Banks Don't Like Small Loans

Banks Don't Like Small Loans

Banks typically have a $200,000 threshold loan limit.

Over the past 15 years, the number of loans given to companies over this $200,000 limit has grown over 30%. On the other hand, loans given to entrepreneurs who need less than $200,000 has been stagnant for the past 15 years. If you look at this number in real terms and account for inflation, the loans given to small businesses has actually been decreasing.

As Chuck Loewen from Online Business Systems says, "Understand the real role of a financial institution is to lease safe capital to low-risk borrowers. Entrepreneurs, full of vim and vigour mistake the bank’s role as the entity that will share the risks with them to see the entrepreneur’s dream come true. Not so. Always understand you are the entrepreneur, he or she is the banker."

For more information, visit www.EvanCarmichael.com.

Is Your Business Underfinanced?

Is Your Business Underfinanced?

Join the club.

As we move from an industrial to an information and service society, a new generation of companies is spawning. Entrepreneurs no longer have to buy expensive equipment or inventories to get their businesses started. They rely instead on their intellectual capital.

Two simple examples are software developers and consultants. These entrepreneurs depend more on their own skills, time, and knowledge than any other "fixed" asset.

The good news is that these types of businesses are easy to set up and have minimal associated costs. The bad news is that because you don't have many fixed assets, traditional lending institutions like banks don’t know how to valuate your business.

You can have rapidly growing revenues and still be underfinanced.

In fact, the statistics show that if you are a high growth company, you are more likely to be underfinanced!

Overall, 20.7% of companies are underfinanced. But when you look at companies that have grown their revenues by 20% or more over the past three years, you'll find that 30.8% of them are underfinanced!

It is obvious from this data that it is the young, high performing companies that are currently experiencing the greatest difficulty in obtaining the financing they need to operate their businesses.

Many entrepreneurs are so discouraged that they don't even apply for financing. In 2000, only 60% of small and medium sized companies tried to raise capital. Only 53.8% of businesses with zero to four employees applied for financing.

As a result, in the late 1980's, only 15% of entrepreneurs were concerned over their financial situation. Fast forward to 2002 and that number rises to almost 40%! So why are these numbers so discouraging? Most entrepreneurs only turn to one source of potential capital: Banks.

For more information, visit www.EvanCarmichael.com.

Investment On The Rise

"With the bursting of the Internet bubble a few years ago, investors closed their wallets and spent time cleaning up problem investments. And entrepreneurs bided their time. "They knew there wasn't any money around, so people didn't think about starting businesses," Arkebauer said."

"But the stock market and economy have improved, angels started to get more active about a year ago and VCs re-emerged in earnest last fall, partly because they saw better potential for exiting through initial public stock offerings in a few years"

"Money is flowing and entrepreneurs, consequently, are breaking out their business plans. That phenomenon could eventually translate to fast-growing Colorado companies with substantial job opportunities."

Read more here.

For more information, visit www.EvanCarmichael.com.

How to Get in Contact with Northern Crown Capital

How to Get in Contact with Northern Crown Capital

There are 2 ways that Matthew, Robert, and Michael can help your business raise capital:

1) Become your intermediary

· If you are based in Ontario and are looking for an intermediary to help introduce you to venture capitalists, present your case, and negotiate and close the deal on your behalf, visit http://www.evancarmichael.com/ for how to get in contact with Northern Crown Capital.

2) Review your business plan

· If you are looking to raise capital for your company and would like to know what investors would think about your business plan, you can get it professionally critiqued by Northern Crown Capital. Visit http://www.evancarmichael.com/ for more information

For more information, visit www.EvanCarmichael.com.

Choosing The Right Venture Capitalist To Work With

"All investment strategies are not created equal: One size does not fit all and there is no cookie-cutter investment strategy. Many companies bootstrap themselves. Others partner with angel investors, traditional venture capital firms or even obtain debt financing. The venture capital model has served us well. But all venture capital firms are not created equal. You don't need money people, you need partners who balance the risks and motivate your team."

