Segment 11 - Achieve Big Dreams with Investor Cash
Do you think that raising money from investors is the impossible dream? It's not you know here it creative live we specialize in turning your impossible dreams into urine wonderful new reality what's coming up today raising money from venture capital funds angel investment clubs we're going to cover the new rules on crowdfunding and we're even going to give you tips on how to get money from that wealthy individual that lives around the corner and get that person to invest in your business. So what are your big dreams? Would you like to start a restaurant that maybe you can you know, create more and more of those chains all across america? Maybe now is the time that you really start your own fashion label are you tired of building everybody else's websites but you have an idea in the back of your mind on what you can create perhaps the best new coolest social media platform out there this is your opportunity to take your big dreams and make it your big reality and it's going to be fun a...
nd it's going to be easy and we're going to take all the intimidation out of asking and presenting your big idea to people who can write big checks what could be better than that? Right? I think so so let's tie them a little bit of background on may I come from the venture of finance community venture capital and buyout so a lot of the things that we're going to be talking today is I'm giving you the insider's perspective ofthe what investors think about what we worry about and how we lose money when we lose money it means you've lost money I'm going to jump back to a slide that we covered in a prior section debt and equity and the operating cash flow that comes from your own customers segments that are coming up all about equity getting cash for your business remember our mantra we are becoming super shoppers for cash we want the best deal possible at all times, but it's never won kind of financing that willpower your company from startup to expansion and even up until the time you sell your company it's usually a mix of a little bit of debt and perhaps a little bit of equity it's all about the timing of when you goose your business and power it up with extra cash to fuel growth. This is the hot topic investors I love it because they as I just said can write big big checks so you're bigger dreams can become possible equity capital what are we really diving into and what are the things I know are most on your own line it's actually bullet point number three usually we don't have the confidence in ourselves or we worry well maybe our business really isn't, you know that worth it for investors to come in and I'm saying here have confidence in yourself I believe in you I believe in your capabilities don't let that issue your own mindset be the reason that you don't explore and take those steps forward you might get a yes you probably will get a yes especially if you follow some of the action steps and information that we're going to be covering into segments um coming up would you rather own here is a great question for our audience and for everyone here a business that generates one million dollars in annual revenues or a business that is worth a million dollars how about what comes to mind first what do you think you're smiling? I think that a business that generates a million in annual revenue is gonna be worth more than a million okay, so you're gone with your taking the million dollar revenue generating business what do you think, adam? Which would you pick? I will take the latter a million bucks worth a million bucks worth a million dollars andrea I'd have to say the revenues okay? It's actually trick question it's not as black or white is that it is possible and I worked on projects with companies as much as thirty million dollars in revenues a distributor business and I was brought in to help turn around that company wasn't even worth five hundred thousand dollars other things matter more in creating business value you can also have a business with absolutely no revenues and no customers and no customers no revenues and not even a finished product happens all the time in the biotech community right but that company could be worth millions of dollars so it says to you it's not just about revenues that creates business value some other characteristics of your business plus where you want to go influencing influences what investors are willing to write checks for and ultimately what boost the value of our business so that someday in the future somebody writes you an eye popping monster big jack to buy your business we're gonna be covering those issues what is equity? A lot of times people think investors but I'd use the word equity a lot now it's a tricky word because it matters so much on the context it's being used for most of these sessions were going to be talking about your company and it's worth the equity value of your business their accounting terms related to it it could be assets minus liabilities these equals networth but even that that rigorous statement doesn't necessarily you can have a company with a net worth of again for accounting and financial terms of same million but actually investors are valuing that business at much much higher race we're also going to be talking about the equity value of the business and your own ownership of it that's what equity means what you own and what it's worth here's another way to think about value this is kind of like the dream here I love it when you don't invest too much of your own cash in your own savings in a business but over time that