Ready Or Not? Before you start shaking the trees for investors, make sure you're prepared to catch them.

If the purest excitement in business is that rare, big-sky idea,then *CD (pronounced "star CD") has enough firepower tolight up even the most skeptical investor. The premise is simple:Allow consumers to immediately buy the music that's playing ontheir radio by dialing *CD on their cell phone. With one phonecall, the service identifies the song, artist's name and CDtitle--it even plays samples of other songs from the same CD. Ifyou like what you hear, you can buy it immediately by charging itto your cell phone bill or credit card.

It's this big idea that has George Searle, 35, and HumphreyChen, 31, working 14 hours a day building Berwyn,Pennsylvania-based ConneXus Corp., the developer of *CD. The ideaitself is more than enough to excite investors. But thepartners' pedigree adds even more appeal: Both have HarvardMBAs and wrote their business plan while in B-School.

Even so, the pair's initial pitch fell short with angelinvestors. On graduation day, 1996, the partners watched asclassmates left Harvard for six-figure jobs. Without funding,Searle returned with his wife and children to his family's farmin Indiana. Chen stayed on the East Coast, in West Orange, NewJersey, closer to the money that would eventually give life totheir dream.

After tweaking their business plan, the pair worked a contact atHarvard into a meeting with Burr, Egan, Deleage & Co., thelarge Boston-based venture capital firm. The million dollars thepartners sought was hardly worth the firm's bother. But thepower of the idea, coupled with Searle and Chen's earnestness,convinced the firm to take a leap.

The initial equity injection was enough for the partners tosecure a venture lease on the computers and technology needed topull off their *CD concept. A second round of venture capital hassince been poured into the business, which now counts giant ComcastCellular as a strategic partner. Plans call for *CD to be rolledout in major metropolitan markets nationwide by year-end.

But the money-raising hasn't ended. In fact, it's juststarted. "It takes constant work to attract the capitalrequired for a national launch," says Searle. "We'realways refining ourselves and how we present the opportunity inorder to find partners willing to fund our growth."

For companies like ConneXus, raising money from venturecapitalists, or, for that matter, from angels and investmentbankers, generally happens in four steps: identifying prospects,preparing to contact them, contacting them and closing them.According to Paul Rosenbaum, a managing partner with CEO-mentoringand capital-assistance firm Wayland Partners in Wayland,Massachusetts, and a former general partner of American Researchand Development, one of the country's first venture capitalfirms, "What frequently goes wrong in the process isentrepreneurs jump from step one to step three." Withoutproper groundwork, he says, their efforts are often for naught.What follows is a primer on getting everything ready to begindialing for dollars.

1. Sharpen your focus. First and foremost, you must setyour sights on finding what is called a lead investor. Whenyou're raising money, you can find lots of investors willing toparticipate for small amounts of your deal. That will ultimatelyprove troublesome, however, because each investor will demanddifferent terms and conditions, and in the end, the entire effortmay consume more time than it's worth. By contrast, a leadinvestor is a marquee venture firm, investment banker or angelinvestor that's willing to kick in from 25 to 100 percent ofthe raise, i.e. real money, and that, by its very presence in thedeal, gets all the fence-sitters and small fry to come in as well.When you're raising money, you must focus on finding your leadinvestor to the exclusion of any others.

2. Form an advisory board. A good strategy for tappinginto the right vein of investors is to form an advisory board thatcontains industry or financial luminaries. Not sure where to look?Contact the executive director of your trade association, and askhim or her who might be willing candidates to advise and counselyour company through a critical period of growth and expansion.

Advisory boards can be toothless entities, or they can beextremely helpful to a company's development. One way to makethem work better is to pay your advisory board members a fee forattending quarterly meetings. Once you've got them payingattention in a constructive manner, you'll find it's a verynatural process for them to check their Rolodexes when you bring upthe subject of raising money.

3. Secure legal counsel. The act of raising money almostalways brings securities laws into play, which means you'llrequire the help of a lawyer. Hire one early in the process becausehe or she can help make introductions to the sources of capital youseek.

