? How great would it be to come to work every day? Think about your answers to these questions, and then start building a great team and a great company today.

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The Two P’s Behind Michael Jordan’s Success


 

Earlier this month, the Milwaukee Bucks basketball team was sold by Herb Kohl for $550 million. What’s interesting was that in 2003, Michael Jordan was interested in investing in both the Milwaukee Bucks and the Charlotte Bobcats. However, for his $50 million, neither organization would give him managerial control.
 
So, Jordan passed on the opportunity to invest in either. However, over the following seven years, the Bobcats imploded and Jordan was able to purchase the entire team for $175 million in 2010. Since then, with full managerial control, Jordan has turned around the Bobcats team (the team made the playoffs this year for just the second time in history). As a result, the value of Jordan’s investment has gone way up. In fact, it’s most likely considerably higher than the $550 million just paid for the Bucks.
 
So what is it about Michael Jordan that’s made him succeed in both sports and business?
 
My answer: Preparation and Practice
 
According to the book "How To Be Like Mike: Life Lessons About Basketball's Best," as a player, Michael Jordan's practice habits and conditioning regimen amounted to an "almost alarming harshness."
 
In fact, many experts, such as Florida State University professor K. Anders Ericsson, argue that practice continually trumps talent.
 
Prominent examples of success attributed to continuous practice besides Michael Jordan include:
 

  • Bobby Fischer: While Fischer became a chess grandmaster at the young age of 16, he had nine years of intensive study and practice beforehand.

  • Warren Buffet: Buffet is known for his extreme discipline and the significant time he devotes to analyzing the financial statements of organizations in which he considers investing.

  • Winston Churchill: Churchill is widely considered one of the 20th century's best speakers. Historians say he compulsively practiced his speeches.

  • Tiger Woods: Tiger developed rigorous practice routines from an extremely young age, and devoted hours upon hours each day to conditioning and practice in order to improve his performance.

 
As you can see, and as is pretty intuitive, preparation and practice are keys to success in sports. And in business, it’s the same.
 
Consider these examples that entrepreneurs often face:
 

  • Developing your business plan? Make sure you prepare the right information. Conduct solid market research to ensure your market opportunity and strategy are sound.

  • Giving a presentation to an investor or prospective client? Be sure to spend significant time preparing. Make sure you develop the right slides. Make sure you practice it and deliver it smoothly. Make sure you’ve anticipated the questions that might arise, and have answers for each.

  • Meeting with an employee to improve their performance? Make sure to prepare your list of items in which they are doing a good job, and a list for which they must improve. Practice delivering the information and prepare answers for questions they might ask.

  • Holding a company-wide meeting? Make certain you have a clear agenda. Prepare an outline to follow and a list of key points you need to get across. Practice delivering your presentation to get the greatest impact.

 
Importantly, for these and other business situations, think about your goals. What is the goal of developing your business plan? What is your goal of presenting to an investor or prospective customer? And so on. Having these goals clearly in mind when you prepare and practice ensures you prepare for the right outcomes.
 
Legendary football coach Vince Lombardi once said, “Practice does not make perfect. Only perfect practice makes perfect.” Perfect practice means you’ve done your preparation, for instance, learned what perfection is. And both on the sports field and in your business, doing the right preparation and practice will pay significant dividends. So, be sure to make preparation and practice a part of your daily routine.

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Answers to the 5 Most Common Angel Investor Questions


 

On Wikipedia, I found the word "angel" defined as "a supernatural being or spirit, often depicted in humanoid form with feathered wings on their backs and halos around their heads."

While this might depict an "angel," it certainly is a far cry from the definition of an "angel investor."

Below I define exactly what an "angel investor" is along with answers to the other most common angel investor questions.

1. What is An Angel Investor?

 
The term "angel investor" is officially defined as a private investor who offers financial backing to an entrepreneurial venture.
 
When several private investors form an organization to collective fund ventures, they are known as an "angel investor group."
 
The act of providing the financial backing is known as "angel investing."
 
The amount of angel financing is significant. According to the Center for Venture Research at the University of New Hampshire, each year over 60,000 ventures raise over $20 billion from angel investors.

2.  Will an angel investor invest in my ______ (insert restaurant, hotel, technology, website, product, app, salon, etc.)?

The answer to this is "yes."

Software is the top sector that receives angel funding, representing approximately 23% of total angel investments annually.