equity value what your company is worth grows doubles triples quadruples over time and unfortunately I work with business owners that may have worked in their businesses for ten, fifteen, twenty years and they assume just because they were working at it that long or have put in a lot of dollars into that business that it always will be worth that and it's a sobering thing when they say no when they're ready to sell that business it's not worth what they think it should be worth and what do I hear a tw that moment I wish I had known I wish I had known you back then when I started the company I wish I had known better so the great thing is everyone here and everyone in the creative live audience will know better that's the high price of life right? Yeah equity yesterday I briefly said that startups and prospering businesses in the united states have and generate on average net words that have three times their salaried counterparts prosperous business owners especially women and minorities earn higher average annual incomes how is this possible and it comes from equity usually equity has the potential to create millionaires and billionaires now should that be your only goal in life? No, you know it's great to start a business with five thousand dollars and make it worth five hundred thousand that is uber success, but it does have this potential to create millionaires and billionaires and you can do it. Forbes has a list every year of the four hundred riches americans, more than half of those members trust fund babies business founders they have started with nothing and built something big. So this morning drive my hair con air that was started by a harris hairdresser. I had an idea of how to make it easy paste salsa billionaire pay salsa sometimes it's just the little things, the little ideas of the little op opportunities that over time build huge value there. No rocket scientists on the four hundred list sometimes it's just what you know consumers love that creates that value if you've just got a pink slip or lost your job the founders of home depot started up after the horrible firing from a corporate business. Same thing with bloomberg you never know what's possible how about actors out there? Ty warner, former actor started beanie babies so whatever your dream, it could be more possible and it doesn't have to necessarily be so complex equity the u s tax code makes it even easier for you to become a millionaire a billionaire through business ownership why some of that slide with the growing amounts of dollars? Well, if you have an equity stake in the business that can grow over time unless you're taking out dividends for the most part you don't have to pay income taxes on that growing value of your business up until the time you sell it. Wow, that is one terrific way to build your network and the capital gain is about half the raid as ordinary income half the rate. So if you're making a big big salary, you may be paying thirty nine percent on that sour god bless you that's great that's a great accomplishment, but through business ownership, the u s tax code favors business owners because the capital gains tax right which just was raised at the top rate is on ly eight point eight percent so you get a bigger bang for the investment and the hard work and building the value of your business never had it looked at this way right looking kind of stunned, okay let's start thinking about who investors are they're not all the same and this is the starting point of frustration. Most people they'll go toe one investor and get a no, but we're shoppers and it's good shopping is really targeting what you want to what investors love, what they love to write checks for so if the startup stage the most, most companies may get an equity investment from your own savings and maybe your friends and family members and as your company and your ideas progress a little bed to the seed stage who's your best funding match at that level angel investors, which are just wealthy individuals seed stage venture capital funds little bit we're going to be talking about which venture capital funds across the united states love to invest in just start up companies, young young companies as your company progresses, gets more customers, completes product development there's a different crowd of venture capital funds that just love that they want a little bit of more proof that your product works or customers love you they're also willing to write bigger checks per round roughly three million to twenty million dollars per round. They may invest with other venture capital funds that again love to invest in early stage companies and then as we grow further there's another crop of investors world I come out of private equity funds that made by one hundred percent of your business where thirty percent of your business and a lot of these funds want to keep you involved in that business, but they're going to give you even more firepower in their cash to build even bigger those air called private equity funds. Sometimes they're called expansion stage venture capital funds and corporations sometimes your best funding fit is a company were you represents strategic value shared strategic value and I would say coming out of the recession I'm seymour corporations investing in earlier stage companies because after years of cutting, cutting, cutting jobs, cutting expenses there now at the point of oh my gosh we've now got to grow what are we going to do next and corporations recognize who are the inventors who are the innovators who are the creative people that can also build products