The questions included within each category should provide some visibility into the concerns on which an institutional investor focuses, for pre and/or post Angel early-stage opportunities.
As time is limited, the client will be asked to define clearly the scope of the engagement desired through the program. This will include one or more of the following services. It will not be possible to address all listed services within the time frame of the InSITE program.
- Overall Business Review
- Business Plan and Executive Summary Analysis
- Business Model Analysis
- Pitch/Presentation enhancement and Story Practice
- Management Review & Recommendations
- Strategic Analysis (timing, competition & alternatives)
- Deal Analysis (including valuation potential)
Overall Business Review
Often entrepreneurs have developed excellent business ideas, or technological breakthroughs, but have not identified a business model that effectively markets the concepts and can create a true business opportunity for the future. InSITE fellows will help brainstorm business concepts and develop appropriate business applications for technologies or concepts that provide good potential for revenues and an eventual positive cash flow, with reasonable targets and expectations.
Business Plan and Executive Summary Analysis
Based on the group feedback from the initial screening of the plans and the pitch, this is a critical point where InSITE can add immediate value for the client. The objective of this component of the process is to identify strengths and weaknesses in the documents themselves and recommend editorial or structural changes that will increase the effectiveness of the business plan as an accurate representation of the business' goals and objectives and as a marketing tool that will provoke interest from qualified funding sources.
InSITE will ensure that the plan goes beyond simply asking for funding by ensuring that the plan:
- Effectively describes the business in terms of its objectives and goals;
- Articulates in a clear and simple manner the various sources of revenues and profits;
- Explains the nature of demand for the business' products and services; and,
- Focuses on the experiences and unique qualities of management.
Business Model Analysis
If a plan is well written, the VC will ask for details on the model. The model must incorporate a complete view of both hard (COGS, SG&A, operating leases, patent filing expenses, etc) and soft costs (accounting services performed by a seed stage incubator, gratis legal support, free office space or services provided by other company or individual, etc). If there are expenses that are not mentioned or obscured, the VC will find them sooner or later and it will reflect poorly on management. Where costs are estimated, there should be some means (even anecdotal evidence) of justifying the number. Most importantly the model should lead to a realistic opportunity for positive cash flow in the foreseeable future. Furthermore, this should be accompanied with sensitivity calculations demonstrating the results of lesser performance.
An InSITE engagement will aid the entrepreneur in establishing that
- the economics of the business are fundamentally sound,
- expenses are under control, and
- the venture has the potential to capture a sizeable share of a significant, growing and accessible market.
Pitch/Presentation enhancement and Story Practice
The pitch should be clear and concise. In addition to the slides, management should be able to produce additional backup material including the sources that they cite within the presentation. The speaker should avoid being either overly formal or over familiar. Often times an investor will not be able to listen to an entire presentation regardless of its quality. Ensure that the initial overview tells the story well, in case the investor cuts a presentation short. Get to the point and know the audience. If they are experts in the field, too much background will bore them.
By working with InSITE on this critical piece of the funding puzzle, entrepreneurs can be confident that
- The pitch tells the story in a complimentary way while providing the information that sophisticated investors demand;
- Investors will understand exactly what the company does and how they earn profits; and,
- Given two minutes or even less time the message will come across in a manner that reflects well on the business and management.
Management Review & Recommendations
Most institutional investors bet on the jockey rather than the horse. If there is anything undesirable about the management team or holes therein, most Investors will not do the deal regardless of the economics unless they have enough control to replace the managers in question. Reputation and track record are at the heart of the investment decision.
InSITE services can help you to establish and communicate that
- the team has the composition that VCs look for;
- management is aware of its the strengths and weaknesses; and,
- the team is ready for an institutional investor.
Strategic Analysis (timing, competition & alternatives)
Be alert to ideas that sound too good to be true. They almost always are. Similarly a good idea from the past is not necessarily valid today due to changes in technology, markets, and the competitive landscape. InSITE fellows can help provide a strategic analysis of the business and assist in developing a position that can avoid current pitfalls.
InSITE will help the emerging enterprise to answer the following questions:
- Is this plan or model dated?
- Is there another model that has emerged that may be more appropriate to the company?
- Is there hard data on the market dynamics or is it "gut feeling" driving the opportunity?
Deal Analysis (including valuation potential)
Terms are always subject to negotiation. If however there is too much complexity, most investors will be wary of the possibility for fraud, misrepresentation, or increased risk. Unless the entrepreneur has a track record that includes pulling off complex deals, keep it simple and be flexible. Investors do not want to invest a disproportionate amount of time in analyzing the proposed deal, and many partnerships are governed by covenants that restrict the types of deals in which they can invest or the amount of capital that they can allocate. Entrepreneurs that fear over-dilution must consider the economy and the value of having funds--it is better to fund growth than to avoid dilution.
InSITE fellows have led venture backed companies and participated in the fundraising process. They can provide professional feedback on critical strategic questions:
- Is the funding being sought at a reasonable valuation?
- Does the opportunity and cost structure of the company meet the needs of an institutional equity investor bound by a time-limited LP structure?
- Is this a venture-fundable business? (as opposed to a good or bad business)
In short, to the qualified early-stage entrepreneurial organization, InSITE is prepared to add the critical value and experience that businesses need to survive and thrive in a challenging funding environment. In addition to the obvious benefits, companies will have access to the body of experience that the InSITE fellowship has to offer.