"The quality venture firms have reputations for standing with you in the tough times and help you position for future success. Understanding the investment stage strategy of venture firms was our greatest lesson. It optimized our efforts on the right meetings with the best chance of success. Do your homework."

"You are running a business, not a science project: The goal of a company seeking capital is financial independence (at the least) or a substantial exit, an IPO or acquisition (at the most). Experienced investors see right through poorly engineered plans, immature technology and IP, insufficient resource planning, etc. In our case, while there is a lot of market attention placed on nanotechnology, this is not enough. Customers, products, revenue and (heaven forbid) a solid path to profits are paramount. Know your business and your business plan, inside and out."

"It does not end with a term sheet; you better be who you say you are. Capital markets are constrained and investors are conducting ever more thorough due diligence. Even "seed" or "A" stage companies must show a solid value proposition, customer traction and a mature business plan to garner attention. Far fewer companies are financed based solely on technology potential. Investors have every right to find out everything they can about the people, the uniqueness of the IP and the workings of the company. You better be who you say you are, or your deal can easily unravel."

"It does not end with a term sheet; you better be who you say you are. Capital markets are constrained and investors are conducting ever more thorough due diligence. Even "seed" or "A" stage companies must show a solid value proposition, customer traction and a mature business plan to garner attention. Far fewer companies are financed based solely on technology potential. Investors have every right to find out everything they can about the people, the uniqueness of the IP and the workings of the company. You better be who you say you are, or your deal can easily unravel."

"The business, economic and fund-raising climate remains fraught with challenges for startup companies. Do your homework, determine the approach that best fits your strategy, sweat the small stuff, mix in a lot of hard work and the right partners and as we are living proof, it can be done successfully."

Read more here.

For more information, visit www.EvanCarmichael.com.

Most Important Lessons from Northern Crown Capital To You

Most Important Lessons from Northern Crown Capital To You

· Michael

- Use an intermediary. The benefits of using one have been discussed throughout this program. Hopefully you will use Northern Crown Capital, but if not there are many good ones out there.

- Remember that in most cases, the deal you end up with is not the deal you thought you would get when you started. You have to be flexible and able to turn on a dime in order to make the deal progress.

· Matthew

- Deal with people of quality. Associate yourself with experienced people who have gone through several cycles and have a proven track record in a wide variety of industries.

- Do not be greedy. In the market the bears can make money, the bulls can make money but pigs go to slaughter. If you are too greedy, you cannot make a deal. Markets will change. Windows open and windows close. To some extent investing is a fashion business. Certain types of deals are in fashion and then they are out. When money is being made available you are better off to take it when it is being offered.

- Always be very open and candid in your discussions. Do not hide. Do not play games. Be totally open. And whatever you do, do not bluff. An investor will find out quickly when you are bluffing and you will lose the deal.

· Bob

- Financing is just one f the tools you need to build a good company. It is like the blood in your body. Financing is not the heart and soul - your business is.

- Good entrepreneurs build great companies because they are good at motivating their employees, excellent at working with suppliers, have an obvious ability to satisfy customers and they also treat the venture capitalist as a supplier, albeit a supplier of money and not a physical product. If you think of investors with a “me against them” attitude or with any degree of hostility you should not enter into the deal. You will need their support when times get tough. A good working relationship with investors will help ensure your long term success.

For more information, visit www.EvanCarmichael.com.

How an Intermediary Can Help Close the Deal

How an Intermediary Can Help Close the Deal

An intermediary can help save you a lot of time which you can then use to concentrate on running your business. An intermediary will help prepare you for going into the market, set up times and appointments and guide you through the presentations, get you to the point where you have a legally binding term sheet, and then close the deal by making sure that al the needed documentation is completed.

This is not always a smooth procedure and requires someone to manage the process to ensure that your legal bills do not get out of hand.

