KISSING your investor documents
The other morning I was awakened at 6:30 a.m. from a deep sleep (I am a California night person) by one of my clients (a NYC morning person) with an urgent (right now this minute) assignment (it couldn’t have been called a request): to rewrite the investor summary for investors who couldn’t spell software.
Now, of course you write your investor presentations to speak to your ideal investor audience: the smart-money investors with deep domain experience in your market space.
See that sentence? “smart money” “deep domain experience” “market space.” Now, I can talk to you this way, uh, write to you this way, because my audience (you) work in the same business that I do. Now, what would someone who built empires in retail or cosmetics or construction think of that sentence? Not much, since they wouldn’t understand the words.
So, what if you were writing your investment presentation for folks who were smart and successful and wealthy enough to invest millions of dollars in your company, but thought servers were only to be found in restaurants?
There is an old truth that you should be able to explain your business to your 8-year old (or your grandmother – but soon your grandmother will be tech savvy, and likely your 8 year old already is). It is called KISS – “Keep It Simple, Stupid.”
So, yes, write your investor pitch to your ideal investor. Then write it again and KISS it. Why? Because in this economy, there is money waiting to find investment opportunities, often where you are not looking – in industries and wealthy individuals who would love to play in our exciting marketplace, but don’t understand it well enough to sign the check. And in this economy, these folks may be your best chance for investment, growth, even survival.
Here are tips on KISSING:
Replace your headlines with titles like these: Our company, Our product, Our advantages, Why companies (or customers) will buy; Who will buy; How big is the market? Our current sales and negotiations; Our team; Our capital; Your return on investment, and so on.
Replace technical words with simpler (yes, less precise) words – for example:
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“software/content is integrated with” or “embedded in” write “our product becomes part of…”
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“mainframes” and “servers” write “hardware.”
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“software architect” write ‘our inventor.”
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“data” write “information.”
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“content” write “stories,” “videos,” “comedies,” “articles,” etc.
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“Software as a Service (SaaS) revenue model” write “our subscription to our customers – we ‘rent’ the software, but do not sell it”
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“customers license our software/solution to” becomes “our customers use our product to”
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“Target buyer” “target market” “end-user” “client” all become the most-understood word — “customer” — when you mean to indicate the buyer of your product or service.
Use the same word repeatedly when you mean the same thing; don’t say “customer” and “client” and “market” when you mean customer (end-buyer). Avoid the finer distinctions of what kind of customer.
Assert your market size without details and sources, in a single sentence that tells the market size, and your projected penetration and revenue.
Reduce your detailed explanation of your target markets, industries, market sectors and target users to a couple of sentences that list your target industries, kinds of companies, and end-user’s job titles and responsibilities.
Keep your written presentation to less than 3 pages; 2 pages is best.
Put your contact information at the top of page 1, under the title of the presentation, and repeat it in footer at the bottom of each page. Do not make anyone search to find how to contact you.
In the footer, with the contact information, add “confidential” and “page x of y.” This will cover your notice of confidentiality, and will tell the reader when the document has ended.
You get the idea – keep all the language and explanation as simple as possible, so it can be repeated to someone else with confidence by your potential investors.
At the end of all this work, the document will look so accessible that no one will know how difficult it is to say something with simple clarity in 2 pages. So don’t expect any congratulations. This is the irony and the humor of good writing and successful pitching. Good luck.
Smart Planning Tools
My close colleague, Gene Siciliano (our “CFO for rent” at www.cfoforrent.com) is an excellent strategist, consultant and speaker. His website is filled with resources and articles, and you can sign up for his newsletter. I wanted to share this article with you about his strategies for business goal setting.
Business goal setting is a funny thing. Funny odd, not funny ha-ha.
We talk about setting goals that are really important to meet, and then we set them so loosely that no one can tell if we hit them or not. Or we adjust them at the drop of a hat, if we remember them at all. Or we check in around the time a goal was to be accomplished only to find out it’s been behind schedule for months; and money has been spent elsewhere on the expectation of on-time achievement that we would have known wasn’t going to happen if we’d only looked. Or worse yet, we’re aware of all these things as they’re happening, but we don’t know what to do about it so we just ignore it until someone says we should be planning. Then we claim that business planning doesn’t really work, and we don’t have time for such foolishness.
