By Paul BozzoIn October, Santa Rosa hosted the 7th North Bay Growth and Innovation Forum, an event showcasing business executives, angel and venture capital investors and founders of emerging and fast-growth companies.This past year has been a tough one for companies seeking funding to jumpstart their ideas.The marked decrease in SBA lending, combined with heightened selectivity by angels and venture capitalists, have amplified young companies’ funding challenges.However, with the recent economic upturn there are beginning to be signs of hope.According to the Press Democrat, in the third quarter of 2009 alone venture capital firms pumped $141 million into Sonoma County technology companies, more than was invested in all of 2008.The highlight of this year’s forum was a series of investor presentations given by CEOs of five promising startups. Pitching companies were seeking funding ranging from $500,000 to $1 million. Each 10-minute pitch was followed by feedback from a panel of angel investors and business experts. The following questions raised by the expert panelists provided valuable input to entrepreneurs hoping to secure growth capital in today’s economy.The panel consisted of Armand Gilinsky, Ph.D., professor of business, Sonoma State University; David Hehman, board member, North Bay Angels; Wiley Kitchell, managing director, Moss Adams Capital; and Max Shapiro, CEO, PeopleConnect and Keiretsu Forum member.The startups were Divine Intoventions, Suzanne Donivan, CEO, and Dr. Gabrielle Ridgeway, president; FindWatt, Andrew Griffiths, CEO; Intelligent Monitoring Systems, Dan O’Leary, president; MosaicAssist, Kent Argue, president; and Opus Musicus, Karen Robbins, CEO.Following are the questions and a summary of the answers.Q: What “pain” in the marketplace does your product solve?Savvy investors put their money into products and technologies that hold the promise of expanding existing markets or creating new markets all together. Investors prefer situations where an unmet consumer need is filled by a unique solution.The lesson here is that if consumers are already satisfied with current market solutions it is best for the entrepreneur to put his or her energy in another direction.Q: What’s the “deal” you are looking for from investors? How is the investment structured? Details related to pre-money valuation, price-per-share, proposed exit path, percentage of the company available to investors, common or preferred stock etc. are central to investors.For entrepreneurs to secure investment capital, they must address the three fundamental questions all potential investors have: How much do I put in? How much do I get back? When do I get it back?Often overheard from investors after hearing a promising pitch is, “The company sounds great, but they forgot to tell me about the deal. That’s what I’m here to find out!”Q: What barriers to market-entry are there for your product? Have you filed for any patents yet?Investors are always concerned that a fledgling company will fall prey to larger and better-funded competitors in the marketplace. Without an understanding of market-entry barriers for potential competitors, startups run a greater risk that the forecasted growth projections will not be realized.Securing strong intellectual property protection to ensure a company’s long-term revenue stream is vital for investors to feel the risk-reward ratio is optimized.Q: Can you describe the assumptions and methodologies used to come up with your proposed revenue model?This question addresses whether or not the entrepreneur has truly done his or her financial homework. The challenge for investors is that they are consistently presented with financial projections that show current revenues at zero, then miraculously exploding to tens or hundreds of millions of dollars in three to five years without a clear plan as to how this will happen.When discussing forecasts related to growth, revenues and profits, CEOs of new ventures must be able to demonstrate how these figures were determined and what their strategies are to achieve them.Q: Have you been able to take any pre-orders from major retailers?In other words: Does anyone of credibility and importance in the marketplace want your product?What investors desire is third-party validation that the market will embrace the product or service. They want to see customers use and pay for the product, service or technology as soon as possible and in the greatest numbers possible.For those entrepreneurs with great ideas and the passion and commitment to see them realized, take faith in the words of Guy Kawasaki: “No matter what the economic times, good business models always get funded.” •••Paul Bozzo is founder and principal of the 10X Consulting Group in Santa Rosa, www.the10XGroup.com. The 10X Consulting Group specializes in working with start-up and fast-growth companies to provide business planning, funding and Web technology solutions.