As an example, Robert from Northern Crown Capital was working with a well known law firm that was taking a long time to close his client’s deal. In Robert’s experience there was nothing that would indicate several more days were necessary so he flew out to see the lawyers who were 3 times zones away, walked into their office and made sure they finished the paperwork. The deal was closed 48 hours later. In fairness, the laywers may have had bigger and more important deals on the table at the time but from Robert’s perspective they were holding up his client and it was his responsibility to ensure the deal was completed.

For more information, visit www.EvanCarmichael.com.

What's Your Unfair Competitive Advantage?

"“Have some form of unfair advantage,” Tadler said. “If you can’t discuss that, you ought to rethink what you are doing.”"

"He went on to add two other crucial points:"

"“How much does the entrepreneur know about the competition? One of the best hires a company can make, even if it’s a summer hire, is to do intense, strong research in your space. So many executives are glib about the competition."

"“Have one or two pages that you can look at weekly, monthly and quarterly that tells you where you are as a company. It is something you can show the board and investors. It should be the same metrics used by your managers."

"“It’s different for every company,” he added. “But they are important in understanding how you look at your business. I’d rather see that than 100 PowerPoint slides and information about the size of your space.”"

"Klausner added that executives need to know the “important drivers” for their business and a thorough examination of funding strategy based on requirements in the life science space. (For further insight on that subject, see today’s LTW Entrepreneurial Spirit column)."

Read more here.

For more information, visit www.EvanCarmichael.com.

Canadian Venture Capital 1st Quarter 2005 Update

"TORONTO, ON--Investments by Canada's venture capital firms were down in Q1 2005 relative to recent quarters while capital raised by these funds, from retail and institutional investors, increased compared to earlier periods, according to Canada's Venture Capital and Private Equity Association (CVCA) and its statistics gathering partner, Thomson Macdonald (formerly Macdonald and Associates).Q1 2005 venture capital investments were $326 million compared to $458 million in Q4 2004 and $417 million in Q1 2004."I don't read too much into one quarter's investment levels," says Robin Louis, president of the CVCA. "There tends to be considerable quarterly fluctuation in investing activity in our industry as the numbers can be significantly affected by one or two jumbo deals."Amounts raised by venture capital funds increased in Q1 2005 with new capital commitments of $1 billion, up from $589 million in Q1 2004.The CVCA says the Q1 2005 data also indicate that early-stage investments continue to occupy a large proportion of venture capital investing activity overall. For the past several years, early-stage investments have hovered at approximately the 50 per cent level, while in Q1 2005 they increased to over 65 per cent."

Read more here.

For more information, visit www.EvanCarmichael.com.

Venture Capital Governance Requirements

Venture Capital Governance Requirements

Once a venture capitalist becomes an investor they will want board representation. They will either nominate their own staff members or an outside representative of mutual consent. The last thing a venture capitalist wants to do, however, is run your company. They have enough problems trying to run their own firm and do not want to get involved in the operations of your business.

Board members want to stay informed, monitor your progress and feel comfortable with the progress that is being made.

A board of directors is like your own private management consultancy group. Some entrepreneurs are very good at getting the most out of their directors and some are not. Understand that directors are the cheapest consultants working for corporations.

Board members are elected to represent shareholders. Since the venture capitalists will become significant shareholders, they will usually request at least one seat on your board.

The board of directors is responsible for broad policies and strategies for your company. Directors will want to know what your budgets will be, who you are hiring and help you develop your ongoing business plan.

Remember that the board of directors is in a position legally to approve or disapprove your actions.

The frequency of meetings is usually a direct result of how effective you are at using your board and how well your group works together. The board can provide strategy and policy recommendations but can also help in specific ways such as introducing you to key players in the industry.

Some of the items that directors care about are law suits, environmental problems, and when you are about to sign a major new contract. Directors are highly allergic to unexpected bad news and unexpected good news. Make sure to keep your board and bankers informed at all times.

