Executive Summary Review - WaterWorld - Overview

WaterWorld Enhanced Drinking Water (http://www.waterworldedw.com) is a manufacturer of energy drinks and spring water. The company has three functional energy drinks as part of its Peak Performance line of products. The three drinks are:

Amore', a sexual enhancement beverage with a natural aphrodisiac with a cherry/grape flavor that keeps him up and her feeling flush with a gentle warm feeling.

Trucker's Fuel, a tea flavor with a mild lemon twist drink for those who drive for a living or need to stay awake during a long day or need to study all night.

Victory, a lemon tasting beverage that can greatly reduce muscle fatigue, joint soreness, cramping, energy loss, and will speed energy recovery and increase energy reserves.

The company is in the startup phase and is run by Mark Hall, a Minnesota based small business lawyer. It is projecting to break even 6-12 months after funding and is searching for $1-4 million in capital at a $10 million valuation.

Next - Highlights - A Ready Market

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Results: Venture Capital Quiz

"

There are plenty of half-baked startups looking for salvation in a sale to an eager--and addled--buyer.

Take our fourth Quiz subject, for instance. This company (which will remain anonymous) wanted a piece of the pain-relief business dominated by giants like Pfizer (nyse: PFE - news - people ), Merck (nyse: MRK - news - people ), Bayer (nyse: BAY - news - people ) and Johnson & Johnson (nyse: JNJ - news - people ). Its founder, a serial entrepreneur, had developed a flexible harness lined with electrodes that quelled pain by delivering precisely controlled electrical impulses to the sore area. Its long-term promise: training the human body, through repeated treatments, to ease pain for good. The device had been approved by the FDA but was still in clinical trials to prove its long-term efficacy. The company had raised--and torched--$1.5 million in two years and was looking for another $2.5 million to stay afloat.

For a glimpse at how a venture capitalist would view things, check out the following "radar" graph, courtesy of The Venture Alliance, which coaches fledgling companies on attracting funding and also provides the candidates for these quizzes. The larger lightly shaded region represents the relative importance of each of the 12 elements that TVA deems critical in assessing a particular target's viability (and fundability); the smaller, overlapping darker region shows how the company stacked up relative to those maximum benchmarks. In this case, while the candidate had a juicy market opportunity, its management team and financial projections were dubious."

For more information, visit www.EvanCarmichael.com.

Reader Question - Finding Investment Capital

Good evening, my name is Chris and I am looking for some information on angel investment or venture capital for a future investment. I am looking at purchasing a bar/restaurant in Dutch St Maarten. The business is already up and running and has been very sucessful for a many number of years. The business is being sold well below market value and is not currently on the market. I am looking at moving on this business very quickly because once it hits the market it will not be on there very long. I am a little bit shy on the total investment which is why I am contacting you. Any information you have would be of great help. And if you are unable to help, any information you have on anyone who would help would be greatly appreciated.

Thanks for your help.

Chris


Hi Chris,

There are a number of ways to valuate a business. The model we typically use is discounted cash flow (DCF). In DCF, you take an estimate of the company's future earnings and discount it back to today to get the present value. Investors will often add a risk premium as well as a premium for being a private company.

The restaurant business is not one that lends itself to venture capitalists very well. VCs are looking for an average return of 30% per year which is hard to create in restaurants unless you are planning very serious expansion.

It could be of interest to the right angel investor. You would have to show what their return on investment would be and how quickly they will be able to recoup their investment. Other elements to keep in mind are how they might be able to exit the investment and how involved do you want them to be in the management of your business. For a more complete guide on Angel Investors visit: http://www.evancarmichael.com/Angel-Investors/index.html

If the business has been successful for a number of years they should have a healthy balance sheet and historical financials. This could lend itself to a leveraged buyout situation where you finance the acquisition through a heavy debt load. The cash flow would obviously have to be enough to cover your debt payments. You can discuss this with your bank as well as work with private firms provided that the numbers make sense.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

Reader Question - Finding Investment Capital

Good evening, my name is Chris and I am looking for some information on angel investment or venture capital for a future investment. I am looking at purchasing a bar/restaurant in Dutch St Maarten. The business is already up and running and has been very sucessful for a many number of years. The business is being sold well below market value and is not currently on the market. I am looking at moving on this business very quickly because once it hits the market it will not be on there very long. I am a little bit shy on the total investment which is why I am contacting you. Any information you have would be of great help. And if you are unable to help, any information you have on anyone who would help would be greatly appreciated.

Thanks for your help.

Chris


Hi Chris,

There are a number of ways to valuate a business. The model we typically use is discounted cash flow (DCF). In DCF, you take an estimate of the company's future earnings and discount it back to today to get the present value. Investors will often add a risk premium as well as a premium for being a private company.

The restaurant business is not one that lends itself to venture capitalists very well. VCs are looking for an average return of 30% per year which is hard to create in restaurants unless you are planning very serious expansion.

It could be of interest to the right angel investor. You would have to show what their return on investment would be and how quickly they will be able to recoup their investment. Other elements to keep in mind are how they might be able to exit the investment and how involved do you want them to be in the management of your business. For a more complete guide on Angel Investors visit: http://www.evancarmichael.com/Angel-Investors/index.html

If the business has been successful for a number of years they should have a healthy balance sheet and historical financials. This could lend itself to a leveraged buyout situation where you finance the acquisition through a heavy debt load. The cash flow would obviously have to be enough to cover your debt payments. You can discuss this with your bank as well as work with private firms provided that the numbers make sense.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

Startup Gains $2.5M Backup

"Online backup provider Carbonite said on Thursday it has secured $2.5 million in the first round of funding from two angel investors and a venture capital firm to extend its reach in the retail market.

The Boston-based startup, which was started by serial entrepreneurs David Friend and Jeff Flowers, is expanding its presence in the consumer space, a channel that Boston-based VCs tend to avoid, according to Mr. Friend.

“Unfortunately there aren’t a lot of VCs experienced in consumer products,” he said. “They are generally knee-deep in business-to-business and enterprise products.”

Mr. Friend, who has co-founded four other companies—three of which were sold to larger entities and a fourth that is still private—said he had a difficult time attracting VCs in the Boston area. He turned to angel investors Common Angels and Keiretsu Forum, both of which invested in Carbonite.

“We found that the terms being offered by VCs were terrible,” he said. “And we are a management team with a very good track record. I financed the company exclusively through angels and then the VCs came calling.”

The company added 3i, a VC with some experience in the consumer channel. Carbonite named Mikko Suonenlahti, a partner at 3i, to its board of directors. "

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Lesson #3 - Get A Management Team

One of the most important rules for venture capital investors is make sure the company has a solid management team. Investing in early stage companies is as much about the team as it is about the idea, if not more. Venture capitalists want to see that you have some experience and that you have competent people around you.

