Looking for private investors? Don’t make these mistakes!

Recently, I was approached by a company that was looking to drum up investors. Without giving away who the company is or what they do, I’ll briefly describe them in this way: They’re a non-publicly-traded B2B business with a 2-decade track record of success in an industry that is growing in demand. And they were looking for investors to help fund some upcoming initiatives. Cool. I like hearing about those kind of opportunities.

They got in touch to see if I was interested in investing with them. Their call was sort of a cold call (because I’d never heard from them before and this was the first time they were reaching out to me), although it technically wasn’t a cold call because we were connected through a social network and I had indicated that I was interested in hearing about investment opportunities.

On the call, they briefly introduced themselves and talked about the opportunity. The offer itself wasn’t clearly described on the phone. Was it an equity investment? Was it a bond? From what I could tell, I was supposed to give money to the company and they would use it to help their clients and then I would get my investment plus a return back. When I inquired further about what kind of offer it was, the caller wasn’t clear. Then she apologized because she is normally the one in the field but was making calls to investors that day.

Hmmm… a couple of red flags there but nothing that will turn me off yet. I can research my answers. So I asked if I could review any additional information to do my due diligence and they pointed me to their website.

And here’s where it fell apart:

  • Their website is very plain (which is fine) but it screams “old school”… in other words, it feels like a website from about 5 – 8 years ago. And the deeper I got into their site, the older it seemed. (One page looked like it was made in 1995).
  • Their website mixes content for clients and for investors. This is frustrating for both audiences — they need to divide up their content and make it obvious on the first page who should be sent where. (This is simply done with a button that says: “Clients click here” and “Investors click here”. It keeps the messages from getting mixed up and it helps with tracking what each audience does.
  • Their presentation page listed the available presentation but the password I was supposed to enter had the number “2009” into it. Does that mean the presentation is from 2009? I hope not because no investor should do due diligence based on information that is 4 years old.
  • Once I entered the password and clicked “view presentation”, a pop-up displayed that told me “this presentation is only viewable in Internet Explorer or Netscape Navigator”. Really? Hey, we live in a world where there are numerous browsers (many of which are more popular than the two listed above) and even if something doesn’t display 100% correctly in my browser, I’m fine with it. But to block investors out completely because they’re using Firefox or Safari or Chrome is a little crazy.
  • But I’m a determined person so I dug around on my computer until I found Internet Explorer and I dusted it off and opened it up, and went through the process to find their presentation and enter the password… only to be told that I had to download some program first.

That ended it for me. I have many investment opportunities available to me that promise equal or better returns than what this company was offering and it takes a lot less work to do my due diligence.

If you are a business looking for investors, here are some lessons for you from this experience:

  • Make sure your offer is clear. This company did okay talking about what they do and what my return was but they fell apart when talking about what structure the investment actually was.
  • Have dedicated fundraisers/investor relations people. When someone apologizes because they don’t normally make investor calls and are usually in the field, that’s sort of a red flag for me. I don’t mind that field people take the time to meet investors but in some cases (like when field people make cold calls) it smacks of desperation. At the very least, your investor relations people will at least have the skillset needed to raise funds.
  • Appear current: You don’t have to have the most cutting edge website but it should look like someone has touched it in the past 2-3 years.
  • Use a variety of distribution methods to get your information out there: There are many “platform-agnostic” ways of distributing information: On-page text, embedded video, PDF… just to name a few.

Investors want to invest money. That’s why they define themselves as investors. If you are a business who wants money from investors, you need to make it easy for investors to invest. Think of investors like customers — the easier you make it for a customer to buy, the more likely someone will buy from you.

Crowdinvesting: The next step after crowdfunding

When small business owners needed money to start and grow a business, they used to have three funding options: They could borrow against their own assets, could get a business loan or they could sell a portion of their business to family and friends.

Then the web opened up new possibilities with crowdfunding — a way for entrepreneurs to get their small business idea funded from angel investors. Kickstarter is one of the leaders in this space. With crowdfunding, angels would put money into an idea that they thought was cool or viable and when enough angels sent in money, the idea would be funded. In exchange for their funding, the angel would get the good feeling of having helped someone and they might get some kind of reward (like a mention on a website or a t-shirt or branded mug or something).