Generally, governance is a great help to you more than it is a hindrance. It will keep you focused on your business and help you grow. This is of particular importance if you have aims of one day going public.

For more information, visit www.EvanCarmichael.com.

How Venture Capitalists Structure Their Investments (Continued)

How Venture Capitalists Structure Their Investments (Continued)

A 30% annual return may sound high to you. The reason why venture capitalists require such a high return is that anyone can purchase shares in the public markets in major companies and get a 15 to 18% return on their equity. Venture capitalists do not have this flexibility because, as a private company, your shares are not very liquid. Investors are locked in for a period of years and face the risk of your company failing. They therefore need a higher rate of return to compensate for this risk.

Of every 10 investments, no one can predict at the outset which will be successful and which ones will not. On average 1 to 2 will be very successful, 1 to 2 will go bankrupt and the rest will be what are known as the "walking wounded." They will continue to operate but investors will never recover their investments in these companies. Venture capitalists therefore need to average out the good investments against the bad to ensure their 30% annual return.

An example is a department store that is unsure which items will sell the best over the next season. For that reason store managers will put a high markup at the beginning and at some point have to mark some of the products down. They just do not know which products they will have to mark down at the beginning of the season.

For more information, visit www.EvanCarmichael.com.

How Venture Capitalists Structure Their Investments

How Venture Capitalists Structure Their Investments

It is first important to understand how venture capitalists achieve their targeted rates of return of 30% per year. Not every company will make this return on equity but there are ways around it.

Much depends on the exit value of your company. A 30% rate of return reflects a price-earnings ration of 3. If the investor can exit at a higher price-earnings ratio they will earn more than their 30% desired return.

Another way to reach this target is by offering options. An option is the right to purchase shares of your company in the future at a pre-determined price today. If you grow at 20% annually and your earnings were 100 in the first year, your earnings would be 120 in the second year and 145 in the third. By using options the investor can then immediately purchase additional shares at 100 and sell them for 145 which can be added to their 20% annual return to reach the desired 30%.

A 30% return is an average figure and relates to the degree of perceived risk. If you have an early stage company you will need to provide a high rate of return. If you have a more mature business that has traction and you need financing for expansion or working capital, 30% may not be the required target due to the lower risk level.

Younger companies may also be forced to give up a disproportionately high percentage of shares to compensate for the high degree of risk. However, venture capitalists will frequently sell a certain amount back to you based on you meeting clearly defined performance objectives.

Another investment structure is subordinated debt. This usually caries a high yield and is usually not accompanied by equity. Subordinated debt is ideal for companies with solid cash flow and who need addition capital to grow thereby raising the value of their shares before raising any equity capital.

For more information, visit www.EvanCarmichael.com.

Who To Approach For Funding

" You may be seeking funds from a venture capitalist (VC) as an alternate to funds from a bank. Banks lend against collateral and are not geared towards financing projects where there is a possibility of high return, but limited security. "

"Venture capitalists are professional investors who provide funds in return for an equity stake in your company. They invest for a period typically ranging from three to seven years, after which they will exit from your company. They expect to get their profits from the capital appreciation in the investment. Because of the inherent high risk in their investments, only a small number of their investee companies may give them high returns. However, this would be sufficient to provide them overall returns on their funds. "

"VCs generally play an active role post-investment. They mentor and monitor investee companies, often providing contacts to customers. They may help in identifying possible alliance partners; they may help in identifying experienced persons who can join the company. They may try to steer the business in a certain direction. "

"Some corporates invest in start-ups or in existing businesses that have products complimenting or supplementing their business. They function like VCs and invest in the equity of companies. "

"In such investments, the brand name of the corporate investor will be behind your company. You may not have to worry about advertising and marketing; the corporate investor may take care of this. In fact, the corporate investor may be your key customer. "

