STERN
The 13 most costly mistakes
C-level executives make raising capital
Save yourself time, money, and heartache by avoiding
these all-too-common pitfalls and set yourself up for
success before you even start
Your business plan should be the crux of your
presentation; the foundation, if you will. This
will demonstrate to investors exactly who you
are, what you bring to the table, how you’re
different and the overall health of your
company – all of which they will use when
considering whether to take a chance on
you. Skimping on this piece of the puzzle will indicate to your
proposed investors that you either don’t know what you’re
doing or you simply didn’t care enough to make an effort,
neither of which will make a good impression.
Invest the time and resources into developing a solid,
comprehensive business plan complete with all the
necessary elements, including company description,
nancial projections, unique value proposition and a
competitive analysis. That being said, don’t overload your
prospects either. Your plan should contain all the pertinent
information in a succinct format to quickly and accurately
tell target investors your story.
If you want potential investors to buy
your pitch, you’ve got to do much more
than just ask them for money. You’ve got
to clearly dene and demonstrate
exactly what that money is going to be
used for. Without specic milestones,
your investors won’t be able to
recognize the value in your proposition. Instead of
simply stating how much you want, focus on exactly
what you will deliver with that amount.
Likewise, if your projected milestones or timelines are
so unrealistic that it’s highly unlikely you’ll achieve
them, investors aren’t going to be willing to take that
chance. Venture capitalist Richard Harroch states, “If
you show me projections where you are at $500 million
in three years, I will just think you are unrealistic,
especially if you are at zero in revenues today.” End of
conversation.
Unclear or Unrealistic
Milestones
13
Incomplete or Inadequate
Business Plan
12
Over or
Undervaluation
11
Properly valuing your business needs and
opportunities is essential if you’re going to
land enough capital to achieve your short
and longterm goals. The problem is, many
business owners make the mistake of either
overest imating their future revenue
forecasts, underest imating var iable
expenses or both. The result is a valuation that is
inaccurate and unlikely to come to fruition.
Quality investors – especially those that are experienced
in your particular eld – can spot a miscalculation a mile
away and they won’t be likely to take a chance as a
result.
Whether you’re trying to raise money for an early-stage
startup or an established enterprise, you may benet by
asking a seasoned professional who’s been through the
process to help you reach an accurate valuation. Or,
better yet, allow competing lead investors to help set your
price.
Your pitch should clearly indicate that while your milestones
may seem challenging, you can – and will – be able to
achieve them based on your particular value proposition,
whether it’s skill, technology, experience or the like.
To complicate matters even more, making the actual
pitch to investors is something that doesn’t
necessarily come naturally to many, regardless of role
or career status. In these instances, it can be helpful to
know what not to do in order to hone and perfect your
strategy.
Backed by years of industry experience and an over
$250 million track-record of success, this in-depth
white paper identies the 13 most costly mistakes even
C-level executives make when raising capital. Save
yourself time, money, and heartache by avoiding
these all-too-common pitfalls and set yourself up for
success before you even start.
1
Raising capital for your business can be an incredibly
overwhelming process. In fact, most business
executives end up paralyzed by questions like:
Where do I start ?
Who can I trust ?
What does the right investment
partner look like ?
How do I get the deal that’s right
for me in front of multiple
decision makers ?
STERN
Great Idea,
No Execution
10
You may have the greatest idea since sliced
bread, but if you can’t present it effectively,
you won’t get the capital you’re looking for.
Investors receive dozens of pitches in a
given week. If you want yours to hit the mark,
you’ve got to make it stand out. Don’t
assume that your presentation is perfect or
that your product or service alone is enough
to win them over. Look at other executive summaries and
pitch decks that have been successful and use these ideas
to inspire and improve your proposal.
If you know any other investors, business advisors or
executives who have had success pitching proposals, tap
into that knowledge base. Ask for samples, ideas and best
practices that they may be willing to share and then use
that information to further hone and improve your own
presentation.