Healthcare Services/Medical Devices and Equipment (14%), Retail (12%), Biotech (11%), Industrial/Energy (7%) and Media (7%) are the next top sectors.

Importantly, that leaves an "other" amount of 26%. And ìotherî includes every type of company there is. So, yes, there is an angel investor out there who would fund your type of business.

3.  What is the difference between angel investors and venture capitalists?

Venture capitalists differ from angel investors in that they typically provide more money (generally at least $2 million) and focus on companies that have achieved more operational milestones than companies generally funded by angel investors

Other key differences include the following:

  • Venture capitalists are professional investors. That is what they do for a living. Angel investors do not invest for a living.
  •  
  • Venture capitalists invest other peopleís money in ventures. Conversely, angels invest their own money. As a result, angel investments are not always based on the potential return on investment (ROI) of the deal (the primary concern of venture capitalists) but may result from other factors such as simply liking the entrepreneur and wanting to help them out.


4.  What return on investment do angel investors want?

There is no set formula for the return angel investors want. In general, they simply want a "fair" return. "Fair" might imply millions of dollars if your company eventually goes public and is valued at billions. Or, "fair" may be a 15% return, or a reasonably higher return than they would receive if they invested in the less-risky public stock market.

The key is to figure out what the prospective investor deems to be ìfairî and offer it to them.

5.  Where can I find angel investors for my company?

The best place to find angel investors is through networking. Who do you know? Who do your friends know? Who does your attorney know? And so on.

And then once you meet those referrals, ask who they know. And so on. By networking, you can reach tons of prospective angel investors and raise the funding you need.

Importantly, the vast, vast, vast, vast (yes, I know I just said ìvastî four times!) majority of angel investors are what I call "latent angel investors." That is, they don't know or walk around thinking of themselves as angel investors. But, they have the means, interest and ability to make angel investors.

Latent angel investors are the BEST for entrepreneurs, since they arenít seeing tons of potential companies to fund. As a result, if they see one good deal, thereís a good chance theyíll fund it. Conversely, those investors who see tons of deals are less likely to fund any particular venture.

Now that you know the answers to the five key angel investors questions, use this knowledge to raise this great funding source for your business.

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How Reverse Logic Doubled Profits


 

I find it amazing how many entrepreneurs and business owners get burned by thinking about things incorrectly.
 
Here’s an example from a recent conversation I had with an entrepreneur who sells professional services. His sales were strong, but his profits were weak. In trying to figure out a solution, he started by suggesting he layoff part of his staff. If he cut his staff, costs would go down and profits would go up.
 
However, he then realized that if he had less staff members, he couldn’t close as many sales nor complete as many projects. So, sales would go down about the same as costs, and profits would remain flat.
 
The solution I gave him was to cut costs by reducing his staff (either through layoffs or natural attrition) and to boost employee productivity. Because if he were able to serve the same number of clients with a smaller staff, then profits would rise. In fact, if the staff were pared down enough, he could even afford to pay each staff member more than they currently make.

There are several great example of this “reverse logic” of paying employees more to increase profits.
 
One example is The Container Store. The Container Store has just one employee for every three their competitors have. But, they pay their employees double the industry average and spend 160 hours training them.
 
What is the result of this strategy? The Container Store employees are better trained and happier, and thus provide superior service. All this at a 33% lower cost than competitors.

Interestingly, when The Container Store opened in New York City, it had 100 times more applications than available positions. With numbers like that, they can hire the best of the best each time.

Similarly, Harry Seifert, CEO of Winter Garden Salads gives employees bonuses just before Memorial Day, when demand for its products peak. The bonuses boost morale and cause the company's productivity to jump 50% during the busy period.

Paying employees more to improve performance and boost company-wide profits is a historically proven tactic. In fact, back in 1913, Henry Ford doubled employee wages from $2.50 to $5.00 per day. The move boosted employee morale and productivity and caused thousands of potential new workers to move to Detroit.

Your employees can and should be a source of your competitive advantage. Recruit them slowly and wisely. Train them well. Give them a voice in your company and respect them. And pay them well. When you do this, you’ll have employees that perform at three times the level of your competition. And even if you pay them double the industry average, you’ll still have huge profits and outperform your competitors.

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Perfectly Executed Crowdfunding Campaign


 

In my Crowdfunding Formula program, I teach the 14 steps you must follow to successfully raise money from Crowdfunding.