"Angel investors are a source of informal funds. Some angels are individuals; others may have a corporate structure. Family and friends can be included in this category. An example would be a senior relative who has money to spare and a desire to help you. "

"There are different kinds of angels. Some have a social objective and want to help those whom they perceive as deserving entrepreneurs. Some have a purely financial objective, requiring financial returns. Some angels may have expertise in certain lines of business. Other may just want to invest in what they see as a good business opportunity. During the hey days of the dot-com boom, in the late 1990s many persons in India who did not have any idea of the IT industry, just wanted to invest in start-ups in this industry. They did not want to lose out on what they perceived as the next big opportunity for growth. "

Read more here.

For more information, visit www.EvanCarmichael.com.

What Happens After the Due Diligence Process

What Happens After the Due Diligence Process

If the venture capitalists are interested in your company after completing their due diligence, they will offer a binding term sheet. It will reflect the draft term sheet that has already been agreed to but this one will be a legal contractual agreement. Then the real negotiations start.

There are different types of financing to consider: debt, equity, and mezzanine.

Debt financing is the most objective and is therefore the easiest to negotiate. If you have the assets to support the debt and the income to support the interest payments, the negotiation period will be very short.

Equity financing negotiating is more complicated and revolves around agreeing on valuation and percentage ownership. Discussions usually requires several days.

Mezzanine financing involves a mix of equity, debt, convertible debentures and preferred shares. Negotiating the technical aspects of each so that an agreement can be reached between the investor and your company can be time consuming.

Another dictating factor is the number and variety of financing offers that you receive. It is the intermediary's role to help you bring more than one offer to the table and assist you in evaluating and negotiating which one is best suited to your company's needs based on their previous experience.

Venture capital term sheets are time limited. You have to quickly make up your mind if you want to accept or reject the offer. The short time period is in place to prevent you from using one term sheet to solicit new offers from other venture capitalists.

For more information, visit www.EvanCarmichael.com.

What Happens After the Due Diligence Process

What Happens After the Due Diligence Process

If the venture capitalists are interested in your company after completing their due diligence, they will offer a binding term sheet. It will reflect the draft term sheet that has already been agreed to but this one will be a legal contractual agreement. Then the real negotiations start.
There are different types of financing to consider: debt, equity, and mezzanine.

Debt financing is the most objective and is therefore the easiest to negotiate. If you have the assets to support the debt and the income to support the interest payments, the negotiation period will be very short.

Equity financing negotiating is more complicated and revolves around agreeing on valuation and percentage ownership. Discussions usually requires several days.

Mezzanine financing involves a mix of equity, debt, convertible debentures and preferred shares. Negotiating the technical aspects of each so that an agreement can be reached between the investor and your company can be time consuming.

Another dictating factor is the number and variety of financing offers that you receive. It is the intermediary's role to help you bring more than one offer to the table and assist you in evaluating and negotiating which one is best suited to your company's needs based on their previous experience.

Venture capital term sheets are time limited. You have to quickly make up your mind if you want to accept or reject the offer. The short time period is in place to prevent you from using one term sheet to solicit new offers from other venture capitalists.

For more information, visit www.EvanCarmichael.com.

How Long the Due Diligence Process Takes

How Long the Due Diligence Process Takes

The due diligence process will very rarely last one or two weeks.

Remember that the venture capitalist is also working on other transactions beyond your company.

The due diligence will typically last at least one month. If there are any complex issues such as environmental approvals that have not yet been met, further delays are likely.

When you are considering raising capital, make sure to get all your company records and documentation together in advance. You do not want to wait until you get a draft term sheet before trying to find important documents that the venture capitalist will need to move forward.

More and more venture capitalists are also worrying about environmental assessments. You may consider getting your company and property assessed before approaching an investor.

The venture capitalists will also want to speak with your clients, suppliers and bankers to get an understanding of how your company is regarded by the outsiders who deal with you on a daily basis.

For more information, visit www.EvanCarmichael.com.

