FACING THE DRAGONS

“5-4-3-2-Marco we are live… GO.” Down the stairs, don’t trip, turn right and walk through the 3 circles of light on the floor, hit your mark and don’t forget to SMILE” 

“Hello Dragons, my name is Marco Longley, I am from Richmond, British Columbia and I am asking for a $25,000 investment for a 10% share of my business.”  Wow, if you are an inventor or entrepreneur and that scenario doesn’t get your heart pounding, you don’t have a pulse. 

 

May 10th 2012 was a day that will I will never forget as it was the day I ‘pitched’ my invention calledThe HEFT™ in Toronto for the CBC TV show, the Dragons' Den. 

Just getting to the Dragon’s Den is the first half of the battle! 

Every year the CBC sends out its team of producers across Canada for auditions. After an initial introduction of the procedure, the hopeful pitchers can wait up to several hours before getting to pitch for two minutes to the producers. Imagine a room of 100+ entrepreneurs complete with props and all rehearsing their pitches. The tension in the room is palpable. You are assigned a number and then wait to be called. As your number approaches you start to move closer to the ‘pitching room’ only to see the other pitchers walking out of the room either elated or dejected; mostly the later. Hopes and dreams are riding on the pitches!

 

“Number 89” is finally called and that’s me. With props in hand, I walk into the room and given a couple of minutes to set up. The producer I am working with smiles generically and asks, “Are you ready? Begin.” And then she drops her head and focuses on her laptop. No eye contact, none what so ever, my view is of the top of her head and she begins to rapidly type. I begin my pitch while looking at the top of the producers head. I think it’s going smoothly until she looks up and asks me to stop. I didn’t even make it to the end of my pitch. 

 

Anxiety surges from head to toe. What did I do so wrong? She lifts her head and remarks, “This is one of the best inventions I’ve ever seen.”

The Call

My wife and I were giddy as we walked out the room. Then we had to wait for ‘the call’, where the producers invite you to pitch the Dragons and film the show. Everyone was told that if you didn’t hear from them by a certain date, you didn’t make the cut. After hearing the words “it is one of the best inventions I’ve ever seen” my wife and I were confident, however the cutoff date came and went. An email the week following the cutoff date confirmed the bad news. We didn’t get selected to be on the Dragons' Den. 

What Now?

We wiped a tear or two and agreed there was always next year. The year in between actually became extremely valuable. We fine-tuned The HEFT™ and came back better prepared with the prototype design and the I.P. taken care of. So we were elated when the call came saying, “Marco, we want you on the show.”

Starting a new business

Starting a new business is a tough task these days. Not because there would be any major obstacles in the process itself, but the market is incredibly competitive and only the very best entrepreneurs are able to thrive in such an environment. Very often, young and ambitious businessmen simply have to give up on their great ideas only because they are unable to get enough money to get their projects up and running. Thankfully, there are several options that can be tried before one gives up – and searching for an investor is one of them. But how does the ideal investor look like? And how can you find him?

The Ideal Investor

There are many factors that have to be considered whenever you are analysing whether a particular investor might be right for you or not. The equity that he needs is one thing, the value that he brings to your business (in the form of contacts, knowledge, and willingness to invest his own time in addition to his money) is another one – and it is obvious that there is a correlation between the two. The most important issue, however, is whether you share the same vision for the business. The ideal investor is not going to try to wrest the control of your business out of your hand and will bring something extra to it. And the return should be fair in regards to that – if you need more from the investor, you will have to give him or her a bigger share of the pie.

Searching Around

Now that you know who you're looking for, you should also know a little bit more about the process.  The best way  to find a good investor for your business is to start building connections within your industry. Not only will those connections help you get an investor, they will also help you once you get your business operation up and running – a good deal indeed. The unfortunate truth of today is that personal recommendations are often the only way of getting the foot in the door. Nevertheless, there are some alternatives available. For example, you might want to start looking for news about new acquisitions – investors that make the news are often looking to invest into more than one project. And, finally, you can also go straight into organizations that pool investors – there are plenty of them out there and some might actually be operating in your area. 