Does any of that sound familiar to you? I heard variations of it for years during my stint in corporate America. Want in on a little secret? It isn’t that planning doesn’t work. It’s that bad planning doesn’t work.
Enter SMART Goals. Ask yourself these 5 questions about each goal you set, to see if you’re giving yourself – and your team – the best chances for success:
1. Specific? Is there an exact, measurable end result? It’s truly specific if your teenage kids can tell if it’s been met or not. Is it due on a particular date or within an exact timeframe? Is it calculated with enough clarity and precision that it’s obvious that you either got there or you didn’t? “Ninety-five percent of employees with completed performance evaluations by June 30” – now that’s specific. “Improving our product return rates” – well, that’s just pie in the sky, and any change at all would qualify, even if that was not what you had in mind. People like the boss to be clear about what is expected of them, although they may wiggle in their chairs when you ask them if they can do it. Your job is to get their commitment and then give them the tools and support to be able to achieve exactly what you want, or more.
2. Measurable? Can you really tell if you’ve hit the mark? If your goal is capturing a 5% market share in a market where no one knows who has what market share, aren’t you kidding yourself? Even the most obvious and desirable goals are meaningless if you can’t measure them against the benchmark they are meant to achieve. This is a particularly acute challenge for privately owned companies who compete with other privately owned companies for whom competitive intelligence is scarce or nonexistent. If you can’t calibrate against the most relevant goal, then find metrics that directly impact it, and that you can measure, and benchmark your goals against those.
3. Achievable? Is it a stretch to get there, without being unreasonably ambitious? If it’s so far out that employees and others decide ahead of time that it can’t be achieved, they will stop trying. Don’t be fooled by those motivational speakers who tell you to shoot for the moon and hope you hit the top of a mountain. A goal that no one believes in is a waste of time because everyone has a built-in excuse for not reaching it. For those on your team who need no motivation to excel, anything will do, but for most workers, most of whom need encouragement and leadership, your moon shot simply says you don’t really know what is reasonable.
4. Relevant? Does it truly relate to the strategy of the company, and is it truly intended to move you closer to your vision for the company? If not, it’s off target and should be revised or dropped. We’ve all seen the dreamer who has an idea a minute, most of which would be wild goose chases if we followed them. Goals that are focused on your business strategy will get you further than those larks that could make a million if only they would work. Focus, focus, focus – that’s the name of the game.
5. Trackable? Can you break it into smaller action steps or milestones that can be accomplished and managed along the way? If not, you have no way of knowing if you are on schedule or not, until it’s too late to do anything about it. An annual sales goal can be tracked every month. An expansion plan of 10 more offices can be followed office by office. If you’re on track you can encourage staff to keep up the good work. If you’re not, you can take action to keep the goal from being lost completely. Because it’s trackable.
If all your goals are SMART Goals you have taken the first big step to achieving them – you’ve made them manageable. All that’s left is checking the plan regularly, and actually using the tool you’ve created. Wow! What a concept!
The necessaries of bank debt
This is a new series and category that addresses the deadly details of making sure that all your efforts in creating business and balance do not come to naught due to the necessaries of life left undone ~ necessaries like money, legalities, insurance, administrivia. Attention to these tactics allows your power to work in the world, and lets you set and maintain your boundaries.
Let’s look at one of the necessaries of money that are not often discussed with early stage entrepreneurs: bank loans and lines of credit.
My father taught me never to have debt. Then, early on in my career, an entrepreneur taught me a different twist on this: get loans or lines of credit when you don’t need them. That’s right, go to the bank once your business has some track record of revenues, and take out a 90-day small business loan, or a business line of credit.
Make it a small amount, easily achieved and explained, say, for business or marketing one-time expenses or a small equipment purchase (not equipment expensive enough to require a separate equipment loan). Use a small part of it. Otherwise, sit on it. Pay the little bit of interest that is due, and the administrative fees to set it up. Then pay it back in full in 30 days or 60 days, well before its due date. Wait 6-8 months, repeat the loan or extend the line. Use it (or some of it), and repay. After the first year, do this every 12-18 months. Always take small loans or lines, but each a bit larger than the last.Do this particularly in the first quarter of the year if your corporate tax returns are strong, so the bank records your tax information with the loan. The bank will want three years of returns if you have had the business that long.