Howling Moon Designs lays out an organization structure and identifies the team members they will need to make the project a success, but at the moment the company has only one person.

In the plan it is also unclear as to what the founder?s previous experience has been and what other companies he has helped to success.

A venture capitalist is unlikely to invest in a company with one person and a limited track record.

You need to build a team around you with complementary skills. If you do not have much experience in running companies then build a board of advisors with people who have. You want to show as much as possible that you have the existing personnel in place already to make this business a success.

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Lesson #3 - Get A Management Team

One of the most important rules for venture capital investors is make sure the company has a solid management team. Investing in early stage companies is as much about the team as it is about the idea, if not more. Venture capitalists want to see that you have some experience and that you have competent people around you.

Howling Moon Designs lays out an organization structure and identifies the team members they will need to make the project a success, but at the moment the company has only one person.

In the plan it is also unclear as to what the founder�s previous experience has been and what other companies he has helped to success.

A venture capitalist is unlikely to invest in a company with one person and a limited track record.

You need to build a team around you with complementary skills. If you do not have much experience in running companies then build a board of advisors with people who have. You want to show as much as possible that you have the existing personnel in place already to make this business a success.

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

This Way to the Mezzanine

"

Mezzanine financing deals — bridge loans that span funding gaps until cheaper capital can be had — are on a roll. Last year, 159 buyout/mezzanine funds raised $86.2 billion, the highest yearly total for these funds ever recorded, reports Thomson Venture Economics, which groups the two funding sources together. That tally represents a 67 percent rise over 2004, when 129 funds raised $51.6 billion.

The upsurge in mezzanine lending follows the general private-equity trend of abounding capital chasing a relatively low number of deals. It may also signal that more small companies are reaching a growth stage in which such financing makes economic sense.

In general, mezzanine loans are short-term debt — usually averaging about three years in length — provided by private-equity firms rather than banks. The loans tend to be subordinated debt, exposing investors to more risk than bank lenders have in case of bankruptcy. So to entice investors into mezzanine funds, returns are set relatively high, between 30 percent and 50 percent. Further, the deals often feature warrants, which are options issued by the borrowers that give the lender the right to buy equity at a predetermined price.

Warrants are used to "juice the return" by enhancing an investor's potential yield with equity, explains Ricardo Chance, a managing director with investment bank Trenwith Securities. But to an entrepreneur shepherding a growing company, warrants are a double-edged sword. While warrants help lure capital, they can cede a good deal of equity — and thus control — to the lender."

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Lesson #2 - Very Early Stage

The further along a company has gone towards generating real revenues and income, the easier it is to attract capital.

Howling Moon Designs has yet to deliver a prototype and is asking for enough money for the 3-4 years it will take to build the game.

Unless you've make a lot of money for investors doing it before or have a big customer lined up, investors are highly unlikely to risk a large amount of money for 3-4 years of development work.

Investors would rather finance marketing and expansion instead of research and development. You need to show as much as possible how the money will go towards sales and marketing and crunch down on your research and development timeline. There aren?t that many venture capitalists who are interested in funding ideas anymore.

Next - Lesson #3 - Get A Management Team

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Lesson #2 - Very Early Stage

The further along a company has gone towards generating real revenues and income, the easier it is to attract capital.

Howling Moon Designs has yet to deliver a prototype and is asking for enough money for the 3-4 years it will take to build the game.

Unless you've make a lot of money for investors doing it before or have a big customer lined up, investors are highly unlikely to risk a large amount of money for 3-4 years of development work.

Investors would rather finance marketing and expansion instead of research and development. You need to show as much as possible how the money will go towards sales and marketing and crunch down on your research and development timeline. There aren�t that many venture capitalists who are interested in funding ideas anymore.

Next - Lesson #3 - Get A Management Team

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Lesson #1 - How Are You Different?

You have to be different to attract investment dollars. A common question venture capitalists will ask is "what is your unfair competitive advantage?" They want to see not only that you have an edge over your competitors but that it's such a big advantage that it's almost unfair.

The description of Destiny Online sounds extremely similar to that of Project Entropia, the leading competing game in this market. The competitive advantages listed are:

"The character you create will allow the player to have the ability for full customization. We will gain the rights of a high quality engine to use for the game. Inside the game world we are able to show over 15 different revenue streams that allow us to make money. The game world will always be changing and offer main new areas for the players. As well the partnership with Vognesvit helps provides us with an engine and a well experienced team."

One of the main benefits of Project Entropia is that players can create a truly unique character through an intuitive user interface. In addition, Project Entropia does offer a number of revenue streams for its players. I'm left unclear as to how this game will be excitingly different.

You will always be compared to the gorilla in the market ? the company that is leading the industry. You need to make sure that you clearly differentiate yourself from your competition. A simple table which highlights the different characteristics is usually a great visual to include in your plan.

Next - Lesson #2 - Very Early Stage

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Lesson #1 - How Are You Different?

You have to be different to attract investment dollars. A common question venture capitalists will ask is "what is your unfair competitive advantage?" They want to see not only that you have an edge over your competitors but that it's such a big advantage that it's almost unfair.

The description of Destiny Online sounds extremely similar to that of Project Entropia, the leading competing game in this market. The competitive advantages listed are:

"The character you create will allow the player to have the ability for full customization. We will gain the rights of a high quality engine to use for the game. Inside the game world we are able to show over 15 different revenue streams that allow us to make money. The game world will always be changing and offer main new areas for the players. As well the partnership with Vognesvit helps provides us with an engine and a well experienced team."

One of the main benefits of Project Entropia is that players can create a truly unique character through an intuitive user interface. In addition, Project Entropia does offer a number of revenue streams for its players. I'm left unclear as to how this game will be excitingly different.

You will always be compared to the gorilla in the market � the company that is leading the industry. You need to make sure that you clearly differentiate yourself from your competition. A simple table which highlights the different characteristics is usually a great visual to include in your plan.

Next - Lesson #2 - Very Early Stage

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Highlights - A Growth Market

Online gaming is big business and while the online gaming market for PCs is expected to drop over the coming years, one exciting and rapidly growing area is Massive Multiplayer Online Role Playing Gaming.

According to Wikipedia, "a massively (or massive) multiplayer online role-playing game or MMORPG is a multiplayer computer role-playing game that enables thousands of players to play in an evolving virtual world at the same time over the Internet. MMORPGs are a specific type of massively multiplayer online game (MMOG)." An estimated 20 million people worldwide are spending time in massively multiplayer online role-playing games.

Project Entropia (http://www.project-entropia.com/) is a popular MMORPG where players can construct buildings, create businesses and make investments to build their in-game wealth, which they can then cash out back into hard currency. The projected GNP for the Project Entropia universe in 2005 is 1.5 billion PED, or US$150 million.

