Business and Innovation: Pitching your stock
I am in a position to at least partially answer this question. I've successfully presented stock proposals to companies such as Microsoft, Angel Investor's Associations and a Consortium. In addition, I've rounded up investment from friends. Some of them are still my friend. The key is to never forget them even if their holding in your enterprise isn't on par with someone like Microsoft. I've also successfully applied for grant funding on a product or business idea, put the plan into action, and in at least one instance am well on my way to phase two - which is to put the product out into the real market place.
Last night, a friend of ours came in from Britain and after a round of golf and dinner - where he seemed visibily disturbed that we declined a bottle of wine - we began to go over possible business opportunities. And one leapt out at us both, centered on his wife's experiences - and his own. It was a clear and simple innovation.
But I noticed, it could also quite easily be a business for us. The opportunity leveraged alot of existing software product that we'd already developed but more importantly I was able to figure out how this became a business in the early stage of the game. Something that doesn't always happen with a pure product idea. The key was competition.
In nearly the first ten minutes of coming up with the idea for the product, I immediately began to think of competition. This told me that the idea was business-ready. I knew almost immediately after working out some of the details of the product - that this is a product that could be marketed, sold. We were able to sketch out the numbers of the first month of operation in our heads. This is a serious business idea. And it will need a major stock purchase to get it going.
But here's how you make your old shareholders happy. You don't reinvent the shareholder pool - even if you've reinvented your product line. It's your prerogative to be able to roll with the punches and put out a new product line. But the shareholders didn't invest in a product - they invested in you. Sure, they thought your product would've been the cat's ass and thats part of it - but they invested in your ability to bring +a+ product to market and return their money in spades.
So in this case, I've got a clear view of not only the product, the vision and the business plan - and I've probably got a good start on the problem of where to find seed capital. And this solution might not work for you, but I will sketch it out for you just the same.
We've got a product idea that opens up a new market for a similiar product in another foreign market. This business entity is currently deadlocked into competition with a major rival, and has focussed their energy in that geographical area. And it's paying off. Their revenues are heading skyward.
Although our product is different, its similiar enough that they could re-brand and establish themselves through our product - into markets that we know they want to take. So the game plan is to first acquire the necessary pieces of the business startup that don't take heavy amounts of cash - things like VAR and licensing agreements, partnership, and infrastructure deals that would look very attractive to the mother ship. Then we propose to them, that they could buy a stake in our enterprise for a certain amount of stock capital. And in exchange we give them rebranding rights after a certain set of performance gates are cleared. If we fail to hit those gates, they are given the right to buy us out. If we meet them, we have part of their market and we can build and possibly even compete with them, but they will have the entry into the market that they wanted and they can test their brand.
There's an old saying that when the mouse dances with the elephant, the mouse will always get trampled. But sometimes thats the right way to go. Big business has a certain pattern that it follows in its dealings - like the queen, on the chess board - she makes a big target. A startup can quickly move into a space that can be shown to be highly lucrative - and your first circle of investors, your friends and anyone else that bought into you - can do whatever they like with what they take. Just make sure you buy them out before you get too big.
Privately held, C-corporation structures that have no 'built in LLC' type protection for the officers are good structures for this kind of thing. I would offer that your best bet, as an investor - is to go after this structure of an investment. And when you are pitching your stock, it will be first to friends, fools and family members. When you cash out and get them their money back - it will become a game to find out what would be an acceptable return on investment. Your best bet is to manage expectations, and exceed them as best as you can. The buyout pool that you need to have - if you want a streamlined entity, should not consist of more than 12 or so principal investors. They really like to see four or five good strong investors so if you have a buyout on the table, there are less moving parts to the deal.
Getting your stock pitch in front of the right people in the early stage of the game is important, but more importantly - plan your cash flow and make sure your business can operate through thick and thin while all of this is going on . The investment dollars only come in to expand marketing and sales, and you will have to be showing a visible trendline to attract that type of money. In short, you'll have to start it yourself - and be willing to go through all kinds of pain to get there. The pitch for your stock should not include all the trouble you will have getting your company into operation - it should focus on market, sales and the metrics that an investor can use to decide whether or not there is a clear path to return.
In the end, they will choose to invest in you. Not the product, or the company. It pays to have your homework done. But the investor is really only there to see that you're the kind of person that does the homework, and pass the exam.
Comments