Model Behavior
Abstract number sorcery won't cut it anymore. Investors want to know exactly how you're going to make money.
It was just two short years ago that a profound wake-up call hit
the capital markets. The numbers game of raising money had been
reluctantly redefined during the 60 months that spanned from the
first quarter of 1994 to the peak of the Nasdaq in first quarter of
2000. Fundamental valuations had given way to customer-driven
metrics such as industry share, volume and first-to-market
presence. Many on Wall Street hailed the arrival of the new
"new math." Peter Henig, writing in Red Herring, said,
"As long as there's dynamic growth, there are dynamic
stock prices." And the recommendation that came down from
Charles Crane of investment research firm Key Asset Management was,
"If you believe in these new statistics, then you have to buy
these stocks."
But today, huge opportunity and market share are no longer
enough to secure a funding deal for your growing firm. Raising
money has taken a turn back to the basics. And as company earnings
have come back in line with the mainstream, the real numbers game
for your deal is now focused on the most elementary component in
your enterprise: your business model.
"Our initial test of any investment has to do with the
validity and strength of the business model and how the management
team's core experience can be used in the execution of that
model," says Jeff Carmody, a bridge loan specialist with Santa
Barbara, California-based Agility Capital.
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"The period in time where money was raised from a flow
chart drawn on a cocktail napkin has, mercifully, passed,"
notes Jason Spievak, vice president of business development for
Callwave, a Santa Barbara, California, next-generation
software-based switching technology firm. "To be taken
seriously by investors today, an entrepreneur needs to have both
the long-term strategic vision as well as the practical focus on
operations. A real business model that can drive sustainable
revenues is a must because while there's more capital than ever
piled up in private equity funds, very little of it is available to
the dreamer or the get-rich-quick entrepreneur."
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