This is definitely a growth market and, while still very early stage, could be a big money-maker for savvy investors.

Next - Lesson #1 - How Are You Different?

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Highlights - A Growth Market

Online gaming is big business and while the online gaming market for PCs is expected to drop over the coming years, one exciting and rapidly growing area is Massive Multiplayer Online Role Playing Gaming.

According to Wikipedia, "a massively (or massive) multiplayer online role-playing game or MMORPG is a multiplayer computer role-playing game that enables thousands of players to play in an evolving virtual world at the same time over the Internet. MMORPGs are a specific type of massively multiplayer online game (MMOG)." An estimated 20 million people worldwide are spending time in massively multiplayer online role-playing games.

Project Entropia (http://www.project-entropia.com/) is a popular MMORPG where players can construct buildings, create businesses and make investments to build their in-game wealth, which they can then cash out back into hard currency. The projected GNP for the Project Entropia universe in 2005 is 1.5 billion PED, or US$150 million.

This is definitely a growth market and, while still very early stage, could be a big money-maker for savvy investors.

Next - Lesson #1 - How Are You Different?

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Company gets $20M in venture capital

"A local company that has developed a test to help oncologists select the proper chemotherapy to treat cancer said Friday that it has completed a deal giving it $20 million in venture-capital funding.

Precision Therapeutics Inc. has developed a test that quantifies a patient's likely response to single or multiple chemotherapy treatments.

"We plan on beginning the commercialization of this product to assist with ovarian and breast-cancer treatment," said Chief Executive Officer Sean McDonald. "The funds will be used to extend and continue ongoing clinical trials and for further product development."

The market for assisting physicians in determining which drugs, dosages and timeframes will best work is -- in a word -- huge.

"Unfortunately, there are 9 1/2 million people today living with cancer, with 1.3 million new cases diagnosed each year," McDonald said. "Right now, there are more than 400 new cancer drugs in human trials, and 80 drugs that now are being used. A course (of treatment) can run between $40,000 and $80,000. A product or products that can help a physician determine how best to deliver treatment is extremely valuable.""

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Overview

Howling Moon Designs is a gaming company proposing to create a Massive Multiplayer Online Role Playing Game (MMORPG), Destiny Online. Destiny Online will be a real world economic system that allows players to get jobs in the game, open stores, enter tournaments, sell items on a website, go on quests, and be part of teams.

The company is in the startup phase and projects that the game will take 3 to 4 years to complete. It is run by Lee Ing from Ontario.

Next - Highlights - A Growth Market

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - Howling Moon Designs - Overview

Howling Moon Designs is a gaming company proposing to create a Massive Multiplayer Online Role Playing Game (MMORPG), Destiny Online. Destiny Online will be a real world economic system that allows players to get jobs in the game, open stores, enter tournaments, sell items on a website, go on quests, and be part of teams.

The company is in the startup phase and projects that the game will take 3 to 4 years to complete. It is run by Lee Ing from Ontario.

Next - Highlights - A Growth Market

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

The Art of Doing It Yourself

" Ditch the business plan and buy a lottery ticket. That's the advice I give new entrepreneurs who seek venture funding. The odds are better, and you'll get results sooner with the lottery. If you have a great idea that can change the world, then bootstrap your way until you can prove it. Funding will come just when you don't need it.

I founded two tech companies, co-produced a Hollywood film, and helped raise close to $100 million in private and public financing. Over the years, I've also mentored dozens of entrepreneurs. There always seems to be a catch-22 -- you need seed financing but no one will give you a cent until you have a marketable product. Ironically, raising millions of dollars is always easier than raising thousands.

BEYOND IDEAS. A myth propagated by business schools is that the way to build a venture is to create a great business plan, perfect your elevator pitch, and present this to venture capitalists. If that doesn't work, you knock on the door of angel investors.

Ask any entrepreneur who has called on venture capitalists and they will likely tell you that it is almost impossible to even get calls returned. If you get lucky and are invited to present your idea, the due-diligence process will drag on for many months while you mortgage your assets and survive on hope. If you do hit the jackpot, you are required to trade away your first born in exchange for an investment.

To be fair, most business plans don't deserve funding. Venture capitalists receive hundreds of plans every week, and few are worth the paper they are printed on. Everyone jumps on the same new trend, or the ideas are so far out that they have no chance for success. And great ideas aren't enough; it takes experienced management, excellent execution, and a receptive market. It's hard for even the best venture capitalists to separate the wheat from the chaff.

So what should an entrepreneur do?

SELF-STARTERS. My advice to the few with realistic business plans is to bootstrap. Focus on validating your idea, building it, and selling for survival. You have to raise enough money to get started by begging and borrowing from family and friends. And be prepared to dip into your savings and credit cards, obtain second mortgages, and perhaps look for consulting work or customer advances."

For more information, visit www.EvanCarmichael.com.

Reader Question - Business Plan Guide

Hi - I'm interested in writing a business plan and would like to know what you would suggest as a good guide. I'm financially literate and have been involved in a number of different industries, so this guide doesn't necessarily have to be from a "beginners" perspective. Hope you can help.

David


Hi David,

This is one of the most frequently asked questions that I get. Having a solid business plan is critical for arranging the financing you need to grow your business as well as establish the confidence for yourself and your partners that your idea really could take off.

In response to a lot of feedback from website visitors, I put together a Sample Business Plan. It covers the important areas including:

1. Executive Summary
2. Company Description
3. Market Analysis
4. Marketing and Sales Activities
5. Products and Services
6. Operations
7. Management and Ownership
8. Funds Required and Their Users
9. Financial Data
10. Appendices or Exhibits

It can be found at: http://www.evancarmichael.com/Sample-Business-Plan/index.html

Another useful resource is the Business Development Bank of Canada. They have a free sample guide available as well. Since the link changes, simply type in BDC business plan into Google and it will pop up.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

Reader Question - Business Plan Guide

Hi - I'm interested in writing a business plan and would like to know what you would suggest as a good guide. I'm financially literate and have been involved in a number of different industries, so this guide doesn't necessarily have to be from a "beginners" perspective. Hope you can help.

David


Hi David,

This is one of the most frequently asked questions that I get. Having a solid business plan is critical for arranging the financing you need to grow your business as well as establish the confidence for yourself and your partners that your idea really could take off.

In response to a lot of feedback from website visitors, I put together a Sample Business Plan. It covers the important areas including:

1. Executive Summary
2. Company Description
3. Market Analysis
4. Marketing and Sales Activities
5. Products and Services
6. Operations
7. Management and Ownership
8. Funds Required and Their Users
9. Financial Data
10. Appendices or Exhibits

It can be found at: http://www.evancarmichael.com/Sample-Business-Plan/index.html

Another useful resource is the Business Development Bank of Canada. They have a free sample guide available as well. Since the link changes, simply type in BDC business plan into Google and it will pop up.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

Reader Question - Do I Need To Be Charismatic?