faster get things to market its entrepreneurial companies known unnecessarily big corporations with all their meetings and road blocks and g I don't think you can do that entrepreneurs are can dio people they get it done corporations want to partner with you so just right here you have a sense if somebody only invest in expansion stage companies and you're over here, you don't ask them for money don't bother to send them a business plan but it happens all the time most nose in angel investment clubs or venture capital funds start out and you can tell from the first page of your executive summary that you were not a good funding fit so why do people keep sending you know their plan, their idea, their concept to the wrong group usually they know it but they think their opportunity is so cool so revolutionary that the funds will make an exception uh, still I know they have the money and I'm going to make money for you you make an exception yem over here but I'm worth it well here's the thing they can't change what they're allowed to invest in because they have their own investors. So when funds venture capital funds air created, they have to tell their own investors the profile of how they're going to use fear cash and they will lose their jobs if they do too much were any of those exceptions they can't no matter how much they may love and respect what you d'oh if you're out of this zone, if you don't have a good match just in the stages a business development you're going to get to know again we're shopping so would I go to nordstrom's if I want to buy a pair of flippers now that's the same thing so good shoppers know where they're most likely going to find what they're looking for makes sense we can do that we just match up where we are and this is not just for today I want you to think big I want you to feel confident that at every stage of business development there are lending sources for may and there are equity sources for may because remember where the mixologists right? We shop for cash for what we want on the best deal terms possible and we're getting better and better at that right now I haven't audience question here and for here I'm doing a shout out I want to know what everybody thinks is all the horrible awful nasty things that investors it could be a venture capital fund it could be an angel investor what can they do to you? What are they known for doing let's hear it I want to hear the worst what is your impression? Fire the founder high on the list I get that all the time yes do the investors fire you? No, the board of directors fires you yes that is jack nasty thing I want to hear more they take control of the company and they do what they change your creative vision each of you have an idea a vision of how you want to serve customers who are they to know better they're just money people right? They don't get it right what else can they do wrong? What else can they do to you? You've hit on the popular one so far the exclamation point letters I kept you how susan I want this they won't do that. What else can they dio undermine? Your value are overvalued their money so overvalued their money in under it can kind of jam down, cram down all the hard work they don't get the value of which you've already put into the business s and they're overestimating the cash value of what's coming into yours is that right? Is that the good way to say what else I think there's something in there yeah, I've seen them just put their their total of their homes own staff into the company so they wiped everybody out not just the founder right? When did they do this? But you're out what about a year out after year they're coming in and plowing everybody out ok but why with all this pain and I still the cheerleader for going out and getting investors you as well at home definitely let us know your ideas one of the awful things investors can do to your company what's your perception of this we definitely want to have music please contribute anything come in yeah, yeah we're still waiting but let's let's hear your ideas do I look like a sane person? Oh my gosh I don't know if I can talk to them anymore I'm still upbeat and cheerful the's air pretty nasty things but calling vulture capitalists for nothing voluntary so I am a vulture I'ma wrap turn now you know, because I come from that world ok, what else? What are some of those other horrible things that they can do to you the poor entrepreneurs, the hard workers, the ones who stay up all night working, working, working those air enough you know is that what you're saying? Almost your side, huh? I'm on your side big damage, your reputation and the rest of the investment community, right? They can even wreck your brand, right? What else are we here and so far? Photo mark in florida and he's just timing in a list of things here he's afraid of changing policies he's afraid of somebody giving the funds and pulling them away? I think it's it sounds like they're just afraid so he says that they don't know the cust her base the way that I know my own customer base, I think is just trying to make that connection being afraid that they don't see the same things that you're seeing. Who are they to tell me? The founder and the creator how to build my business just because they write a check should not give them any power over my creative dream did we cover all the top things here on my list? They will fire me control my business one thing we didn't hit usually get they will steal my ideas and run off and do it without me it will can't change my career they won't give me more money when I want more