In fact, if you're a hotshot technology or Internet company,some law firms will actually defer their fees until funds areraised, further increasing the likelihood that your attorney willlead you to investors. In the case of Searle and Chen, the partnerswere fortunate enough to be chosen for a special program operatedby Boston-based legal powerhouse Testa Hurwitz & Thibeault LLP.The firm agreed to defer its fees until funding was found for *CD."They provided us with invaluable legal and business adviceup-front for the opportunity to represent us in the future as wegrow," says Searle.

4. Figure out your sizzle. Before you speak withinvestors on the phone or in person, you've got to figure outhow to describe your company in a way that will make it stick intheir minds. According to Rosenbaum, entrepreneurs are often caughtoff guard when investors ask what the company does, so they droneon for three minutes about technology or market trends, and justthat fast, they've lost the investor forever.

What does Searle say? "We went through a time when we wouldtrip over how to explain our technology. Then we realized that ifwe simply explained the consumer benefit of our service, investorsunderstood immediately. Now we just say

• CD lets you immediately buy the music you're hearing on theradio by picking up your cell phone and dialing *CD," saysSearle. "If an investor wants to know all the details of thetechnology, we'll share it with them. But it's not part ofour elevator talk."

5. Write a business plan and business-plan summary. Youmust have a business plan and business-plan summary readybefore you call any investors. "If your initial call is at allsuccessful," Rosenbaum says, "the investor will ask youto send him or her a plan." He adds that your fund-raisingefforts will almost certainly fail if you keep investors waitingeight weeks while you feverishly write the plan. In fact, when aninvestor requests more information, it's got to be there thenext day--at the latest.

Another reason you must have a business plan before you talk toinvestors is that you can't possibly hope to answer the kindsof questions they're going to ask until you've been throughthe exercise of writing a plan. Remember, most investors don'tread business plans cover to cover, nor do they invest money on thebasis of reading business plans alone. They invest, Rosenbaum says,after they've been formally and personally presented with thecompany and opportunity. Therefore, your business plan, hardly aliterary document, is more accurately the blueprint for presentingyour company and your deal to investors.

A final tip about business plans from Rosenbaum: Never send acopy of the entire plan out after the first conversation, even ifthe investor asks for it. Send the executive summary instead. Thenfollow up. If the investor is interested, make sending out the fullplan contingent upon meeting face to face. And finally, ifpossible, break out of the 8.5-by-11-inch box and send a productsample along with your plan or summary. Paper gets buried; samplesget examined.

6. Line up references. Who can vouch for your character?Former employment? Products or services? The time to find out isbefore you contact investors, not after. The reason is simple: If,during your initial conversation, the investor asks to speak withcustomers or other references, you want to be able to spit outnames and numbers right away, not say "I'll get back toyou." You may be able to get the references sure enough, butthe question is, Will you be able to get the investor back on thetelephone again?

7. Get warm-body introductions. Raising money privatelyis probably dependent as much on personal relationships as it is onthe underlying economics of the deal. As a result, you mightidentify a list of likely investors, but before you try to contactany of them, you need to work at getting some kind, any kind, ofintroduction. This personal introduction will lower their guardlong enough for them to hear out your pitch. Again, here'swhere advisory boards and the professionals you've retained canrender invaluable assistance. For *CD, the introduction came from aHarvard professor with an in at a venture capital firm. Obviously,you can't get the Good Housekeeping seal of approval for everyinvestor, but some kind of introduction, no matter how distant,will dramatically increase your ability to get through to thepeople with money.

None of these strategies will by itself win the day, saysRosenbaum. But falling short on any one of them could very easilylose the day. "All your efforts must be focused on moving theprocess forward," he says. "If you're being reactive,you're probably not on the right track."

David R. Evanson's newest book about raising capital iscalled Where to Go When the Bank Says No: Alternatives forFinancing Your Business (Bloomberg Press). Call (800) 233-4830for ordering information. He is a principal of FinancialCommunications Associates in Ardmore, Pennsylvania.ArtBeroff, a principal of Beroff Associates in Howard Beach, New York,helps companies raise capital and go public.

Contact Source

• CD, (610) 578-0802, http://www.starcd.com