Hi Evan,
I have recently discovered your website and browsing the various resources that your site offers. I appreciate them very much. I am a fresh graduate from UBC in Applied Science, Electrical Engineering. I started working at Canada's number 2 telecommunications provider shortly after my graduation from UBC. I have searched within the organization to examine the leadership qualities exhibited by the company's executive leadership team. I have come to realize that leadership is based on very simple ideas.

I feel that I have the ideas and the intelligence (don't we all) to create and grow leading businesses. One quality that I feel I lack is charisma. I am not awkward, but I am not a salesman. In your experience, does someone like myself have the potential to grown that charismatic personality, or should I focus my career on developing my stronger traits, such as my analytical and creative abilities? If I will always be someone who lacks the charisma to charm all my audiences, should I give up the idea of being the CEO of leading edge companies, and focus on other roles, or do you think I could still fill such a role successfully?

Again, I would like to thank you for the resources that you have made available. I have a couple of business opportunities awaiting me, and I am in the due diligence stage of one of them. Because of the generosity of your site and the relationship it has built, I will openly look for ways that I can employ your services. Can you tell that I have been reading some of your Marketing advice from Michael Hepworth?

Sincerely,

Matthew


Hi Matthew,

The key is to know what you're good at and find a way to make money doing it. I've met a lot of entrepreneurs who have built multi-million dollar companies who are not very charismatic at all.

By the same token, I've made many charismatic people who have failed miserably at being an entrepreneur.

What you need to do is pick an industry that you are passionate about and you can be outstanding in.

Every company needs a team of people to be successful. The first step in building this team is recognizing what your individual weaknesses are. Surround yourself with people who complement your skills and can help you build a world class organization.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

Reader Question - Do I Need To Be Charismatic?

Hi Evan,
I have recently discovered your website and browsing the various resources that your site offers. I appreciate them very much. I am a fresh graduate from UBC in Applied Science, Electrical Engineering. I started working at Canada's number 2 telecommunications provider shortly after my graduation from UBC. I have searched within the organization to examine the leadership qualities exhibited by the company's executive leadership team. I have come to realize that leadership is based on very simple ideas.

I feel that I have the ideas and the intelligence (don't we all) to create and grow leading businesses. One quality that I feel I lack is charisma. I am not awkward, but I am not a salesman. In your experience, does someone like myself have the potential to grown that charismatic personality, or should I focus my career on developing my stronger traits, such as my analytical and creative abilities? If I will always be someone who lacks the charisma to charm all my audiences, should I give up the idea of being the CEO of leading edge companies, and focus on other roles, or do you think I could still fill such a role successfully?

Again, I would like to thank you for the resources that you have made available. I have a couple of business opportunities awaiting me, and I am in the due diligence stage of one of them. Because of the generosity of your site and the relationship it has built, I will openly look for ways that I can employ your services. Can you tell that I have been reading some of your Marketing advice from Michael Hepworth?

Sincerely,

Matthew


Hi Matthew,

The key is to know what you're good at and find a way to make money doing it. I've met a lot of entrepreneurs who have built multi-million dollar companies who are not very charismatic at all.

By the same token, I've made many charismatic people who have failed miserably at being an entrepreneur.

What you need to do is pick an industry that you are passionate about and you can be outstanding in.

Every company needs a team of people to be successful. The first step in building this team is recognizing what your individual weaknesses are. Surround yourself with people who complement your skills and can help you build a world class organization.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

Reader Question - Starting A Company

Evan,

I wanted to start a small importing/exporting company buying and selling handbags and ladies accessories. Can you give me direction as to what the best steps to take are? Also if there are any resources that I can research or use to get this going?

Thanks.

Karmela




Karmela,

Congratulations on your ambition to start a business!

My top three suggestions for you are the following:

1) Model Success. Find someone who has achieved business success who you admire. Look at people in your industry as well as outside your industry. For example, who is the most successful importing / exporting company right now for handbags? What about importers / exporters for other products? Who are some other successful entrepreneurs you look up to? By studying their stories and learning how they got started you can create a model of success for your own business. For some ideas you can visit my Modeling Masters blog at http://www.evancarmichael.com/Masters/Masters.html

2) Start Small. As an entrepreneur you�re bound to have many great ideas as to where your business can go. There are always new markets to tackle, new products to sell, and new opportunities to conquer. Many entrepreneurs, however, try to take on too much too quickly. The first year of a small business is about survival � making enough to pay the bills and ensuring you�re still going to be around next year. Most entrepreneurs who act big too quickly end up going bust. Build your foundation, dream big and take small steps today for what will soon be your outstanding company!

3) Set Goals. When you have a clear sense of what you want to do with your business, you are much more likely to achieve success. If you start driving without any destination in mind then you could spend your entire time driving around in circles! Take some time and write down where you want to take your business. Make long term goals as well as short term ones � what are you going to do this week to move forward on one of your long term goals? Set your direction and take steps every day to get closer to your goals.

Good luck in building your business and keep me posted!

Evan.

For more information, visit www.EvanCarmichael.com.

Business Experience

Banks want to lend money to established businesses with a track record of experience. The reason is pretty simple: you have proven that you can achieve certain results which make your future projections less risky. If you can show that you have done it before it is easier to have faith that you can do it again compared to a startup with no experience.

Banks prefer companies that have been around for 10 years or more. These companies:
- Get rejected for loans over 50% less frequently than inexperienced firms
- Pay around 0.4% less interest on their loans

If you do not have 10 years of company history, as most entrepreneurs do not, point to your other experiences that will help give you credibility. Maybe you worked as an employee in a small company and helped double their sales. Perhaps you ran another small business and made it profitable within 6 months. When you do not have the company track record, the banker immediately flags your business as having an increased risk of not being able to pay back the loan. You need to show whatever experience you can from related jobs or companies to reduce the banker's perceived risk and maximize the chance of you securing the loan.

For more information, visit www.EvanCarmichael.com.

Account Manager Turnover

Your bank account manager is responsible for understanding your business and going to bat for you within the organization when you need a loan approved. If she does not have an established long term relationship with you it will be difficult to get her to pull strings for you.

The chance of you being rejected for a bank loan depending on how many account managers you have is as follows:
- One account manager: 7.1% rejection rate
- Two account managers: 8.5% rejection rate
- Three account managers: 16.3% rejection rate
- Four or more account managers: 22.8% rejection rate.

Develop a good relationship with your banker early. Talk to her before you need the money and she'll be there for you when you actually go for the loan.

For more information, visit www.EvanCarmichael.com.