I really like the idea of crowdfunding a lot. It’s a way for entrepreneurs to get enough cash to start or grow. As an entrepreneur, I like that. But I’m also an investor and when I invest in businesses, I want to get a return for my money. Crowdfunding is cool but it doesn’t really provide a financial return.

Crowdinvesting is the next step: Once again, entrepreneurs present an idea and angel investors can fund that idea with cash… but now they get the potential of a financial return.

It’s an idea whose time has come! We have the technology and the payment systems and a ton of expertise available to people, plus I know many investors are looking for an alternative to the stock market and might see this as a viable opportunity.

One site that is pioneering crowdinvesting is ImpactCrowd. Here, investors can invest in 20 Euro segments to join a group of other investors and become partial owners in businesses. At this time, ImpactCrowd is pretty limited — they have a couple dozen ideas and only entrepreneurs from the Netherlands can post their idea and not all investors can participate (US-based investors cannot participate at this time but that should be changing shortly). But these things need to start somewhere and I’m glad to see it started.

I love the idea and I’m very excited about participating. In the interest of full disclosure, I’ll admit that there are bugs to work out of the system. But we’re on the verge of an exciting opportunity and I hope to see more crowdinvesting opportunities soon.

What are your thoughts? What opportunities and challenges do you see? Would you invest in a venture through a crowdinvesting site? Why or why not?

10 blog posts a private equity professional or venture capitalist should write

Blogging is a great way for private equity professional or venture capitalist to build search engine optimized traffic and connect with their target market. If you are a PE pro or a VC, here are 10 blog posts that you should write:

  1. Write about the specific niche of businesses you look at investing in. Make it clear what kinds of businesses in that niche you’re looking for (to help eliminate start-ups from contacting you that aren’t in your niche).
  2. Write about what it is that both parties need to bring to the table for a start-up to be successful. Set expectations about what the entrepreneur needs to have AND talk about what you bring to the table and why you’re not just cutting a check.
  3. Describe some of your success stories in detail. What were they like when they contacted you? How did you help? Where are they now?
  4. Blog about the economy and the marketplace because of their influence in whether or not a business might be successful.
  5. Write blog posts about competitive forces (i.e. Porter’s 5 Forces, etc.) and how a direct competitor isn’t the only competition a start-up faces.
  6. Describe the perfect presentation, including what an entrepreneur comes prepared to discuss, and some of the top mistakes you’ve seen presenters make.
  7. Start-ups have lots of questions about how it works and what you’ll expect from them. Answer one question per blog post.
  8. Discuss start-up failures and why they failed. (You don’t have to discuss your own failures! There are plenty of other failures that you can dissect).
  9. List some of the top issues, challenges, and problems that your start-up clients face. Write blog posts about the most common ones.
  10. Talk about what you do, specifically. For example, write a blog post about the role you play in board of directors meeting. Or, write a blog post about how you help an entrepreneur develop their strategy to take their business to the next level.

Angel investor articles: Valuing a start-up

aaronhoos_businesswriter_venturehype

I write for Venture Hype, an invitation-only resource blog for angel investors. Over the past couple of months they’ve published a series I’ve written about the challenges and strategies in valuing a start-up. The titles of the articles are…

  • How to Value a Start-up Part 1: Is it Unknowable?
  • How to Value a Start-up Part 2: Start with What You Have
  • How to Value a Start-up Part 3: Keeping Up With the Joneses
  • How to Value a Start-up Part 4: The 5 Years Out Concept
  • How to Value a Start-up Part 5: Anything You Can Do I Can Do Better
  • How to Value a Start-up Part 6 : Online Estimators
  • How to Value a Start-up Part 7: Simple Simon Met a Pieman
  • How to Value a Start-up Part 8: Weighty Issues

Obviously, this is just a start, NOT the complete picture. And, I don’t believe that it’s just for angel investors. Entrepreneurs can certainly benefit from knowing the value of their business!