Asking for Too Little or
Too Much Money
9
Most investors already have a pretty good
handle on how much capital it takes to fund
a given set of milestones, so if you come in
asking for too much or not enough, chances
are you’ll miss the mark altogether. Under or
overestimating your needs indicates to your
prospective investors that you don’t know
enough about running and/or growing a
business to be trusted with capital.
This is a scenario Josh Elman of Greylock Partners sees all the
time. "At the end of the pitch, entrepreneurs share how
much money they are trying to raise," comments Elman.
"However, when they explain why they chose a certain
amount, they talk about how long it gets them, or how big a
team they can hire. Instead, they should focus on results-
with X amount of money, I should be able to drive the
business to these signicant milestones. That's all investors
care about--how much money does it take to get to the
next proof point.“
In preparation of meeting with investors, conduct ample
research to determine exactly what amount of money
you’ll need to achieve your objectives. Remember that
raising too much money will result in greater dilution, while
not raising enough will prove costly to the business and to
the investor. Adequate research, valuation and projection
should help you achieve capital efciency.
2
"THAT'S ALL INVESTORS
CARE ABOUT--HOW
MUCH MONEY DOES
IT TAKE TO GET TO THE
NEXT PROOF POINT."
Josh Elman, Greylock Partners
STERN
3
Bad (or No)
Legal Advice
8
When working within a certain budget,
many executives are tempted to forgo
legal counsel due to cost reasons. Others
either rely too much on their advisors or
don’t do enough due diligence to ensure
the lawyers they hire are competent. Like
it or not, there are a lot of critical legal
aspects involved in closing an investment deal, and if
you don’t have all your ducks in a row, it very well might
cost you dearly.
Unwinding a bad or biased agreement is agonizing and
a waste of management attention. Not only could a
dispute over an investment cause headaches in the
present, but it could also hinder your ability to raise
additional capital in the future.
Prepare ahead of time by seeking out and hiring
qualied, experienced legal professionals that can
help keep you on the right side of the law.
Poor
Cash Flow
7
If you don’t have adequate control over
the cash ow of your business now, why in
the world would an investor give you
more money to waste? Yet, many
executives make the mistake of seeking
money without a proven track record. If
your cash ow issues are the result of factors beyond
your control, such as economic downturns or delays in
materials delivery, it may not be cause for too much
concern.
Overspending, poor revenue management and
inaccurate income/expense forecasts, on the other
hand, will serve as a huge red ag to would-be
investors. Make sure you’re able to demonstrate your
executive team’s ability to manage money if you want
people to send some your way.
Too Few
Target Investors
6
To be successful in any big deal – whether
setting your prices in the market or pitching
your request to investors – creating a
competitive environment is key. If you don’t
have enough target investors, you won’t have
any leverage. Some executives even go so far
as to bluff about the number of offers they
have in an attempt to create a sense of urgency and force
the hand of a prospective investor. Unfortunately, most
learn the hard way that this can quickly go south.
Legitimate, healthy competition can help provide more of a
rich pool of investors from which to choose, and can even
attract the interest of investors that previously seemed off
limits. You’d be surprised how quickly the schedule of that
hard-to-reach investment rm opens up once they catch
wind that you’ve received offers from multiple bidders.
Failure to Acknowledge
Competition
5
Every valuable business proposal has some
type of healthy competition, whether it’s
direct, indirect or some type of substitute.
Overcondent business owners make the
mistake of going into a pitch indicating they
have no real competitors. What they fail to
realize is that without competition, there’s no opportunity,
which makes their proposal not worth considering.
As seasoned venture capitalist Bryan Stolle puts it, “If you
don’t know your competition and the customer’s view of
the alternatives available to them, you aren’t ready to raise
capital yet.“
Before heading into any meeting with an investor, be sure
you’ve done your homework and developed a
comprehensive competitive analysis. Not only does this
validate your knowledge, but it also provides the ideal
opportunity to show would-be investors why and how what
you have to offer is better.