Reader Question - Selling My Invention

Dear Evan,

Claudio and I have been to some of your meetings which we enjoyed, we have developed a new wheelbarrow, it is a sort of self loading, but we are unable to find some manufacturers to take on this project, we had lot of good remarks from industries, we have corrected the negative remarks, and have a new prototype, drawings, but we don't have the necessary finances, it would be an ideal find an industry maybe in China to take over and maybe sell the all thing, we have filed in USA/ Argentina/PCT. And there should be no problems with the patent as we had some actions taken, but not really important, we have addressed them. Can you please give some advice on what next?

I thank you and hope to see you again.

All the best Maria Carosi


Hi Maria,

Moving from being an inventor to being an entrepreneur can often be a very challenging step. For an inventor to be successful he or she must be focused on satisfying a human need, which is to enhance our experience by giving us useful tools.

There are a couple of options that you can take. In terms of financing, your best bet would be to speak with angel investors (wealthy individuals like doctors, dentists, lawyers, etc.). They are usually reached through informal networks - your friends and family would be a good place to start to see if they know anyone who they can introduce you to. I've also written a section on my website dedicated to finding angel investors at http://www.evancarmichael.com/Angel-Investors/index.html.

A second option is to contact the BDC (Business Development Bank of Canada). They are a government run organization with a mandate to help Canadian entrepreneurs. They are not going to automatically approve you but they do take more risks compared to the typical banks.

You should also focus on getting some more traction with potential customers. You said that you've spoken with industries and have received good remarks. Will they purchase your product up front? Will they give you a letter of intent? Will they provide testimonials?

Often customers are great financing options for startup entrepreneurs. If they won't agree to buy up front then at least you can get their support to show potential investors. If you can show an investor or lender that you have clients lined up you've done more than 90% of the other business plans they've seen this month.

A final thought you might consider is to think about if you really want to run a business or not. Many inventors like to create but do not like the work that comes with operating a company. You need to focus on what you're the best at and bring others on who can complement you.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

Key Loan Factors

According to the Canadian Federation of Independent Business (CFIB), there are four key factors that can dramatically increase your chance of obtaining a bank loan. They are: account manager turnover, business experience, business banking services, and size of company.

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - WaterWorld - Lesson #3 - The Business Model

The business model section of a plan is important because it outlines how your company will make money. The business model has to make sense, be a win for all parties involved, and be realistic.

WaterWorld's business model is to "sell directly to media executives and wholesale buyers in exchange for advertising and publicity. We give up a percentage of the sales garnered from the particular media. They in turn will distribute our products to their customers at the retail level. In many instances WaterWorld will get the orders directly and ship straight to the end user and then remit earnings to the media that generated the sale."

The typical business model for a media company such as a television station is to sell advertising � not products. They get paid based on the amount of air time you want and during which time as supposed to how successful your advertising is.

This strategy may work with smaller outlets who are having a hard time attracting enough companies to fill their advertising spots but does not lend itself well to the larger players.

Just as you need provide proof that your product works, you need to demonstrate to investors that your business model works and makes sense � especially when you're assumptions are based on activities that are outside the norm. Have media companies already agreed to this method of cooperation? Who are they? What have they said? How many more can you get and is this enough to push the product?

Reduce the risk for the investor by showing them that the business model works and is well thought out.

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

The ins and outs of financing your business

"

Most common sources of funding for small businesses. People often use more than one source:

72 percent: personal savings

45 percent: banks

28 percent: friends and relatives

10 percent: individual investors

7 percent: government-guaranteed loans

1 percent: venture capital firms

Judith Kautz of Smallbusinessnotes.com

WAYS TO FUND YOUR NEW BUSINESS

Personal funds:

• Buy-out package from an old employer

• Sell or mortgage your home

• Borrow from 401(k)

• Pay bills slowly, only when money is available, including partial payments

• Credit cards

• Moonlight on another job

• Live solely on your spouse's income while you build the new business

• Live frugally on your established job, saving until you are ready to go out on your own

Source: Diahann W. Lassus, Ewing Marion Kauffman Foundation of Kansas City, Mo.,Working Solo Inc. New Paltz, N.Y.

Pro: The company is still entirely owned by you. Avoids the costs of loans.

Con: Can be hard on personal life. Failure means a severe blow to your personal finances."

For more information, visit www.EvanCarmichael.com.

Angel investments reached $19 million in 2005

"MADISON - A first-of-its-kind status report on "angel investing" in Wisconsin shows more than $19 million in such funding was committed in 2005.

The report, made public at a news conference here Wednesday, also shows investors took advantage of the maximum $3 million in tax credits available to angel investors under a law that went into effect last year.

State Sen. Ted Kanavas, R-Brookfield, the author of the tax credit legislation, said he will push for increasing the amount of tax credits available to angel investors, given the success of the credits reported Wednesday. Tax credits an angel investor receives under Kanavas’ Act 255 may be carried forward over a number of years.

Act 255 went into effect Jan. 1, 2005.

Investments are limited to being made in startup companies that deal in creating intellectual property.

"We are very interested in growing a culture of entrepreneurship Kanavas said. "Some of these businesses will fail, but a lot will make it.

"When you’re building an economy, you need depth, and that’s what’s being accomplished with this legislation."

Also Wednesday, Mithridion Inc., a Fitchburg company involved in developing drugs to treat Alzheimer’s disease, announced it is to receive $1.6 million in angel investing."

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - WaterWorld - Lesson #2 - Have You Done It Before?

One of the most important factors that investors look at is the management team. Has the president done it before and does he or she have the team to make the company successful or not?

Investors would rather put their money behind an average business plan with an outstanding president than an outstanding business plan with an average president.

In the WaterWorld summary the reader learns that president Mark Hall has various university degrees and is a small business lawyer from Minnesota. It also states that he "has helped start several small businesses for other entrepreneurs." What are these businesses? How was he involved? Did they turn into successful businesses? These are much more important areas to focus on than the university degrees.

The plan also states "We have several trusted and reliable persons who will assume positions in the company, after funding, that will significantly enhance our ability to serve the public, media executives and wholesale buyers through their years of industry experience." Who are these individuals? Why are they interested and what will their roles be?

Again, the investor is looking to maximize opportunity and minimize risk. This is done by betting on someone who has done it before. Whatever experience you do have running a business and being successful, leverage it in your plan. Investors care much more about your previous experience than your educational background.

If you don't have all the experience yourself, bring in a team and make sure to mention who they are and what their backgrounds are. Even having a reputable and experienced board of advisors can sometimes make the difference between getting funded or not.

Next - Lesson #3 - The Business Model

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

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

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.

Executive Summary Review - WaterWorld - Lesson #1 - Does It Work?

The summary provides the reader with information on what the benefits of the drinks are. For example, the company claims that the Victory drink can restore energy lost through exercise, training, and game time exertion, allow the heart muscles to withstand vigorous and strenuous exercise, fight and prevents lactic acid build-up, reduce and eliminate cramping, and boost energy reserves and accelerates muscle recovery time.