Getting Startup Financing

"No business can survive without access to capital. There are several common types of business financing options available to young companies. "

"Angel investors are an excellent source of early-stage financing. They are often willing to tread where there is too much risk for banks and not enough profit potential for venture capitalists. Angels will invest for a longer time than other investors -- up to three years or more. They may also invest smaller amounts -- $1 million or less. "

"Venture capitalists, by contrast, have stringent investment criteria and generally invest in high-growth technology companies. Because they want a way to cash out in three to five years, many venture capitalists shy away from very new businesses and rarely invest less than $3 million to $5 million at a time. "

"Accepting a venture capital investment also represents the potential loss of independence for owners because venture capitalists often take an active role on the company's board and may push a specific growth agenda. "

"Commercial loans are attractive because they don't require entrepreneurs to turn over equity or company control. But paying off debt can drain a young company with limited cash flow. New companies may not even have access to bank loans if they have no operating history and no collateral to secure the loan. "

"Cash advances from credit cards are an easy and quick way to gain access to cash. But as a long-term financing method, they can be expensive. Credit card interest rates typically run much more than the 1 to 3 percent over prime you would likely pay on a bank loan. "

Read more here.

For more information, visit www.EvanCarmichael.com.

What the Venture Capitalist Due Diligence Process Looks Like

What the Venture Capitalist Due Diligence Process Looks Like

The venture capitalist due diligence process is intense and can take weeks or months depending on the complexity of your company. It will be the most intensive look at your company that you have ever experienced.

The venture capitalists will want to know everything from your standard articles of incorporation, directors, and shareholder agreements up to the details of how your business processes are run.

The purpose of the initial meeting and draft term sheet is to get an approval in principle. From there the venture capitalist will carefully examine the details of your company before making an official offer.

An intermediary can be helpful in speeding up the process, especially when dealing with the lawyers on both sides. The intermediary is responsible for “cracking the whip” and ensuring the process is progressing. The faster you can make lawyers work, the lower your bill will be. Generally, if you give lawyers enough time, they will make sure to use it and bill you accordingly.

For more information, visit www.EvanCarmichael.com.

The Next Steps After The Meeting

The Next Steps After The Meeting

If the venture capitalists are interested, they will very quickly come up with a draft term sheet for you which gives an overview of the conditions under which they would make an investment in your company. (see next page for a sample term sheet)

They provide a draft term sheet so that they can get an understanding of what the deal could look like and ensure that there is not a disconnect between you and them on valuation, methodology or type of financing.

The draft term sheet is not a commitment on the part of the venture capitalist. It is not a legally binding agreement. It is a proposed framework under which the venture capitalist is prepared to do business. The most important element of the draft term sheet is the valuation. If you are too far apart on valuation the deal will not go any further.

The due diligence process is not a 24 or 48 hour process, it is quite time consuming. In order to save time the draft term sheet is put forward to ensure that a negotiable transaction can be reached before investing further effort.

There are also considerable up front fees that the entrepreneur will have to pay. Among these are the venture capitalist's legal fees. Some venture capital firms will also require a $20,000 to $30,000 non-refundable payment up front before going forward.

The time period given to accept or reject the draft term sheet is not very long. You will have to commit to it or drop it fairly quickly.

For more information, visit www.EvanCarmichael.com.

How Intermediaries Can Help

How Intermediaries Can Help

Preparing for the meeting is a key role of intermediaries. They will go through a number of rehearsals with you and sit down for several sessions that could last for a couple of hours each to go over the likely questions you will be asked. They will also make sure you have the right answers committed to memory and can back up your assumptions properly.

A successful meeting with venture capitalists will result in good chemistry having been developed early on and at the end of the meeting. The venture capitalists will have openly expressed an interest in moving on and there will be a general level of enthusiasm at the end as supposed to the objective analysis of the business plan which occurs at the beginning of the meeting.