“If you don’t know your competition and the customer’s
view of the alternatives available to them, you aren’t ready
to raise capital yet.“
Bryan Stolle, Mohr Davidow Ventures
STERN
4
Bad Timing…Too Early
or Too Late
4
Perhaps there is no scenario for which the
term “timing is everything” applies more
than in raising money for your business. If
you try to raise capital too early, you will
inevitably sacrice leverage. Waiting too
long to raise money, on the other hand,
may make it difcult, if not impossible to
get investors to come on board. For instance, if you
head into a proposal looking for money to fund a
milestone that’s 2 weeks away, chances are slim you’ll
get any bites. The odds are even worse if you have a
short runway and are in desperate need of operating
capital.
The goal should be to raise as much money as you can
on your own, through bootstrapping and hard work.
This will allow you to establish a more stable business
environment prior to seeking investment offers. At the
same time, you should also be preparing to raise
capital at least 9-12 months in the future. This will allow
you to nd the right target investors, start cultivating
relationships with them and develop a strong,
comprehensive pitch.
Not Knowing
Your Audience
3
Before heading into any meeting, you
should prepare ahead of time. Perhaps
no situation is this more critical than when
attempting to raise capital. While you
m a y b e a b l e t o i m p r o v i s e t h e
presentation portion, you’l l be i l l -
prepared to handle the inevitable barrage of questions
from your would-be investors. As a result, your audience
will be less than impressed. Do your research ahead of
time to get a clear understanding of who you will be
pitching to so you can walk in prepared to wow them.
It’s also important to point out that your pitch shouldn’t
be one-dimensional or rigid. Not every approach will
work with every investor. When you know exactly who
you’ll be presenting to, you can adapt and hone your
strategy accordingly to improve your chances of
success.
DEVELOP THE RIGHT
PARTNERSHIPS WITH
INSTITUTIONS WHO
SHARE YOUR GROWTH
OBJECTIVES
STERN
5
Failing to
Follow Up
2
Once you’ve wa lked out o f the
boardroom after an investment meeting,
the waiting game begins. What many
executives fail to realize is the importance
of following up after the fact. Not only
does this keep your proposal at the top of
your investors’ minds, but it also creates a sense of
urgency that may move things along faster. At the very
least, sending a follow-up email to thank your
audience for their time is just good business etiquette.
Of course, not every response you receive will be
favorable, but in either case, knowing where you stand
sooner rather than later is much better than waiting in
limbo.
Accepting Capital from the
Wrong Strategic Partners
1
Believe it or not, you don’t have to take
money from the rst investor that offers it.
It may seem counterintuitive, but not
every investor you pitch to will be the right
t. There’s nothing more painful than
being tied to a institution or nancial
partner who places their own interests ahead of yours.
In fact, the goal is to nd someone that brings more to
the table than just cash alone. You should be looking
for a longterm partner, not just a y-by-night cash cow;
someone who will have a vested interest and the
proven ability to help facilitate your ongoing success.
Many business owners fail to realize the importance of
targeting investors that have specic industry
experience. Not only is it ok to be selective when
choosing an investor, but it’s imperative to the success
of your venture. It’s also important to note, however,
that investors who are already involved with your direct
competition should be approached prudently to
assess genuine intention and avoid potential conict of
interest.
Foster competitive demand ... with your
company at the center
STERN
STERN
6
Even for a successful company,
raising strategic capital can be a
real challenge. In fact, according
to the Harvard Business Review,
fewer than 1% of US companies
have successfully raised money
th rough venture capi ta l i sm.
Furthermore, obtaining funds alone isn’t enough.
It’s even more crucial that you receive funding
from an investor who shares your growth
objectives, under the terms that protect your best
interests.
These are the proven results we deliver at Stern
Ventures. With an extensive network of 6,750
nancial institutions, 12,900 U.S. and 16,410
international C-level executives, we can match
you with the right investment partner who earns
your trust because the partner you select aligns
with your strategic goals while offering the most
competitive terms.
