You got the call. Tomorrow is today. The potential investor wants to meet with you. Negotiations are about to begin. They have read your executive summary, even that seventy-page business plan. Your mentor, financial consultant, or friend has paved the way. The meeting is set.
Wrong! The meeting should not have been made yet. You still have a lot to do and you must prepare yourself both physically and mentally. Today's Enable will help you get ready for the crucial meetings with investors. We will tell you what to do before, during and after the meeting. Attorney Yitzhak Rosenbaum, manager of the hi-tech department at Zysman, Aharoni, Gayer, provides seven valuable lessons for you to follow in order to ensure that you raise the money you need to make your dream a reality.
Lesson One - Confidentiality Agreements Before The Meeting
Try to have your investor sign - before the meeting - a confidentiality agreement not to disclose or compete with your technology. You have to protect your technology, yet be able to go forward with your potential investor. Worst thing is to go to a meeting open up your brief case, stick a document in front of the nose of your potential investor, and demand it be signed.
You have not had even your first coffee together and you can feel the chill in the air between the two of you. There is a place for everything and nobody likes surprises. However, keep in mind that the investor may refuse to sign the confidentiality and if so you may not want to meet with him/her. Also, keep in mind that most venture capitalists do not sign confidentiality agreements.
Lesson Two - Learn Who Will Be Attending The Meeting
After the potential investors have signed the confidential agreement, ask them who are going to be in the room for the meeting and what is the agenda. Ask them if there are any questions, they would like answered before the meeting, by telephone or in writing.
If the agenda is to discuss the potential investment, then talk to your financial advisor and your lawyer before the meeting. If the agenda is more due diligence oriented, to verify your technology and your assumptions in your business plan, then be prepared to have the investor test you on your assumptions. Now you will find out if the business plan writer really did the job and the research and market assumptions are accurate.
Lesson Three - Don't Go Alone
Negotiations are an art and a science. The art is the persuasion and the science is remembering who said what and at what time and in response to what in the meeting. Everything is "real time" in negotiations, which means if you are not recording it, you will never be sure what exactly was said. While the potential investor is talking you are already thinking how to answer and not grasping exactly what words are actually being said. While you are talking, you need someone to be listening to what everyone is saying in the room.
That someone should be taking notes all the time. Further, you should come with your mentor or maybe a partner if has a good business head. Do you need your lawyer with you in the meeting? No, assuming you feel you can handle any preliminary investment issues and the potential investor will not have their lawyer in the room.
Lesson Four - Only One Chance For A Good First Impression
The initial presentation must be the best you can do. The first impression is everything. Practice numerous times before the meeting. Use the latest methods for making business presentations and have your mentor walk you through the steps. If you have no mentor, try it out on your partner, advisors, anyone who will give you an honest appraisal of your presentation skills. You may be the greatest technologist but if you cannot convince people, find someone who can help you do so. Remember that the investor has many options where to put his/her money. You are only one. If there is no chemistry in the room and you come across as unfocused, unconvincing, they or anyone else are not going to put their money with you.
Do not kid yourself in believing that if this investor passes on you, it is easy to go elsewhere. The investment world is much smaller than you believe. Investors know each other and invest together on deals. Bad news travels fast.
You finished the presentation. You told them how much money you need, when you need the money, why you need it and how you see the valuation of your company. It took a little longer than you expected. You know you only have ten minutes left in the meeting, at least according to the their watch. They never noticed your request for money. It never was discussed. It was as if you never said it. Your mentor keeps smiling, makes some small talk, your partner is kicking you under the table, and the potential investor's secretary just interrupted the meeting to say his next appointment has arrived. (This was planned before you came into the room.) What do you do?
Lesson Five - Take Control
It is now or never. Jump to the page in the plan dealing with what money you need for the next year, to what you said twenty minutes ago in the room. You repeat yourself. Start talking and do not stop. The clock is racing. "With $600,000 this year, I can move the project into the test stage, retain some experts in the field and interest a strategic partner from the States to become involved in the development and marketing." Everyone is looking at you. You go for it! "What do you think, can you do that for the company within thirty days?"
The potential investor looks you right in the eye, then looks at the top of your lip. Remember never let them see you sweat. The answer is coming. "It's possible, but we need to check..." You cut him off. "Look, have your guy come out to my place tomorrow. We'll sit and answer his questions. But I need to keep things moving. If the issue is checking the market assumption of the technology let's do it. But we have to move." Your mentor joins in, in a soft voice, to take the rough edge off your demands. "What do you think? We don't have to explain to you what time to market means in this situation."
The potential investor nods, of course, and turns to the analyst or associate, "Well? Can you make it tomorrow?" Which really means the analyst is going whether he likes it or not. "Okay," comes a reluctant answer.
Lesson Six - Don't Shop Around
You did it. Tomorrow they will sit with you. Tomorrow you will not let the analyst leave until he is satisfied, one way or the other, and tomorrow you will call some other investors. Wrong! Lesson number six, no more investors until you finish with this one tomorrow. Remember, bad news travels fast, and good news is worth money. If the analyst walks out of your place tomorrow, satisfied you have something, this investor will back you all the way. So, will others.
Tomorrow has come and gone. Seven days have gone by and you are staring at something called a term sheet that came from the potential investor by E-Mail, usually in English. It is a document, prepared by the lawyer of the potential investor, four to eight pages in length, and sets out the terms under which the investment would be made, request to be allowed to do due diligence on the company, the technology, the employees, and the financial and legal situation.
Nothing is standard about a term sheet. Only a good advisor who knows what is in your interest and what is not in the interest of your investors can lead you through this jungle of greed and avarice. No matter what could be written in this article would be useless. You would know phrases but not the intrigue of manipulating these terms or leaving out terms. Remember time is on the investor's side. You need the money, you there one sweating and if the investor reads in the paper that a similar technology is being developed somewhere else, kiss goodbye to your money.
Lesson Seven - Activate Your Lawyer
Believe it or not, your lawyer can save your time and money, and bring home the investment. Within days, you will sign this term sheet and within months this signed term sheet will be replaced with a great many documents. This is your lawyer's world. She has been there before. She has done these deals from both sides of the table, and she can draft them on the back of napkins if you want, at two o'clock in the morning. She is as comfortable in Tel Aviv as in New York.
If she cannot, then get yourself the right lawyer. The investment deal in the venture capital world is complex, long lasting and determines whether you, as an active executive, will still be with your company one year from now. If your lawyer does not have the proven experience and maturity, and the drafting skills to fight the war of the written and spoken word, you lost before you started. You really will not know how good she was until one or two years out when the pressure from you investors and board mounts for a public offering or outright sale of the company. Therefore, make sure you have the right hired gun. She is part dealmaker, part business development and part accountant. The deals she has done made her this way, and you can benefit from it.
Next week, we will discuss in detail the animal called "the deal" and "make room for the next round". Forget sweating. Get yourself some ulcer medicine!
Published by Israel's Business Arena on 30 November, 1999