money rats sometimes so by your company just for your your customer base, it has nothing to do with you or the product anything all right but if it's a big check which you take that check you bet I would thank you yes that's what we're here for I love creating value creating cash and then getting a big check at the end so that's not so bad right it take away that pain right? They will lowball my company's value we hit all the big guys right in this room another one from curio so curious is saying that they can often change their change your budgets to favor their vision and their networking partners scary one it's taking control and you've worked so hard to get your company to a fungible position and convince them to write a check and then look at all this pain now interestingly, we are you with us for our pre show this morning we actually have adam do a pitch on chris and I sort of took susan's role and are some of the questions that an investor would ask now at a newer offering ten percent of your company you felt comfortable that would give you enough control? What if they come back and said, well, no way fifty percent would you have said, you know what? That's not right or do you feel about getting the funding was more important in mind? I think akash official would help and don't give up control fifty percent of scylla partner so more cash for more I could it would be fine with me. Okay? I'm going to give everybody a big teaser in an upcoming segment I'm going to give everybody the strategies on how to maintain control even if you sell off fifty one percent of your business it's not now you got to stay with us. I hadn't hear enough about this. They are greedy people greedy, nasty people. All they care about is making lots of money. Now we do live in a capitalist country, right? We revere that but greedy I'm not greedy because I want to build the value my business but they're greedy because they want to build the value of their cash. Okay, let's see what greedy really means? What do investors expect to make on their money? The rate of return we get into the meat early in these segments the really fun stuff. Okay? Investors will say what we ask for is a function of risk and reward and I'm sure everybody's heard that. But what does it really mean in dollar terms? And what is the investor especially individual investors? What choices do they have with deploying their money now? Generally lower risk investments are just putting money in a cd very low rates to return these days. Minuscule rates to return lowest in low interest rate environment but low risk fbi c insured bank accounts you're not making much, but you're pretty much guaranteed that you're not going to lose all your principal or even part of your principal you move up the kind of food chain treasury notes, t bills and so forth general again low interest rate environment for partially tax free instrument one point seventy two point eight I updated this a couple days ago publicly traded stocks relatively safe most you know, a good portion of thie standard and poor's five hundred a basket of five hundred large capitalization stocks historically over the last decades typically returns between six percent and eleven percent it's moving up the risk level because you can lose your principal, you might learn a little bit of dividends, but there is more risk but there's greater reward now, in the last two years, the s and p five hundred has been awesome. You have money in an s and p mutual fund and you made over thirty percent on your money last year smoke in here a couple years ago you lost capital right same thing with other indices like the wilshire three thousand, where other indices that usually include smaller companies they're all publicly traded the advantage of being of putting your money in a publicly traded company. Now we know like facebook's public now google's public, highly entrepreneurial companies but they're publicly traded, which means that I can invest in apple today and I can sell that same share allotment a month from now and that's a liquid investment whenever I want that cash back, hopefully the cash is a little bit more than when I put in, but it could be less, but I can get my money back very fast, right? Sell it the cash is back into my trading account. Not so with investments in the company's represented here today you are called privately held companies. Private investors own the entity, which means asking angels and the seas to invest in your company, and you could even do it through crowdfunding sites, which we're going to spend some time on later. It means when they want their cash back, they can't necessarily call you up and say, hey, by the way, I want my fifty thousand back because chances are you're not going to have fifty thousand dollars back to get back to your investors and the real deal in america for the lion's share of privately held companies highly entrepreneurial companies is you won't get your money back and your investors won't get their money back until you sell your company to another company, usually a larger company, you may go public, but you're probably going to sell to somebody else, and the great thing about investors who love this space is they're willing to give you time they know it's an ill liquid investment, but we're going to give you five to seven years to return the capital you've got a lot of leeway to perform, but for that illiquidity it's higher risk to them they want to be compensated for that risk and there's higher risk investing in companies that may not yet have customers may not yet have prada, so you are