Why use these tactics? Because in this way you establish that your business has both a track record and an excellent credit history with your bank. Then, when you need the money, your direct credit history with your bank will come into play and you will get the loan even if your current statements look weaker than before.
If possible, befriend your local bank manager (unless he or she rotates among the branches), or establish a relationship with the regional or corporate manager at networking events.
Do not wait long after your business is producing revenue, either to establish this credit history, or to apply for a line of credit, especially if bad times are approaching. If you wait until the bad times have arrived, you will find the bank cautious about creditors, and not so likely to grant the loan. If you have had a good year, but suspect a weaker year coming, move to secure your line or loan with your current (strong) financial records.
These tactics are particularly important in states (like California) in which banks are not friendly to business. In Boston, my bank manager was my colleague and processed certain paperwork over the phone without needing my signature until I could come by. In California, I could not find a bank manager who understood what I meant when I wanted to establish a “relationship” with them before transferring my corporate account into the bank from out of state. Find out about your state and your local banks, and which are most accessible to your kind of business, then take the necessary steps. Move quickly to take out a new line of credit based on your history, even if it seems you will not need it.
More ideas on gaining financial independence
Once, playing poker with Lewie Palter, a teacher of actors at Cal Arts, I remarked that actors had all the character traits of entrepreneurs: they didn’t follow the usual path, they had deep confidence in their own talent, and they would abandon a conventional life to build the life and self-expression they envisioned. In fact, I said, they should build little back-bedroom businesses to support their erratic schedules of auditions, out-of-town 6-week tours, and other disruptions to a regular working life.
So, for the last 20 years, I go to Cal Arts to guest lecture in The Artists’ Survival Course, to teach the graduating actors some ideas about building their own businesses while they build their acting careers.
This year, I arrived with a small piece of paper from my Chase MasterCard statement. In tiny print, it promised it would never charge me more than 29.9% interest on my outstanding balance. The young actors, never having lived without credit cards, and going out into the world with no work, no clear career path, and a significant school debt, were aghast when I explained they could easily be charged 30 cents for every dollar they didn’t pay within 30 days, especially if they missed a payment and triggered the higher interest rate. Lewie taught them an old word, “usury.”
The student actors went beyond aghast when I suggested they put their credit cards away and never use them unless they needed to rent a car. To most people, that little plastic card is money, when in fact it isn’t anything of the sort.
I know it is not easy to live without debt in the current economy, particularly in expensive Los Angeles, where I live. And you may think the idea of savings is a joke. But no debt, and some savings for a buffer, is the secret to financial freedom.
I don’t mean you should be inconvenienced: there are acceptable kinds of debt in the modern world. These include credit cards that are always paid off completely when due, and a mortgage, as long as nothing prevents you from paying it every month.
Not long ago, less than one generation ago, our culture supported these values and folks lived by them. A debtor was a scofflaw. Being behind on your payment to a local merchant was an embarrassment.
How do we begin? At the larger view and the smaller view:
At the larger scale, there are disciplines we can use to help us – learning more about managing our money, signing up for a program that saves a small percentage from our paychecks before we see it, putting money aside into savings vehicles on a weekly or monthly basis, investing our tax return money, using a trusted money manager to advise us on our investments and on our tax-deferred savings for retirement, kids’ college, and so on.
On the smaller scale, we need to think how tiny disciplines can make a difference: using your library for books and audio books; exploring your closet for those neat clothes you have forgotten about; having friends in for dinner (everyone can bring something) rather than eating out so often; avoiding buying thoughtlessly what we don’t need, and paying nearly 10% more in tax on every purchase, as we do in California.
You know, if you gave yourself cash to spend for the month, and didn’t touch your credit card, you would start to look at the real cost of real things — $12 movie tickets; $5 coffees; 9.75% tax. Even as an experiment, this would teach you something.