Closing Thoughts

Let's face it - finding the ideal investor is almost impossible and you will probably have to come down to some sort of a compromise. It is always up to you to decide what deal is still acceptable for you and what deal is just going to far. Invest a lot of time into the search, but, in all honesty, don't be afraid of failing in that task. There is no need to push it just for the sake of it, as there are plenty of other funding options available and it would be ridiculous to go for an investor whose visions you don't share. 

Programs like Dragons

Programs like Dragons’ Den and The Big Decision are putting the spotlight on how businesses look for investors and financing. But are we learning enough from the five-minute pitches that Arlene Dickinson hears each week on the CBC? This is television, after all, and the plot lines are condensed to fit in the time allotted, but the need for speed and clarity is a good lesson to be learned. 

Here are seven tips to help you get pitch-ready for that next investment opportunity. Figure out the answers to these questions in advance, so when your local lender or Arlene asks, you are prepared with clear answers that shows you know your stuff.

 

1. Be bright, be specific, and be brief. When pitching, don’t talk in generalities. Do talk about why this product or service is going to solve a very specific business need or challenge. A good way of pitching is to pose a simple question, then provide the answer (your product or service). If you cannot introduce your product or service in 25 words, it needs a rethink.

 

2. Why is this important to you? Showing your passion for your business idea is critical to investors – they are, in good measure, investing in you and not your company. It is your passion that will grow the company and pay back your investors – so let your passion shine, but as above, don’t go overboard with zeal.

 

3. What is your unique value proposition? Have you done your homework about your competition and the niche for your new product or service? Is there a demand for it, or can you generate a demand? Is it a novelty product that may have a meteoric rise (and fall) or does it fill an ongoing and unique need that will bring success to you and your investors.

 

4. What have you invested yourself? Be clear about what equity is already in your business. What an investor wants to know is what you yourself have already invested in your business. And of course, they want to see that you have. If you haven’t already invested, how can you ask anyone else to do so? 

 

5. What are your cash flow projections? It is important to clearly present your cash flow projections including all your assumptions. Investors will want to know when they will receive a return on their investment. What stage is your business at? Is it already generating positive cash flow? Know your numbers.

 

6. How much money are you asking for? If a lender is offering up to $35k for a start-up business, don’t go in asking for that exact amount unless you need it. Need and want are two very different things. And know what you are willing to accept in terms of shareholder involvement – does Arlene get 25% of your company for her investment?

 

7. What is your growth plan? Do you have a thoughtful analysis of how to bring your business to scale, whatever scale is for you? While the first couple of years are often just investment and reinvestment, at some point that has to turn into realistic profits and owners’ draws. Have you planned to get there? When is there?

 

The only thing certain about a great business plan is that your business won’t happen exactly as written. Great opportunities, small disasters, timing issues, missed completion dates, staff performance issues, good and bad reviews, lucky partnerships – all of this will happen. None of this will be covered by your pitch, but with a good solid plan backing you up, you can pitch with confidence. 

 

Your plan will provide a roadmap for when all the unexpected happens, and this the solid thinking and research that will help you to get an investor to say yes.

Minimum Amount

Minimum Amount

Your company can sell securities to a purchaser who is willing to buy at least $150,000 worth of your company’s securities and pays cash.

 

iii) Accredited Investors

Your company can also sell securities to individuals or companies that meet the definition of accredited investor. This includes

• an individual who owns financial assets, such as cash and securities, of $1,000,000. Note: a house is not a financial asset,
• an individual who has net assets of $5,000,000,
• an individual whose net income exceeds $200,000 in each of the two most recent years, and
• a company with net assets of $5,000,000.

iv) Offering Memorandum

Under this exemption, you can sell securities to anyone. To do this, you must prepare a disclosure document called an “offering memorandum”. An offering memorandum includes information about

• the company and its business,
• how the proceeds will be used,
• the associated risks,
• the rights available to purchasers, and
• the financial statements of the business.

Note: You are required to file this disclosure document with the Commission within 10 days of the first sale.

 

Before selling any securities under this exemption, you must obtain a signed risk acknowledgement in the required form from each investor. In this document, the purchaser acknowledges the risk of investing in your company, the limited ability to sell, and acknowledges that the purchaser could lose all the money invested.