What is missing is the proof that it works. You need to demonstrate to potential investors that what you have is real. Show test studies, include testimonials, provide lab reports, have supporting quotes from respected individuals in your market. In other words "Show me the money!"

The problem is, while your product is probably excellent and can deliver on all the promises you are making, you need to remember that most of the other companies seeking capital out there are not marketing such reliable products. Unless you demonstrate that the product actually works then you are immediately lumped in with all the other "junk" business plans.

Investors see so many business plans every day that they are looking for reasons to say no. Don't make it easy for them to turn you down by not having supporting evidence for your claims.

Next - Lesson #2 - Have You Done It Before?

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Alternative fuel is attracting venture capital

"Even before President Bush called for a push into petroleum alternatives in the State of the Union address, energy start-ups were venture capitalists' latest technology craze.

Some of the same people who helped to finance Silicon Valley's succession of electronics-technology booms see promise in energy technology. One of the valley's best-known venture capitalists, Vinod Khosla -- who co-founded Sun Microsystems Inc. in the early 1980s and is now a partner at Kleiner, Perkins, Caufield & Byers -- says he has distanced himself from his firm recently in part to focus more on alternative energies.

Through a fund called Khosla Ventures, Mr. Khosla says he has sunk his own money into a half-dozen start-ups over the past four years involved in "clean fuel" technologies, such as making ethanol a viable substitute for much of the petroleum now used to fuel cars. One of those biofuel companies, BC International Corp. of Dedham, Mass., has been around for more than a decade and is developing an ethanol plant in Jennings, La., according to its Web site. Mr. Khosla, who still keeps an office at Kleiner, declines to discuss any of his investments in detail.

Mr. Khosla says he is particularly enamored with technologies that help produce ethanol from sources other than the edible part of corn, the main technique now in use in the U.S. By using cornstalks, grasses and even woodchips -- as President Bush suggested in his speech -- large-scale ethanol production would pose less of a threat to food supplies, Mr. Khosla says.

From 1999 through 2004, venture capitalists invested an estimated $4.4 billion in the energy-technology sector, including renewable energy and more-traditional energy projects. That compares with just $380 million in venture-capital money invested in the sector from 1993 through 1998. Energy tech got a further $500 million in venture capital during the first half of 2005, according to Nth Power, a San Francisco venture fund, and Clean Edge, a San Francisco market-research firm.

Venture capitalists take stakes in small companies with promising technologies, counting on at least a few of their risky bets to pay off big later when the companies are sold or go public. They have profited hugely from investments in startups like Apple Computer Inc., eBay Inc. and Google Inc. They say even more money is likely to flow into new energy companies after the president's call to reduce the nation's "addiction" to oil imports through the use of alternative fuels.

"Even though Jimmy Carter espoused energy independence, Bush has put a timeline on it," says Nancy Floyd, managing director at Nth Power, referring to the president's call for developing new ways to produce ethanol within six years. "This means there's going to be a lot more venture activity in this sector," she adds. Nth Power's $250 million in assets under management are devoted solely to new energy technologies.

The VC money is chasing technologies aimed at increasing the supply of renewable energy, as well as for making existing energy plants and other infrastructure cleaner and more efficient. Venture capitalists sank nearly $181 million into alternative-energy companies last year -- nearly double the $103 million invested in that sector in 2004, according to estimates by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. In 1995, investment in the sector was a scant $2.95 million."

For more information, visit www.EvanCarmichael.com.

Executive Summary Review - WaterWorld - Highlights - A Ready Market

What's good about this company is that it is attacking a ready market. Many companies seeking capital can only really be successful when a new technological breakthrough has been made, government approval has been granted, or an entirely new market has been developed.

This increases the risk for the investor as there is uncertainty if the necessary changes will occur or not. Before making a decision, investors will weigh the opportunity of putting money into a company against the risk of losing it all. Most entrepreneurs do their best to show the opportunity of investing in their company but do not focus any energy on demonstrating how the investor's risk will be minimized and money will be safe.

The markets that WaterWorld is targeting are existing, multi billion dollar industries which are looking for new, innovating products to solve their pain.

Next - Lesson #1 - Does It Work?

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

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 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 www.evancarmichael.com for more information.

For more information, visit www.EvanCarmichael.com.

Silicon Valley: Still No. 1

"Silicon Valley CEO Max Seybold sits in the passenger seat of a slate-blue 1972 Ferrari 365 GTC/4 and laughs as Edward Holl kicks the V-12 engine up to 4,000 rpms and blows past a Corolla at double the posted speed limit.



“Now we have success—so why can’t we enjoy it?” he shouts over the roar.



Mr. Seybold runs Fox Technologies, an identity and access management startup. His company rented a brace of Ferraris just to let investors and executives have a spin in something fast at a Fox Tech open house. The startup, which raised a $5.3-million round last year, just moved its headquarters from Herndon, Virginia, and from Sweden before that, to Palo Alto, California—the heart of Silicon Valley.



Every high-tech executive has heard how globalization is changing business: off-shoring development to India, or targeting China’s market potential, or tapping into innovation in Eastern Europe or somewhere else. But for all that has changed since the dot-com and tech crash, three things have kept Silicon Valley behind the wheel of innovation and small-company growth.

It’s where the money is, it’s where the people are, and it’s where the laws are written to accelerate innovation. It’s a mix that has defined three big booms and may still power another. Startups still flock to the San Francisco Bay Area to put the pedal to the metal (see The Valley: New Blood).



Still on Top

Start with money. California remains the king in venture capital—the San Francisco Bay Area alone attracted $2.03 billion in VC funding during the third quarter of 2005, according to VentureOne. No other region, no matter what locals elsewhere may do to promote investment, can compare. New York City drew $303.4 million in that time, Israel $311 million, and all of Europe only $890 million (see The Valley: Innovation Envy).



That said, investors now venture outside the Valley, looking to cash in on success stories like Luxembourg’s Skype and China’s Baidu.com.



Granite Global Ventures sent half of its VC team to China and kept half in Silicon Valley, the China half getting behind companies like e-commerce site Alibaba.com and Sino-blogging site Bokee.com. Founded in 2000, Granite is now investing a $225-million second fund and setting aside about 30 percent of it for targeting Chinese technology companies. Director Scott Bonham says the trick to investing globally is in understanding locals. You can’t just take your Internet perspective and ram through another culture, he says.



Draper Fisher Jurvetson has partnered with 17 firms across five different countries—all part of what it calls its “affiliate network” giving Draper access to globally diversified deal flow. Its Beijing-based ePlanet Ventures affiliate helped it capture a quarter stake in Chinese search firm Baidu. Remember how its share price jumped 353 percent on its first day of trading? Draper’s stake is now worth $400 million.