The priorities of course are yours. That $5 coffee may be the treat of your day. Movies on a big screen may be your passion. So indulge. But also create your own awareness about what you care about, and spend your money on that, and do not spend money on what does not matter to you. Your awareness of your priorities can manage your spending. Try it. You may find you have the same life with the same pleasures, and some cash left over.
Some personal reflections on financial independence
The weekend of Independence Day (2009), the radio show “Marketplace Money” ran a short piece on what it would be like to be financially independent. One person described financial freedom as living free of credit card debt. But the point of the story was more far-reaching – financial freedom was defined as being free of debt and having savings in addition.
This started me thinking of my own background. My father, a successful self-made entrepreneur, and old-fashioned about money, did not believe in debt, and bought our large suburban home for cash when he was 35. He taught me that if I didn’t have the money for what I wanted, I should save up until I did, and then buy it.
He also taught me, in my teens, to never leave the house without $100 in cash in my pocket. “O.k.,” I said, “but why?” His eyes twinkled but he deadpanned, “You can’t bribe a policeman with a credit card.” I have never left the house without at least $100 in cash in my pocket, since that day.
A few years later, my best friend, a man who couldn’t understand money much less handle it, told me, “If you can get precisely what you want when you want it, for immediate gratification, then what you pay for it doesn’t matter.” I believed him too.
Combining these two lessons has led me to a happy life. I have never had any debt (well, a mortgage once on my ranch in the Sierras, but that was sold long ago), and I have always bought what I wanted when I wanted it, from the cash available, if it was available. If it wasn’t, I didn’t. And I don’t remember suffering much from not buying whatever it was.
I know that carrying no debt is not a sophisticated way to handle the use of money. But I always wanted freedom more than things. And having freedom from debt, and having that available cash from a buffer zone of savings has offered me an exquisite freedom. It has allowed me to shift my work focus to meet changing market demands, to escape and live through various recessions, to take a big risk (like building a company in China in the 90s), and to sleep easy at night.
I find I agree with that Marketplace Money reporter: financial independence is the freedom to have lots of options because debt isn’t restricting us.
Next: some ideas and tactics to gain financial independence.
The language of the pitch, part 4 of 4
As we must expand our capital searches in this economy to funding sources outside of our immediate industry insiders, we now continue our exploration of clearer, simpler language for the pitch for capital (see more on this topic posted under writing & pitching).
Let’s consider the buzzwords engine, tool, platform, solution and enabling technology.
Some of my clients have built software engines which bring new power to social media aggregation or database compression and querying, and so on. In each case, the power of the engine is disruptive and extends the power and control of its business users, but each also requires connection to both a “front end” and a “back end.” Both are standard tools in many varieties, and need only to be linked in with simple technology “hooks.”
When presenting the business opportunity to an investor outside of our industry, the word “engine” becomes a negative flag. If it is an engine, where is the car? What can anyone do with it? If it is a “tool” or “utility,” its value is decreased as an incremental “nice to have” rather than a “need to have” product. Although we are talking about positioning now, this positioning is embedded in the language we choose to use.
Sometimes my clients default to “platform” or “solution,” or even “enabling technology.” These words bring along their own weaknesses, since we must define the “platform” and “solution” and what is “enabled,” in each of its applications and values and market potentials, and now we have lost our simplicity again. Pitching that a new company can cover the world in all its markets at once is a non-starter.
In these instances, final success has arrived by segmenting the investment pitch into a focus on the one or two primary market segments that endorse the product’s feature set as a “must have” product. This simplifies the pitch into “our product solves this problem in this market sector and can expect a demand of XX and a market penetration of YYY in ZZ years.” We can also present one additional pitch in a second, adjacent market segment, particularly one in which we might use the same sales force or reseller channel and similar marketing materials.
Simplifying language in the pitch to be direct, complete, and understood by an 8-year-old is the secret to expanding your capital search in these lean times.
Have examples? Need a private review of your pitch? Please share here.
Previous: aggregate, content, monetize, leverage, social media
The language of the pitch, part 3 of 4
As we must expand our capital searches in this economy to funding sources outside of our immediate industry insiders, we now continue our exploration of clearer, simpler language for the pitch for capital (see more on this topic posted under writing & pitching).
