The appointment of Steven W. Pasko as the chief executive of VentureHighway.com represents the changing of the guard in entrepreneurial finance. Pasko has spent a 20-year career with some of the leading firms in finance, including powerhouse Deutsche Banc Alex. Brown, a high-tech worldwide investment bank.
Now Pasko has gone digital at VentureHighway.com, where entrepreneurs looking for capital can meet with angel investors, corporations and traditional venture capitalists looking for deals. "Historically," says Pasko, "one of the great challenges of raising capital privately was inefficiency. There was no way to get the word out that you had a deal. An entrepreneur's ability to raise the money was tied to his or her ability to network."
With the Internet explosion, all that's changed. VentureHighway.com, for instance, has some 1,500 accredited investors entrepreneurs can reach through a simple registration process and a small processing fee. Once a deal is posted on the site, investors can access a summary of the company, and if they're interested, authorize VentureHighway.com to release contact details to the entrepreneur. En-trepreneurs get warm leads via e-mail without ever taking their eyes off running their companies.
Pasko admits, however, that the more things change, the more they stay the same. "You can find investors more easily these days," he says, "but the time-honored tradition of closing a deal by pitching the investors live and in person remains." He adds that entrepreneurs who have mastered this skill are still the winners when it comes to raising money, while those who have a fear of flying may be forced to run their companies a little leaner.
Below, Pasko points out the most common presentation gaffes that stand between entrepreneurs and the capital they need to grow their businesses:
Poor timing. "Entrepreneurs generally say too much or too little. Unfortunately, either extreme can kill a deal," says Pasko. If you bore your investors to tears, your presentation is far too long and indicates to the savvy investor that you are unsophisticated when it comes to the rules of engagement. It also tells your audience you have doubts as to what information is critical and what is simply fluff. On the other hand, you'll give investors the impression that you're unwilling to share important information if your presentation doesn't go on long enough. You want your presentation to last about 20 minutes-unless, of course, your company is sure to be the next Microsoft, in which case you can tack on an extra five minutes.
Live demonstrations. These are almost always failures, particularly for technology-based products that rely on a PC, a laptop or a network. Murphy's Law has a funny way of creeping into investor presentations. And if your demonstration does go wrong when you're pitching your deal, it may kill your prospects for raising capital on the spot.
You should save live demonstrations for a later date. "If an investor made some investment of time and formed some sort of emotional tie to the company, no matter how slight, he or she is more likely to overcome a momentary twitch in the technology," says Pasko.
Your best bet is to use videotape for perfect demonstrations every time.
Suspect numbers. It's not uncommon for entrepreneurs to sport a set of financial statements which, on further examination, actually indicate a loss. Aggressive revenue-recognition policies, unrealistic reserves for returns or bad debts, the presence of deferred expenses or overzealous capitalization of expenditures can turn apparent profits into losses. Don't think you can slip these numbers by investors. Says Pasko, "When the slides start showing outlandish numbers, investors start leaving the room."
Technology overexplanation. What many entrepreneurs forget, especially those who are also scientists or engineers, is that technical details of companies' products or services are important only inasmuch as they deliver competitive advantages, open new markets or change the balance of power in an existing market. To the average investor, technology in and of itself just isn't that important-or exciting. "If you focus on mips and bips, you'll lose your audience," says Pasko. "And once you lose investors' attention, it can be hard to get it back." It almost goes without saying that if you can't get investors' interest back, you'll never get them to reach for their checkbooks. Spend no more than three to five minutes discussing technology. Any more time spent on science is less time devoted to selling the deal.
Poor attitude. You can't afford to make the mistake of confusing equity investors with bankers. While bankers might tolerate fractious borrowers-if they can pay back a loan, hey, they can pay back a loan-equity investors are more akin to partners. And partners want to have their say, not be ignored. "An engaging, congenial entrepreneur will be far more successful than one who is perceived to be rude, condescending or unhelpful," points out Pasko. After all, you can draw more flies with honey than you can with vinegar.
Poor response to questions. "The question-and-answer session is generally the most important part of the presentation," says Pasko. The truth is, in the same way you can train a monkey to do just about anything, you can train an entrepreneur to make pitches.
Of course, investors know this, so they rely on the Q&A portion of presentations to take full measure of entrepreneurs. How quick are they on their feet? Can they dance? Are they engaging, and can they sell? After all, the equity investor's payday only comes if the company gets sold to another company or goes public. And the only way either of those events will occur is if the entrepreneurs have sales skills.
A common mistake during the Q&A period is to act like questions are stupid. The fact of the matter is, despite what your teacher told you, many questions are stupid-but it's certainly not in your best interest to tell an investor so. "Respond to every question as if it's reasonable," counsels Pasko. "That way you won't alienate anyone in the room."
Answers full of techno mumbo jumbo also cause problems. "They make you look like you're trying to hide something," says Pasko.
Raising Money 101 says: When you get a question from the audience, repeat the question; for example, "The gentleman in the front has asked whether or not our processes are patentable; is that right?" Also, after answering the question, focus on the investor again and say, "Does that answer your question?"
Inappropriate audiovisual support. "Unless you have a tremendous speaking presence, and are able to catch and hold an audience's attention for better than a quarter of an hour, it's generally a very bad idea to have no visual support," says Pasko. With so much information pumped into such a small time slot, investors who get distracted can lose the context of the speaker's remarks; therefore, it's important to have a visual outline.
A presentation, accompanied by about 10 to 15 slides, overheads or handouts that emphasize the speaker's key points and give listeners a constant frame of reference, tends to be the most effective. Be careful not to overdo it, and try to tell the story on the slides. Think of the slides as billboards that carry just the key messages (see "Next Step").
As for video presentations, "Running a corporate video [such as the kind shown to new employees] for more than five minutes can be a negative because it gives investors the impression that management is trying to hide something, or, worse yet, has no clue what to say," according to Pasko.
The old adage is yes comes fast, and no takes forever. While this
is typically true when raising capital, there are those in the
investment community who will test the mettle of business owners by
seeing how long it takes them to follow up. If there is no attempt
to make contact after the presentation, even out of courtesy, many
investors get turned off. A common rule of thumb is to follow up
three times, and if there's no response, mentally write the
Unless the investor cancels a check on you, never let on that you're frustrated they didn't bite. The truth is, raising money can take a long, long time, and problems that turned investors off during the first go-around can work themselves out during the fund-raising process: products become fully developed, sales go up, management is more fleshed-out. "Keep in touch with the contacts you made early on because at some point they may become fertile ground for raising capital," Pasko counsels. "You may just find that you have to deliver your 20-minute pitch to them once again."
David R. Evanson's newest book about raising capital is called Where to Go When the Bank Says No: Alternatives for Financing Your Business(Bloomberg Press). Call (800) 233-4830 for ordering information. Art Beroff, a principal of Beroff Associates in Howard Beach, New York, helps companies raise capital and go public and is a member of the National Advisory Committee for the SBA.