It turns out that Jeremy Smith from Provo, Utah, not only followed these 14 steps to a "t", but really perfected them.

The result: while he set out to only raise $12,000 for his new night light product (the SnapRays Guidelight), he ended up raising over $430,000 (he raised the $12,000 he needed in just 2 hours).

You can see the Crowdfunding raise for yourself at Kickstarter here.

Here are the key reasons Jeremy and the SnapRays Guidelight were successful in their Crowdfunding raise. Make sure you keep these points in mind if/when you use this great new funding source.

Great Video

The video explaining the product and the Crowdfunding raise was excellent. It starts by explaining the problem (i.e., existing nightlights have lots of issues such as bulkiness, etc.). It goes on to explain the benefits of his solution (e.g., ease of install, energy efficient, etc.). It even does a side-by-side comparison versus an existing solution showing how much better it is.

Then, about 2 minutes into the 2:45 minute video, co-founder Sean appears and says “thanks for watching” and explains how he and his team has “poured their lives” into the project or years. This personalizes the video, makes you like him, and thus makes you want to fund the project more.

Finally, the video has inspiring music in the background. While it’s just “stock” music footage, it gets the viewer excited.

Solid Description

Beneath the video, there are tons of pictures of the product, a great description, and answers to all the frequently asked questions people have about it. Where did they uncover what frequently asked questions to answer? Well, from previously presenting to potential investors and partners they developed a list of all the key questions people have.

Variety of Reward Options

When doing a Crowdfunding raise, you offer rewards to those who back you. This company wisely created 11 different types of rewards based on contributions of just $12 to $120. By having this variety, they were essentially able to price discriminate. People who were only able to offer $12, spent that amount, while those with deeper pockets provided more support.

Quality Social Media Marketing

Everything I’ve mentioned so far about this Crowdfunding raise would have been a waste had the founders been unable to drive people to their page. And that’s just what they did. Via a very effective and concerted effort, they took to Facebook and Twitter and generated a big buzz for their raise. As a result, they drove a lot of people to their Crowdfunding page, and those people often funded the company and/or told even more people about it.

Like everything else, it’s all about execution. Having a great idea is one thing. But the magic is when you perfectly execute on it, and raise over $430,000 in under 30 days!

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The Story That Launched A Billion Dollar Business


 

The right story can grow your business into an amazing success. That being said, consider this great story:

    On a beautiful late spring afternoon, twenty-five years ago, two young men graduated from the same college. They were very much alike, these two young men. Both had been better than average students, both were personable and both - as young college graduates are - were filled with ambitious dreams for the future.

    Recently, these men returned to their college for their 25th reunion.

    They were still very much alike. Both were happily married. Both had three children. And both, it turned out, had gone to work for the same Midwestern manufacturing company after graduation, and were still there.

    But there was a difference. One of the men was manager of a small department of that company. The other was its president.

    Have you ever wondered, as I have, what makes this kind of difference in people’s lives? It isn’t a native intelligence or talent or dedication. It isn’t that one person wants success and the other doesn’t.

    The difference lies in what each person knows and how he or she makes use of that knowledge.

    And that is why I am writing to you and to people like you about The Wall Street Journal. For that is the whole purpose of The Journal: to give its readers knowledge - knowledge that they can use in business.


The above story/sales letter, written by Martin Conroy, was used by the Wall Street Journal for 25 years starting in 1974. Doing the math regarding how many people this letter was sent to, the percentage of orders that came from it, and the subscription prices, it is estimated that this story resulted in $1 billion in sales for the paper.

So, what’s the point?

The point is that stories are an extremely effective, but often overlooked, sales tool that can allow emerging ventures to compete with large established companies. Stories allow companies to get their prospects involved in their message. It gets them excited. And then they want to learn more.

Here's an example of another startup who crafted a great story...

    I’m about to tell you a true story. If you believe me, you will be well rewarded. If you don’t believe me, I will make it worth your while to change your mind. Let me explain.

    Lynn is a friend of mine who knows good products. One day he called excited about a pair of sunglasses he owns. “It’s so incredible!” he said. “When you first look through a pair you won’t believe it.” What will I see? I asked. What could be so incredible?

    Lynn continued. “When you put on these glasses your vision improves, objects appear sharper, more defined. Everything takes on an enhanced 3D effect and it’s not my imagination. I just want you to see for yourself.”