different than putting investors putting cash in apple stock should they be compensated for that extra risk if they're not, they're not very smart investors, so private equity we're going to be going into more than numbers in general, they're expecting a minimum return of thirty percent to forty percent to compensate them for illiquidity, high risk and let's face it a lot of companies dio tank that's the cost of their capital that's their thinking, but I want you to think about that too. I hate it when I work with entrepreneurs that write big checks, especially older entrepreneurs that have their own savings that they plow into their companies and they're not thinking that they're worth anything more than these measly returns they don't expect their company to deliver that kind of return you should be driving for those level returns doubling, tripling whatever you pit in to your business it better come back being ah whole lot more because you are incurring the same risk yourselves if you were taking ten thousand dollars out of the s and p five hundred index fund of vanguard, for example, and putting it in a your company which we know will be successful, but I want you to classifies success as a benchmark is not just serving more customers or the typical mind said growing revenue. You know, if you invest one thousand dollars in your business, you are a investor, you're just like them think like them, it will change the strategies on how you choose, what products your customers and how you build that value of your business. You are a business investor think like one when you start to think like a business investor, the earlier you start doing it what I've observed in eight years of research of why start ups, including startups that have been funded by venture capital funds and angel investment clubs. When entrepreneurs think like investors earlier in the game, they tend to do better and we're getting any comments from the the troops out in the field. Yeah, people have sort of got the discussion going about the differences, some of their experience, perhaps of that they've had, and I think some of this is just coming in a complete revelation because because they're not his experience, they haven't gone out yet to find the funding to confront him if that's the right word investors I think that they're really somewhat alarmed by the advice that you're giving us some of the pits secret number one if you want investor capital present yourself like an investor yourself secret number one so if if what I did is I took my savings and put it into my company in a really haphazard way how do you change that teo to be an investment as equity in your company after you've just been well, the fact that you invested and put wrote a check already and because you didn't create a promissory note thie assumption now is you have invested it as equity already, so if you add up all those checks that you've covered or whatever whatever that total is that is your cost basis your equity investment in your company you've already done it. You already are an investor in your own business besides switching it as a mind set does it switch in your paperwork and how you know you've already done iti but here's why I'm bringing this up? Most people don't think of it that way. Most people most entrepreneurs say I'm I'm just an entrepreneur I'm going to fund it for whatever it needs and that kind of mentality works against you because you keep doing that you keep doing it and the value discussion of we wantto by in low to potentially selling high is never part of your mix so secret number one we're changing so much of what I teach is not finance its mindset, it's, confidence, it's encouragement, it's reinventing what you think about funding your business that's kind of what we're doing here. I'm kind of well, you know, changing it up a bit, right, something that we haven't talked directly about regarding equity. What about if you put in time hours, how do you calculate that? Okay, that's called sweat equity sweat equity and I put a big value on it there's not a big cash value, but as we're going to be going into pretty deep pretty soon you khun best next to nothing in a business, but yet is value starts growing your sweat equity? You get a return if you're smart about how what you picked toe work on that builds the value of your business that is the super duper high prize of life because you put in no cash, you have no cash, a rescue of your time, but you've increase the value of your business so that it is a saleable asset or something worth investors putting in money at a higher business valuation.
50 Questions Investors Ask Entrepreneurs.pdf
Sample Angel Investment Clubs.pdf
Start On Purpose - Brand Equity.pdf
Action Steps to Perfect Your Executive Summary.pdf
Susan Schreter is a veteran of the venture finance community with expertise in the life cycle of financing companies from startup to sale. She is an MBA-level educator, expert on the factors that influence startup success or failure, and popular
Susan is an amazing woman! I am so grateful for the information she has provided in this class. Without her I don't know where we would end up. She has opened so many new doors of opportunity for our business. I am beyond happy with this course and highly recommend it to everyone in business who wants more information on the various types of financing. She has certainly given us so much to work with and it will definitely make a difference to our business and our future. Thank you so much for this wonderful course and I look forward to seeing more from Susan in the future!