Let’s consider the buzzword “social media.”
Social media: Here is another one of those collective words that means many things: it means the social networks (e.g., Linkedin, Facebook, MySpace) and also tends to include blogs, microblogs (Twitter and its Twitter tools) and various media sites (YouTube, iTunes) for sharing content across all media (video, music, webinars, etc.).
In my recent training on driving revenue through the use of social media sites and their tools, I have come to understand how small is the inner circle that can use these terms clearly. Step out of our circle of early adopters and developers into the larger (and older) world of finance or business, and we find most people have only vague awareness of the power of this new technology. In fact, they barely know which is what or how to use any of it.
So, when pitching outside of our tech savvy investors, we must define and clarify what each social networking site is and does, and its value, and which market it addresses, and how we will use each one to gain market share and return on investment for our business. In fact, soon we will need to include a clear marketing plan for how we will use the social networks, media and tools to drive our company’s valuation. So be prepared to discuss each of these slowly and carefully in your pitch.
For more details on this, see https://www.joeytamer.com/blog/category/social-media.
Have examples? Need a private review of your pitch? Please share here.
Next: engine, tool, platform, solution, enabling technology
Previous: aggregate, content, monetize, leverage
The language of the pitch, part 2 of 4
As we must expand our capital searches in this economy to funding sources outside of our immediate industry insiders, we now continue our exploration of clearer, simpler language for the pitch for capital (see more on this topic posted under writing & pitching).
Let’s consider the buzzwords “monetize” and “leverage.”
Monetize: We love this word, probably because the inability to monetize new technology once brought us to the crash of 2000. So we are quick to use it to prove we have a revenue model that can build a larger business model that will lead to ROI, and so on.
But to those not within our inner circle, it sounds like flim-flam – because it is another collective word (like “content” see– part 1 of this series) that is not specific. We understand that we will monetize our offering (a product or service or channel) in multiple ways which we are used to discussing. But outsiders want to know simple stuff: what are you selling for what price at what margin through which channels to what customers and will they buy it? And, if they will buy it, can you actually get to those buyers to make them an offer?
So, instead of “we will monetize our content through online distribution,” say something longer but simpler. “We will become the world’s largest bookstore by collecting the most books into inventory for selling online to readers, bookstores, and distributors, at discounted prices based on our volume purchasing. Our margins will be excellent due to the savings realized by online distribution and by avoiding the high cost of physical retail stores.”
Leverage is another favorite word of our times, and one that has many meanings. We tend to use “leverage” as a verb, meaning to increase results, as in the advantage gained by using a lever: “We will leverage our strategic alliances to penetrate the European markets.”
But: financial people use this word when referring to borrowing money for re-investment in some venture on the chance of a higher return on their investment. “Leverage” is also used to imply bargaining power. In statistics, “leverage” is used in connection with regression analysis.
Given the current economic conditions and constant discussion of economic issues, I suggest we abandon using this word and choose another, for example, “influence,” “advantage,” or “power.”
Have examples? Need a private review of your pitch? Please share here.
Next: social media, engine, tool, platform, solution, enabling technology
Previous: aggregate, content
The language of the pitch, part 1 of 4
I’ve been reviewing several pitches for capital written by some of my new clients who are Internet entrepreneurs. These pitches are generally targeting venture capitalists who invest in new Internet companies. We are working together to expand our capital strategy to reach beyond the venture community in these economic times.
When seeking funding in this broader capital market, the language of the pitch must become simpler, more direct and more explanatory. Remember that old idea, “Explain it to me so my 8 year old can understand it.” This is an excellent measure for clarity.
Some of the words we will explore in these blogs include: aggregate, content, monetize, engine, leverage, solution, content, even social media.
The current language of the pitch is full of buzzwords, understood only within our community, but not easily accepted in a broader funding market. Let’s begin with “aggregate content.”
Aggregate: now, those involved in distribution will easily understand this, but everyone else will nod and miss the significance of the word. Try “gathered together” or “put into inventory” or “collected” for distribution.
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And the word immediately following the word for aggregation had better be the stuff that is being collected.