The intermediary knows the venture capitalists and their different accounts. Intermediaries know the sensitive points and help tailor each presentation to the particular venture capitalist. Every venture capitalist will have a different approach and the intermediaries will help you prepare for their potentially hostile questions.

Preparing for the meeting is much like preparing for a case in court. You only have one chance at it and you better do it right!

For more information, visit www.EvanCarmichael.com.

Getting In To See a Venture Capitalist

"Many people telephone an investment officer of a venture capital fund and try to set up an appointment so they can explain their financial needs and the potential of their company. Most venture capitalists will resist such visits until after they have received the business proposal. Without the proposal, or at least a summary proposal, the venture capitalist has no idea of the details of the business. If you do meet, the venture capitalist will not be prepared to ask intelligent questions. So what is the point of the meeting?"

"Some people show up at the office of the venture capitalist with an inadequate business proposal in hand and want to talk about their business. Sitting in a meeting with them, the venture capitalist fumbles with the papers and stumbles through the business proposal before understanding the situation. Such visits make it difficult to have a productive meeting."

"On the other hand, after reading a sound business proposal, the venture capitalist usually knows if the partners at the fund will want to invest in the business you are presenting. If the venture capitalist (VC) does not wish to invest, the VC can save the entrepreneur a trip to the venture capital company. If the venture capitalist wants to invest, then the VC is prepared to discuss the company in detail when the meeting occurs."

"Some entrepreneurs believe that if they can only meet with the venture capitalist, they can "sell" their idea. This attitude is especially common in cases where the venture capitalist has read the business proposal and notifies the entrepreneur that the VC does not have an interest in investing. I have never seen a "sale" happen in such circumstances."

"Entrepreneurs often believe they can meet the venture capitalist, present their idea orally, and receive financing. A meeting with the venture capitalist cannot substitute for a well-prepared business proposal that has a compelling story. After reading a strong business proposal, the VC knows precisely the type of investment they will want to make, as well as what questions still remain unanswered. For most venture capitalists, then, the business proposal is the turning point in the decision to go forward, to invest time and energy in trying to analyze the situation, and to work out a deal with the entrepreneur."

Read more here.

For more information, visit www.EvanCarmichael.com.

Length of the First Meeting

Length of the First Meeting

The first meeting will very rarely last more than an hour. It is really designed solely to understand if you have the "horses for the courses." This can certainly be understood in that first hour. The due diligence process will then follow.

Your Objective in the First Meeting

To persuade the venture capitalist to move to the next level.

For more information, visit www.EvanCarmichael.com.

Early Stage Companies Not Using VCs

"Less early-stage seed money means more companies must rely on themselves to get their products to market and many wouldn't have it any other way. "

"Bootstrapping, as it's commonly called, is becoming more prevalent as venture capital levels remain depressed and angel investors lick their wounds from the last bust. "

"Family, friends, banks, tax credits and small governmental funding programs all serve to get the ball rolling, but as research and development plods on, money becomes scarce and struggling organizations have to find other ways to keep going. "

"Further, cash flow can be accessed through a company's own resources while development is underway. "

"A concrete business plan, good common sense and the ability to generate some kind of revenue all pave the road to success. "

Read more here.

For more information, visit www.EvanCarmichael.com.

Other Information the Venture Capitalist Will Ask For

Other Information the Venture Capitalist Will Ask For

Venture capitalists will not go into too much detail in the first meeting.

They essentially want to meet your team and assess them. They will then decide if they want to move forward with you or not and begin their due diligence procedure, a process which continues right up until closing day.

Ultimately the potential investors wants to make sure that they clearly understand how your business operates and how your team can work together to fulfill the objectives of the company.

For more information, visit www.EvanCarmichael.com.

Important Business Plan Questions They Will Ask

Important Business Plan Questions They Will Ask

The main questions about your business plan will surround the assumptions you have made. Mistakes are most often made at the assumption level. Prepare for your assumptions to be tested.