The story goes on to discuss all the benefits of Joe Sugarman’s BluBocker sunglasses… over 20 million pairs of which have now been sold!

Does your company have a great story? If you do, great. If not, create one.

And once you have a story, where should it go? To start, it should go in your business plan. Use your story to excite investors, and others like potential partners and employees. And use your story in your marketing like the Wall Street Journal and BluBocker sunglasses did.

Success can be a simple as crafting a great story (and then delivering on the story’s promise of course). So start crafting today!

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The One Thing Every Venture Capitalist Wants


 

A venture capital firm is a financial institution that focuses on providing capital, in the form of equity, to companies who offer them the prospects of significant growth. 

The partners and associates at venture capital firms are known as venture capitalists. The term "VC" or "VCs" applies to both venture capital firms and venture capitalists. 

Unlike angel investors, who invest their own money, VCs are professional institutions that invest other people's money. VC firms raise capital for their own funds from sources which primarily include pension funds, financial and insurance companies, endowments and foundations, individuals and families, and corporations.

The VCs are then charged with providing a solid return on investment on this money. This is the one thing that every VC wants. By providing a solid ROI to their investors, VCs earn bonuses and raise more funds so they can stay in business.

VCs earn returns for their investors by finding high growth companies, making investments in them at favorable terms, guiding and nurturing them, and enacting a liquidity event (e.g., selling the company or having it complete an initial public offering).

Because they are utilizing other people's money, and are judged and compensated by the performance of their investments, venture capitalists are extremely rigorous in their investment decision-making process.

Importantly, VCs tend to only invest in companies with significant market potential of $50 million, $100 million or more. This is because even with all their relevant experience, the average venture capital firm will lose money on half the companies they invest in and only break even on a third.

Where VCs make their money is on the approximately 20% of companies they invest in that see explosive growth and provide remarkable returns of 10 times to 100 times or more on their investment.

Industry insiders sometimes refer to the 2:6:2 rule. This rule is that an average portfolio of ten VC investments will include two losses (e.g., companies go bankrupt), six moderately performing companies (may break-even on the investment or lose a little) and two very successful returns.

In fact, an analysis by Bygrave and Timmons of VC funding found that just 6.8% of investments returned ten times or more on the invested capital (these "home runs" are what give VCs high overall returns). Conversely over 60% of investments lost money or failed to exceed the amount of money earned if the capital had been put in an interest-bearing bank account.

The result of this analysis is that typically a venture capitalist will want to see the ability to get 10X their money back or more from investing in your company (they are seeking "home run" investments which compensate for the 60% of their investments that don't pan out) . As such, for every $1 million you are seeking from VCs, you must show them a realistic scenario where you can turn it into $10 million.

So, importantly, when approaching venture capitalists, remember 1) their primary goal is to make significant money from investing in you; and 2) you need to show them how they can earn a 10X return.

Now, if your company can potentially give VCs a 10X return, then seeking venture capital might be right for you. However, raising it is virtually impossible if you don't know what you're doing and haven't done it before. So follow this plan:

1. Develop a list of VC firms.

Start by creating a list of venture capital firms.

2. Narrow your list.

Each venture capital firm invests based on particular characteristics (e.g., some only invest in software firms), so you need to make sure your list only includes VCs that are interested in your type of venture.

3. Make sure the VC is active.

Many VC firms that have websites aren't active. That is, they aren't making new investments. You don't want to waste your time contacting and talking with these firms.

4. Find the appropriate person to contact.

This is critical. Venture capital firms are comprised of individual partners and associates. If you contact the wrong one, you'll be dead in the water.

5. Send the VC partner or associate a "teaser" email.

You don't want to send the VC a full business plan or executive summary initially. Rather, you need to send them a "teaser" email to see if they are interested. You don't want to "over shop" your deal.

Once the VC "bites" on your teaser email, the next step is generally to send them your business plan. Following that you'll do an in-person presentation(s), receive and negotiate a term sheet, and then sign a formal agreement and receive your funding check.

The process is a lot of work, but once you receive their multi-million check with which you can dramatically grow your company, you'll agree it's worth the effort.

Suggested Resource: In Venture Capital Pitch Formula, you'll learn exactly how to find and contact venture capitalists, exactly what information to include in your presentations, and how to secure your financing. This video explains more.

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