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You must say “for distribution” immediately following this, to explain the importance of collecting all this stuff into your inventory.
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And then you must specify to whom you will be distributing this stuff, so the reader understands your target market.
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So we move from writing “aggregating X” to “collecting XXX into inventory for distribution to YYYY.”
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To take this one step further, you might specify what that target market does with the stuff once it buys it from distribution. This is especially true if you are distributing to resellers (one target market) who in turn resell or distribute your stuff to the end-user (customer) market. If you are distributing direct to the end customer, then you are “distributing to YYYY to gain initial market share of Z%.”
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So, instead of the shorthand that says “We are aggregating content” you will say “We are collecting online video into inventory on our website for automatic pay-per-use, downloaded distribution to advertising agencies, which will use it in projects with their clients. We will also resell this inventory directly to websites that offer “stock videos,” at an XX% margin.”
Content: This word, understood in broad strokes by industry insiders, can thoroughly confuse outsiders. They struggle to understand how this word is used as a collective word for all kinds of content – text, photos, video, articles, short films, ebooks, and so on.
So be very careful, early in your presentation, to list the multiple kinds of content you will address in your pitch, and then to specify which kinds of content you are referring to for each example or channel.
Have examples? Need a private review of your pitch? Please share here.
Next: monetize, leverage, social media, engine, tool, platform, solution, enabling technology
Beyond angels and venture: alternative forms of capital through deal making
I have been in a series of meetings with early-stage technology companies lately, discussing strategic capital. These founders and CEOs started developing their technology before the current economic crisis, and have rightly continued their progress. Some have revenue from a separate side of their business, some don’t. Some have received initial funding from professional sources, others have not. Some control and own most of their equity, others do not.
What is interesting is that all these CEOs continue to pursue capital from sources that continuously turn them down, mostly from venture capital groups to whom they have access.
When asked why they continue, rather than seek their capital elsewhere, they look a bit blank. It is as if there is no other source of capital. Like, revenue, perhaps? Or a strategic deal? I once created initial seed capital of $2.2M from altering an international software distribution deal, with no equity leaving the company, and a win/win for all parties, so I know it can be done.
I understand why, if they have access to venture capital, that they may not want to pursue angel investment, which would offer them less capital in exchange for more equity. Better to deal with a full venture group. And in most cases they had tapped out their friends and family, and had no more access to private individual capital.
Still, I was reminded of that old book about the cheese not being at the end of this particular (venture capital) tunnel.
Alternative forms of capital include revenue (sometimes with a “sweetener” of a small amount of equity in options) from: licensing, reselling, bundling, OEM deals, and joint ventures with partners and near-competitors.
After some conversation, these CEOs are excited to consider licensing their technology to players in foreign territories, once we explore how that licensing can create significant and rapid revenue (with no loss of equity) and still be restricted and controlled. And this licensing would open a new market for them!
They are even more comfortable with distribution channel strategies that allow them to resell their newly launching product through a partner into a different market sector or an international territory. The same applies to the idea to OEM part or all of their product for integration into or bundling with a completely different product, to be resold by a channel partner.
They are initially less excited when we consider alternative forms of capital and revenue, such as licensing their technology to (or joint venturing with) near competitors – larger companies that share and dominate their market space, but do not occupy their market sector. For example, a competitive company in the enterprise sector might want to move to the middle- or small-market space with my client’s similar product that is designed precisely for that market. This deal would not be an acquisition too early to create wealth for the founders and their early investors, but some synergistic agreement to share the success of opening the new market sector. Or it may be a development deal to create “hooks” into the competitor’s product to allow access to that market, with the competitor’s sales team dedicated to penetrating the market for revenue sharing by both parties.
Of course, it depends on many pressures: is the new company nearly out of business if they don’t find capital quickly? Does the market allow them to delay the release of the product, because there are no competitors on the horizon? Can they sustain through launch and early revenue, but only need growth capital?
Each case is different, of course. But the options for building a company through deal-flow are often overlooked amidst the noise of capital raising. And revenue drives up the company’s valuation when the time may come again to raise equity capital.
Let me know your thoughts on this, and if I can be of any help thinking it through.