In exchange for deal opportunities, Draper lends its name and Rolodex to affiliates, and it may expand this happy arrangement and extend its network even further. Indeed, Tim Draper has revealed that he’s taking his firm to India with a $200-million fund."

For more information, visit www.EvanCarmichael.com.

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
o 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.

o 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.

Executive Summary Review - WaterWorld - Overview

WaterWorld Enhanced Drinking Water (http://www.waterworldedw.com) is a manufacturer of energy drinks and spring water. The company has three functional energy drinks as part of its Peak Performance line of products. The three drinks are:

Amore', a sexual enhancement beverage with a natural aphrodisiac with a cherry/grape flavor that keeps him up and her feeling flush with a gentle warm feeling.

Trucker's Fuel, a tea flavor with a mild lemon twist drink for those who drive for a living or need to stay awake during a long day or need to study all night.

Victory, a lemon tasting beverage that can greatly reduce muscle fatigue, joint soreness, cramping, energy loss, and will speed energy recovery and increase energy reserves.

The company is in the startup phase and is run by Mark Hall, a Minnesota based small business lawyer. It is projecting to break even 6-12 months after funding and is searching for $1-4 million in capital at a $10 million valuation.

Next - Highlights - A Ready Market

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

For more information, visit www.EvanCarmichael.com.

Will your venture capital firm force the premature sale of your company?

"We have all heard the rumors of venture capital firms who attempt or succeed in forcing the sale of a portfolio company against the management team's wishes. Yet there is much you can do to prevent disagreements regarding your company's sale.

In fact, you as the entrepreneur have at your disposal valuable tools for preventing the untimely sale of your company. But these tools must be utilized at the beginning of the relationship with the venture capital firm.

First, you must make certain that there is a meeting of the minds and a proper alignment of interests when you are initially examining your prospective venture capital firm.

Second, you must work with the venture capital firm to ensure that the investment documentation specifically addresses the circumstances under which a sale would go forward.


Basically, there are four circumstances under which venture capital firms exit investments:
1. following a successful initial public offering;
2. upon the sale, merger, or other change of control transaction company;
3. following the sale of all or substantially all of the assets of the company; or
4. through the company's repurchase of the venture capital firm's investment.

It is important to understand the mechanics of a participating preferred stock investment since it is currentlythe investment vehicle of choice by the vast majority of venture capital firms. With a participating preferred stock investment, the holders of such securities are entitled to receive, on a preferential basis, a “liquidation preference” equal to the amount of their investment, plus a comparable amount per share for any stock dividends that have accumulated on the investment, out the gross proceeds of any transactions that qualifies as a liquidation. This could be a cash sale, a liquidation of the assets. a merger or any other combination or change of control transaction.

In an initial public offering, the underwriters will always require the venture capitalists holding preferred securities to convert them into common stock. Accordingly the features of a participating preferred stock are no longer applicable.

In the other exit scenarios, the liquidation preference is applicable. After the holders of the participating preferred stock have received their liquidation preference, they will generally participate, on a pro rata basis, in any distribution of assets or stock to the common stockholders, as if the participating preferred stock had been converted into common stock.

With this in mind, it is critically important that there be a meeting of the minds at the inception of the relationship concerning the ultimate decision to sell the company. In a sales transaction that is less than or equal to the liquidation preference, the holders of the participating preferred would be entitled to all of the sales proceeds.

The ultimate protection for management and the common stockholders may rest on the fact that venture capital investors are motivated to maximize their investment return, not just recover their investment. Additionally, the sale of a business generally required approval of a company’s board of directors (which the venture capitalist generally do not control), the preferred stock holders (which class of stock the venture capitalists may control), and the common stockholders (which class of stock the venture capitalists generally do not control). "

For more information, visit www.EvanCarmichael.com.

The Valley: from Afar

"The world, as Thomas L. Friedman contends, may well be flat, but peaks and valleys remain. Even viewed from China and India, the twin steamrollers Mr. Friedman sees leveling the landscape of the new economy, Silicon Valley still occupies lofty heights.

In centers of technology around the world, whether established or emergent, “Silicon Valley” is a metonym for an entire ecosystem of technology and finance, with its own infrastructure of support services and social networks—slued together by a culture that lionizes risk-takers, rewards out-of-the-box innovators, and forgives failure.

Despite its obvious success, the model has not been successfully replicated anywhere: not in Beijing, not in Bangalore, not in Stockholm or Tel Aviv—and not for lack of trying.

To be sure, innovation, talent, and capital have spread globally. A tangible link to the Valley—whether through technology, capital, or physical presence—is no longer the sine qua non for a high-tech firm, if it ever was. None of India’s three software outsourcing giants, Infosys, TCS, and Wipro, had roots in the Valley: no venture backing from Sand Hill Road, no Stanford spin-off technologies.

But for technology entrepreneurs the world over, the words of Mirabilis chairman and founding investor Yossi Vardi probably still ring true. “Silicon Valley was the Mecca, it is still the Mecca, and it will be the Mecca,” says the Tel Aviv-based Mr. Vardi, whose company created the popular chat client ICQ, acquired by AOL in 1998 for a reported $400 million.

Making the Move
If the Valley is Mecca, then German-born Stefan Roever, 40, is one pilgrim who has made the Holy City home. Only months after the company he co-founded, Stuttgart-based Brokat Technologies, went belly-up in 2001, he was at it again with a new company, Navio Systems, based in Cupertino. Brokat made software for Internet and mobile phone financial transactions. Mr. Roever’s new company makes digital rights management software for Internet commerce.

Mr. Roever was named one of the World Economic Forum’s 2006 Technology Pioneers. “I had seen the environment in Silicon Valley and I was pretty sure that if I was going to start over I would want to do it here,” he says. “The entire environment is conducive to entrepreneurship and innovation.”

In Germany, “profit is a dirty word,” according to Mr. Roever, and startups are stymied by an overgrown regulatory environment, bureaucracy, and onerous taxes. “Very few people in Germany have ever built or been part of a team that created a global technology software enterprise,” he says. “If a new global business like a Yahoo or a Google is going to be built, chances are still pretty good that it is going to be built [in Silicon Valley].”

But Valley culture has been transplanted to parts of Old Europe, such as England, and it is showing clear signs of taking root in other dynamic economies. Emulation of the Valley formula is deliberate and deferential, helped along by hundreds of European, Indian, and Chinese returnees, sometime dwellers of the Valley’s Santa Clara County who headed home to start up tech businesses. But no one in China or India needs to be reminded of the Valley’s importance. “There will never be another Silicon Valley,” says Sridhar Mitta, the managing director of e4e, an Indo-U.S. software outsourcing company.

