Image via CrunchBase

Raising finance is a time consuming process and can also be quite stressful (particularly as time progresses). There may be some date in the future where your current trading position is no longer sustainable (which has brought you to the table in the first place). It is worth remembering that you need to recognise that the more desperate your situation, the more vulnerable you will be, which will typically result in poor decisions. Hence the sooner you can commence the process the better.

Similarly, if the investment is for growth capital, as opposed to capital to keep you afloat, the circumstances and investment terms will vary.

Firstly, you need to identify some potential smart investors (by ‘smart’ I mean investors who bring more to the table than just cash i.e. access to a network of contacts, distribution etc). You then need to submit a business plan (or executive summary) to them so they can assess the opportunity with more context (ideally you’ll have a warm introduction to these people). Assuming you pass this hurdle they are likely to invite you to a meeting. If you have been asked to come in to pitch you need to remember that the process should be a balanced discussion rather than a monologue. You need to frame the meeting so that it resembles an interview where the discussion is two-way, rather than a one way interaction where the prospective investors scrutinise your business plan as you defend the content. As I have detailed previously, it is not just about the cash, so you need to be clear about what other requirements you have to help you secure ‘smart money’.

The following questions will give you an idea of some of the areas you should explore with them.

1. What can they bring to the table other than just cash? While the requirement for funding is typically the main reason to engage with external investors, it is also worth identifying other criteria that are important to your business, such as contacts or ‘access to markets’. Ideally you’ll look to partner with an investor who has knowledge of your specific sector, as well as a network of contacts that can be called upon when needed.
2. What is their preferred exit strategy? It is worth gaining an understanding, up front, of the timeframe in which they are looking to exit, as well as an understanding of their future plans. For example, you might want to know whether they are likely to be interested in any subsequent investment rounds (if required).
3. What is their required level of involvement? It is also worth understanding at an early stage how active a role the investor wishes to play in your business. There is no point taking investment from someone who does not bring the required contacts to the deal or who insists in involving themselves with the day-to-day running of your business.
4. What other investments have they done? You should ask the prospective investors if they could provide you with some references from current investments, as it is highly advisable that you speak to people from companies they have stakes in, so you can fully gauge their style. Venture Capitalist, Mark Suster suggests in his blog post ‘How do you reference check a VC’ that: ‘First, I would say that most entrepreneurs do almost no reference checks or at least do them very informally. Don’t let that be you. Most VC’s will happily supply you with a list of CEO contacts of the people who will speak to you about working with them. Don’t be afraid to (politely and respectfully) ask for this. In fact, they will think better of you because you’re demonstrating that you’re the kind of thorough person that they wanted to invest money into in the first place.’
5. What are the terms of their investment? Finally you need to be very clear on the terms of the investment i.e. above and beyond the headline rates. You may receive a term sheet which outlines the terms of the investment, and this will need to be reviewed by someone qualified to do so. While this may seem an ‘optional expense’, it is not, as term sheets can include onerous terms and must be treated with caution. In short, you need to enter discussions with investors from a position of strength rather than a position of desperation!

By having a strong business plan, an impressive team, a viable market opportunity, and a keen understanding of the investment process, you can ensure that you engage on strong terms. As in any negotiation, you are seeking to strengthen your hand. If you can ultimately have multiple investment sources to choose from, you will increase the chances of a satisfactory outcome for all involved.

Alan Gleeson is the General Manager of Palo Alto Software UK

Women will become, in the next few months, the majority of the American workforce, passing the 50% threshold, according to The Economist‘s Dec. 30, 2009 issue. Here are a few items from the article highlighting this accomplishment, and pointing out the challenges.

High points:
Women run many of the world’s great companies, e.g. PepsiCo in the United States and Areva in France.
There is a demand for female brains. Woman are a majority of professional workers in the U.S.
Women make up the majority of university graduates; by 2011 there will be 2.6 million more female than male university students in America.

Challenges:
Only 2% of the bosses of America’s largest companies are women.
Women continue to be paid significantly less than men, on average. In America, childless women earn almost as much as men, but mothers earn significantly less.
The U.S. is the only rich country that refuses to provide mothers with paid maternity leave.

Read the entire Women and Work: We did it! article. Two additional articles in that issue look more closely at Female Power: Women in the Workplace and Womenomics: Feminist Management Theories.

It has always seemed strange to me that business, which otherwise is obsessed with efficiency, would voluntarily, and with forethought, deliberately undervalue and underutilize as much as one-half of one of its resources. With a new majority hopefully the paradigm will continue to shift to equality.

“Women’s economic empowerment is arguably the biggest social change of our times,” says The Economist. “Societies that try to resist this trend will pay a heavy price in the form of wasted talent and frustrated citizens.”

Steve Lange
Palo Alto Software

Are My Sites Up? is a relatively new free web-based service that helps you keep track of up time for your websites.

The service will send you a SMS alert if your website goes down to help you respond faster and get your business back on line as soon as possible. Vital if you depend on online sales. Every minute your online business is down is money lost.

After being featured on Lifehacker and Webware, Are My SitesUp? have temporarily closed down new signups, but with a service as useful as this, they should be on your “watch” list. You can subscribe to their blog which will alert everyone when the service is open for signups again.

‘Chelle Parmele
Social Media Marketing Manager

A quote in one of my email newsletters caught my eye today.

 ”As you grow in this business, you learn how to do more with less.”

–Morgan Freeman,
recipient of 2008 Kennedy Center Honors Award

If you drop the “this” out of the quote, those words can hold true for small businesses.

“As you grow in business, you learn how to do more with less.”

Fantastic words to think on for the day.

‘Chelle Parmele
Social Media Marketing Manager

Today is Blog Action Day. Through out the day, thousands of bloggers will unite to discuss a single issue – poverty. The purpose? To raise awareness and initiate action on this very important topic.

In keeping with that theme, I’m going to re-introduce you to Kiva. We’ve mentioned this company before, [Steve Lange wrote on becoming an investor/lender through Kiva]  but such a great company with a goal to bring people out of poverty by helping them start or continue their business is a topic worthy of more than one blog post.

Kiva.org is a nonprofit organization that lets you lend to a specific entrepreneur in a developing world, empowering them to lift themselves out of poverty. You can look through the list of pre-screened entrepreneurs on the kiva.org website and choose one to send your loan, which can be as little as $25.00. You’ll receive updates and eventually, as the business succeeds, have your loan repaid.

Kiva is the world’s first person-to-person micro lending website and has brought together worthwhile entrepreneurs with people willing and able to aid them in their struggle to make a business dream live.

Too often we hear about the businesses that need thousands and sometimes millions of dollars to start or continue operating, but with small micro loans, these companies are starting and growing successful businesses.

Kiva.org – Loans That Change Lives
Make a Small Loan, Make a Big Difference – Check out Kiva.org to Learn How!

‘Chelle Parmele
Social Media Marketing Manager
Palo Alto Software