Avoid unstated or assumed assumptions. Make sure to write down every assumption that you have made in your financial projections. This is a critical part of developing the persuasion chain and convincing the venture capitalist to understand your numbers and eventually invest in your company.

Intermediaries such as Northern Crown Capital will ensure that you are ready. They know the questions that are likely to be asked and ensure that you have the right answers memorized before going in. You must be confident when walking in the room and in answering every question if you hope to instill confidence in the venture capitalists.

For more information, visit www.EvanCarmichael.com.

Mobile Games Funds

"According to new research by Screen Digest, the mobile games market has attracted US$420 million worth of funding since September 1999, 56% of which was raised during 2004. A significant part of this investment has been driven by private equity houses as the mobile games market begins to realise its potential."

"Between 2002 and 2004 mobile game company fund-raising increased from US$29 million to US$236 million, as investors have scrambled to secure an interest in the market. UK companies attracting investment included Digital Bridges, and Atatio, whilst in the US Jamdat and MFORMA lead the way."

"Merger and acquisition activity has shown a dramatic increase over the past 12 months. Screen Digest's research highlights this trend - indicating 19 mobile game developer transactions were made in 2004 - compared to just four in 2003 and two in 2002."

"According to Screen Digest's Chief Analyst, Ben Keen, "Once the top developers have been acquired, there is likely to be a trend towards consolidation at the publishing/aggregation level to achieve greater 'scale' in the marketplace. We believe that once again it will be the private equity houses that will emerge as the driving force behind any sector 'roll-ups'""

Read more here.

For more information, visit www.EvanCarmichael.com.

Major Questions You Should be Prepared For

Major Questions You Should be Prepared For

The first meeting is primarily a question and answer session to see if you have the right management team in place. However, the venture capitalist can have specific questions for you to test such things as your technology. They may bring in a technology expert to get further clarification on points made in your business plan.

The venture capitalist can also use this meeting to test you on sensitive areas such as your company valuation and the eventual exit strategy. Investors will not want to go too far down the road with you if you cannot agree to basic terms with them. If you think your company valuation is $100 million and they determine your value to be $20 million, you have a sizable gap that may be too large to close and come to mutually acceptable terms on.

Another potential problem is that if you are wedded to your company and do not ever want to sell, it decreases the likelihood of an investor exit which lowers your chance of receiving the necessary capital you need to grow.

One example from Northern Crown Capital's experience was when they found a perfect venture capital match for their client but the company’s management started disagreeing in front of the venture capitalists during the meeting. The marketing people were arguing with the research people and the venture capitalist needless to say did not invest.

For more information, visit www.EvanCarmichael.com.

What Happens in the Meeting

What Happens in the Meeting

Meetings with venture capitalists are also referred to as "the dog & pony show." It provides the first opportunity for investors to meet the management of your company face to face and assess the people behind the business. You could have a brilliant business plan backed by poor management. This will only become apparent to the venture capitalist in the meeting.

There is an old British banking expression that asks: "Is someone the horse for the course?" In other words, do you have the right management team for the task at hand. It then follows that different horses are needed for different courses.

The point of this initial meeting is to test the management face to face. The venture capitalist wants to build confidence with the management team.

The intermediary’s prime role is to get a "dog & pony show" together with a number of venture capitalists.

The venture capitalist may question your business plan to test you. Make sure to have someone with you who understands the finances and who knows the product or technology.

The meeting will usually start off with a 5 minute update as to what has happened since you submitted your business plan. The rest of the meeting will be a question and answer session.

People like to do business with people who they have an affinity for. The development of trust between yourself and the investor is paramount. They must get a feeling that they can work with you and that there is positive chemistry.

As an example, an entrepreneur who walks into a meeting dripping in gold, diamonds and flamboyant suits will have a hard time raising capital because the venture capitalists will not feel comfortable with this person.

For more information, visit www.EvanCarmichael.com.