Valley fever burns particularly hot in China. High-tech zones in major Chinese cities vie to be recognized as “the Silicon Valley of China.” In northwestern Beijing’s Haidian district—a leading contender for that title, with its concentration of top universities, technology parks, and new economy companies—one upscale housing development even calls itself Guigu, Chinese for Silicon Valley."

For more information, visit www.EvanCarmichael.com.

Reader Question - Finding Investment Capital

Good evening, my name is Chris and I am looking for some information on angel investment or venture capital for a future investment. I am looking at purchasing a bar/restaurant in Dutch St Maarten. The business is already up and running and has been very sucessful for a many number of years. The business is being sold well below market value and is not currently on the market. I am looking at moving on this business very quickly because once it hits the market it will not be on there very long. I am a little bit shy on the total investment which is why I am contacting you. Any information you have would be of great help. And if you are unable to help, any information you have on anyone who would help would be greatly appreciated.

Thanks for your help.

Chris


Hi Chris,

There are a number of ways to valuate a business. The model we typically use is discounted cash flow (DCF). In DCF, you take an estimate of the company's future earnings and discount it back to today to get the present value. Investors will often add a risk premium as well as a premium for being a private company.

The restaurant business is not one that lends itself to venture capitalists very well. VCs are looking for an average return of 30% per year which is hard to create in restaurants unless you are planning very serious expansion.

It could be of interest to the right angel investor. You would have to show what their return on investment would be and how quickly they will be able to recoup their investment. Other elements to keep in mind are how they might be able to exit the investment and how involved do you want them to be in the management of your business. For a more complete guide on Angel Investors visit: http://www.evancarmichael.com/Angel-Investors/index.html

If the business has been successful for a number of years they should have a healthy balance sheet and historical financials. This could lend itself to a leveraged buyout situation where you finance the acquisition through a heavy debt load. The cash flow would obviously have to be enough to cover your debt payments. You can discuss this with your bank as well as work with private firms provided that the numbers make sense.

Good luck!

Evan.

For more information, visit www.EvanCarmichael.com.

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.

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Executive Summary Review - Howling Moon Designs - Lesson #3 - Get A Management Team

One of the most important rules for venture capital investors is make sure the company has a solid management team. Investing in early stage companies is as much about the team as it is about the idea, if not more. Venture capitalists want to see that you have some experience and that you have competent people around you.

Howling Moon Designs lays out an organization structure and identifies the team members they will need to make the project a success, but at the moment the company has only one person.

In the plan it is also unclear as to what the founder�s previous experience has been and what other companies he has helped to success.

A venture capitalist is unlikely to invest in a company with one person and a limited track record.

You need to build a team around you with complementary skills. If you do not have much experience in running companies then build a board of advisors with people who have. You want to show as much as possible that you have the existing personnel in place already to make this business a success.

Would you like your Executive Summary reviewed? Click on the "Get Your Plan Reviewed" button at the top of the page.

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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.

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Venture capital fuels tech industry

"Venture capital has been the lifeblood of world-class technology centers like Silicon Valley.
Technology startup success has been greatly helped by the money and technical and business savvy that resides in the VC organizations. These firms finance high-risk, potentially highly rewarding business projects by taking equity or equity-linked stakes. VC firms that invest in young businesses profit when those businesses go public, or when the company is sold or merged with another.
High-tech icons such as Google, Amazon.com, eBay, Yahoo and Cisco Systems would not have existed today without capital infusion from venture capital firms.
Where and how VC funds are allocated are effective indicators of several important things, including prospects of regional high-tech development, job and income growth; new or upcoming technologies that have high market potential; the state of an area's research and development, innovation and entrepreneurship; and the competitiveness of an area in today's global economy.
VC investment has remained nearly the same in the past four years. That remains true, according to recently released surveys for 2005 -- by Ernst & Young/Venture One and another by PriceWaterhouseCooper/National Venture Capital Association/Thompson Financial.
According to the Ernst & Young report, VC companies pumped $22.1 billion into fledgling U.S. companies, up nearly 2 percent over 2004. The findings of PriceWaterhouse survey suggests a slightly lower figure of $21.7 billion for 2005, only $100 million more than in 2004.
But last year, there was much enthusiasm about several Internet-related startups and the recovery of the tech sector of the economy.
Why did VC funding increase only slightly? There are several possible explanations:
Many startups now have business models that do not require millions of dollars of capital infusion from VCs to develop the initial product, as they depend on subscription or advertising revenues to get there.
Frequently, the startups with viable business models sell out early in the game to establish companies and so they are not dependent on late-round VC money to fully establish them.
Declining demand for IPOs (only 41 VC-backed IPOs in 2005, compared to 144 in 1995) has also diminished the appetite of VCs in investing in young companies -- even though they raised nearly $2.5 billion in 2005, nearly $3.5 billion more than what they invested.
The reason is that IPOs generally have been more lucrative than sale to other companies. There are exceptions, such as the sale of the Internet-phone company Skype Technologies to eBay, which fetched a record $2.5 billion.
VCs in 2005 appeared to remain cautious, remembering their heavy losses incurred in the dot-com crash of 2001.
"The venture community is showing great discipline in how it deploys its capital," said Chris Coleman, senior vice president of Technology Group for City National Bank. "From all appearances, their due diligence is greater and the management teams are stronger, having survived the technology downturn several years ago.""

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Venture capital blogs? They're about anything but

"Bill Burnham was having lunch with a fellow venture capitalist at a restaurant in Mountain View, Calif., two weeks ago when the topic turned to secrecy.
His lunch mate had been describing a new Internet search start-up company he was investing in and felt compelled to add a friendly admonition.
"Don't blog about this," Burnham recalled his friend saying.
Thanks to the Internet, the venture capital world--one of the most insular of industries--has sprung a leak. In the last year, there has been a spike in the number of venture capitalists starting Web logs, with some two dozen such investors writing about everything from their families and favorite music and television shows to their tight-knit community and its practices.
The venture capitalists who blog say the practice lets them establish a potential connection to entrepreneurs looking for seed capital and the right fit in an investor.
The blogs also provide a small window into the murky world of early-stage investing, but not always to the delight of denizens of the venture capitalist world.
Burnham, who is starting a venture fund, wrote one column on his blog, Burnham's Beat, estimating the return of John Doerr, a partner at the firm Kleiner, Perkins, Caufield & Byers from an early investment in Google. He had to post a retraction when Doerr challenged the accuracy of the figures.
Talking about their returns is a longstanding no-no among these Very Coy investors. That taboo and a general predisposition toward mystery is colliding headlong with a new interest in self-expression, said Paul Kedrosky, the executive director of the William J. von Liebig Center for Entrepreneurism and Technology Advancement at the University of California at San Diego.
The upshot, Kedrosky said, is that venture capitalist blogs are self-censored for the gossip that everyone in the business really wants to know--like how much money people make and the investments they are making--and filled with the blogging equivalent of white noise."

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