 

If your company uses this exemption, the money raised must be held in trust for two days, so that it is available to return to a purchaser that exercises the right to cancel.

For More Information

As you will see from this article, seeking investment for your business is about much more than perfecting your pitch and accepting money. There are many legal issues to consider. It is therefore advisable to consult a lawyer before looking for investment to understand all the requirements.

 

You can also contact the BC Securities Commission at 1-800-373-6393, email to inquiries@bcsc.bc.ca, or go on line and check out the BCSC website. 

Exemptions

Exemptions from Regular Disclosure Requirements

1) Private Issuer

You can be classified as a private issuer if

• you have no more than 50 shareholders (excluding employees), and
• your company has only sold securities to qualified purchasers (explanation below).

Qualified purchasers can include:

• directors, officers, employees, or control persons of the company
• family members (spouse, parent, child, etc) of directors, executive officers, or control persons
• close personal friends and close business associates of directors, executive officers, or control persons (see discussion below)
• accredited investors (see note below)
• current security holders.

Note:  As long as your company meets the definition of a private issuer, 

1. your shareholders can resell to one of the qualified purchasers in the list above, provided the directors of your company consent to any resale or transfer of shares, and

2. you are not required to file a report with the Commission.

2) Employee, Director, Officer, and Consultant

Even if your company is not a private issuer (you have over 50 shareholders or you have sold to investors who were not qualified purchasers), you can still sell securities to employees, executive officers, directors, or consultants of your company. If you use this exemption, you are not required to file a report with the Commission. 

3) Other Exemptions

If you are looking to raise capital under other exemptions (for example family, friends and business associates; minimum amount; accredited investor; offering memorandum) you are required to file a report with the Commission within 10 days of the company receiving money from investors. If an investor wants to sell their shares, after they have been issued, they are required to sell under an exemption, or wait until your company has been a public company for at least 4 months.

 

i) Family, Friends and Business Associates

Investors under this exemption can include members of management and their family

members.

 

Investors under this exemption can also include:

• A close friend or family member: someone who has known your senior management team (director, senior officer, or control person) for a sufficient period of time and can assess your capabilities and trustworthiness.
• A close business associate: someone who has had sufficient prior business dealings with your business, to be able to assess your capabilities and trustworthiness.

I recently attended

I recently attended a two day conference known as Social Media Camp. For a self-proclaimed  introvert who works from home, the itinerary of workshops, which included scheduled “Networking Breaks” was a little daunting. But by the end of two days worth of speakers, discussions, information, and yes, networking, I was really happy to have taken the time and opportunity to be there, to be part of the conversation. I want to share with you just a few key points and observations from my time at Social Media Camp. This isn’t a list of specifics, but just my general take on social media as it relates to small business. First things first. Despite the use of the word “camp”, there were no fireside sing-a-longs or s’mores. I couldn’t possibly be the only person disappointed by this.

What’s in it for me?

While social media is clearly all the rage with the cool kids these days, does that mean I need to jump on every bandwagon that passes by? That depends. The question we all have to ask ourselves as business owners is this: What’s in it for me? The reason “everyone else is doing it” doesn’t fly with me. Just because everyone else jumps off a bridge, even an awesome one, that doesn’t mean we need to follow.  

Know what you want.

With that said, social media provides a myriad of possibilities to promote our business. We just need to approach it with a plan. When it comes to social media strategies, we need to first ask: What am I trying to accomplish with this particular tool? For example, I am a huge fan of Twitter.  I use it daily.  But I don’t expect it to drive truckloads of business to my front door, because that doesn’t really suit the nature of my business.  As someone who works from a home office, I approach Twitter as if it were the office water cooler.  Twitter is where I find out what’s happening in the world.  I also use Twitter to find and share ideas for web design, communications, social media, and other topics related to my field.  My twitter peeps (tweeps?) are like a giant office full of really cool co-workers.

 

Lastly, I use Twitter to share my own work, but that’s not my main focus when I get on there.  I don’t want to be the guy at the water cooler who only talks about what a great job he did on his last project. I like to be the girl who is interested in what other people are doing, the person who shares information that will be helpful to others. It makes for a much more interesting exchange.

 

If you’d like to join the conversation, follow me! @midnight1003