Contact us today to discuss your strategic goals,
the resulting capital needs, and how we can help.
Conclusion
Contact Information
SECURE YOUR INITIAL
CONSULTATION
WITH STERN VENTURES
VIA EMAIL TO
advisors@sternventures.com
Linking executives to strategic capital
415-309-8987
275 5th Street, San Francisco, CA 94103
advisors@sternventures.com
www.sternventures.com
STERN
STERN
STERN
WE DELIVER THE DEAL
THAT’S RIGHT FOR
YOU ... WITH AN
INVESTMENT PARTNER
WHO EARNS YOUR TRUST
About Stern Ventures
Stern Ventures is an end-to-end investment bank
dedicated to raising capital and brokering
strategic partnerships from $5 to $300 million for
technology and media companies.
Stern Ventures guides clients through the entire
deal process from strategic planning to
successful closing, with care and integrity. We
add value for our clients by identifying and
negotiating with the best qualied institutional
partners and streamlining the due diligence
process.
Stern Ventures leverages deep industry expertise
and connections to help clients achieve their
strategic objectives. Our network of over 36,060
capital decision makers and C-level executives
forces investors to compete for your business.
Here’s what Stern Ventures
helps you achieve.
12.9 K
16.4 K
US Finance
Executives
US Tech
Executives
International
Tech Executives
However, what really sets Stern Ventures apart
is our head, heart, and hands philosophy.
Why Us ?
Our network ... and your success
Our robust network of 36,060 managing and
C-level connections means that your
prospective partners aren’t just pre-qualied,
but will ac tually compete for your business.
6.7 K
The right e xperience ...
to determine your optimal nancial
needs.
Head
The right c ommitment ...
to dedicate ourselves to your best
interests.
Heart
The right c onnections ...
to deliver competitive results that
help you succeed.
Hands
Stern Ventures, through Independent Investment Bankers
Corp., a registered brokerdealer, offers the following
services:
CAPITAL RAISING
If you’re a CEO, CFO, or COO with at least $5
million in current revenue requiring signicant
investment capital to grow your business, Stern
Ventures links you with our network of over
6,750 nancial institutions.
By getting the right offer in front of multiple decision
makers, we help our clients identify and arrange equity
and debt nancing between $5 million and $300 million
for expansion, acquisitions, or recapitalization.
MERGERS & ACQUISITIONS
With C-level contacts at 12,900 U.S. domestic
and 16,410 internat ional corporate
development departments, Stern Ventures
facilitates your optimal M&A exit.
Whether you’re in the information technology, media,
telecom, or mobile sector, we specialize in both sell-side
and buy-side M&A guiding you through the entire
process. By leveraging our contacts in a competitive
atmosphere, you get the most from your current holdings
and avoid the risk of leaving “money on the table.”
LEVERAGED & MANAGEMENT BUYOUT
For buyouts, Stern Ventures helps LBO/MBO
sponsor and debt investors craft a nancing
structure that meets your investment objectives
... as well as those of your stakeholders.
We listen and reect our clients’ need for a strategic plan
that provides targets with nancial exibility to operate
and grow your business post buyout.
SHAREHOLDER LIQUIDITY
If your existing shareholders are looking to
sell their equity, Stern Ventures provides a
6-9 month liquidity process ... without
having to wait for an IPO or M&A event.
By facilitating secondary offerings, Stern Ventures
enables exiting shareholders to monetize illiquid
holdings while your company’s current capital structure
stays in place.
SECURE YOUR INITIAL
CONSULTATION
WITH STERN VENTURES
VIA EMAIL TO
advisors@sternventures.com
Securities offered through I ndependent Investment Bankers Corp., a broker-dealer,
Member F INRA/ S IPC. Stern Ventures is not afliated with Independent Investment Bankers Corp.
415-309-8987
275 5th Street, San Francisco, CA 94103
advisors@sternventures.com
www.sternventures.com
STERN