The first step in effectively raising money is to have a great product, service model, business model and funding model. If your business does not have a product, you better have a killer service model, business model and funding model. How you price your product and services, acquire your sales revenue, deliver and service your product, are the key elements to your business model. Having all of these elements in order means nothing, if you don't have the right management team. I have personally experienced having a great product, service model, business model, funding model, but the wrong management team and watched everything fall apart. Picking the right management team can be tricky, but people tell and show you who they are, if you keep your eyes and ears open.
Your Product and Service
Having a great product or service is one facet of having a great businesses, and it can allow you to restructure you business model to enable you to attract the right investors. Finding a need and filling it is a what I look for in a great product or service. When I was 8 years old, I asked my grandfather how to become rich, and his answer was "find a need and fill it". I asked him what was a need and he replied, "when you find something in life that upsets you, chances are it upsets others". "What upsets you and others, is the need". "Find a way to fix that need, and you have created a solution that can make you rich". From that day forward, I always analyzed everything that upset me and I tried to find a way to fix that problem. If it was a person that constantly upset me, I found a need to replace them with someone else in my life (lol).
Your service is also very important and can also be your product in the eyes of your customers. Businesses that don't have a true product, are valued by their service to their customers. How you support and deliver your product, "is your product and service" that customers and investors will evaluate heavily. You product may be a solution to delivering or servicing someone else's product. The second you offer a poor product or service, gives another business the opportunity to use elements of your business model to provide a better product or service, and put you out of business. The price of your product and service can determine the success of your business. The "Theory of Elasticity" has proven all too well that how you price your product determines the success of your company, and your ability to raise money. What is the "Theory of Elasticity" you ask? Think of a business pricing model as a rubber band that is used to hold things together. If the rubber band is not pulled enough and is too loose, it will not hold the items together. It's useless and is like a product that is priced too low; nothing can be held together. A rubber band has a range of tension that can be expanded and reduced. Once the rubber band is pulled too tight, it breaks and becomes unusable. Once a product is priced too high, it's like breaking the rubber band in the eyes of customers and investors; the product becomes worthless. Reducing your price is like tying the rubber band back together with a knot; it looks damaged in the eyes of customer and investors.
Potential Investors Are Like Good Potential Customers, In A Good Funding Model
Potential investors are also people, and they will evaluate your business from the eyes of being a customer, inspector, as well as an investor. In my future blogs, I am going to show you how to avoid bad and toxic investors, but for now we are going to deal with the subject of good investors. A good investor will want to understand how the business is going to make money with the least expenses possible, and without destroying the service model. A good investor is a good customer, and should never want you to cheat your customers at the benefit of the investors. A business that has many potential customers, has many potential investors. Never trade your customers for any single or group of investors, because once you lose your customers, and you will lose your investors.
Your funding model is a key and critical factor in raising money for your company. Yes; your company, and not just your idea that you have not put in some type of corporate entity. Too many times I have seen people try to raise money without a company in place. People have come to me and asked if I could help them raise money for their business without a finished product, or without a corporate entity established. Not having a good funding model is also the kiss of death in raising money. You need to not only show investors how they are going to make money, but what is their exit strategy. Do you stay private or do you go public is the first dilemma to establishing a good funding model. A good rule of thumb is the business needs to be successful as a private company before you should consider going public. Too many times greedy investors want companies to go public before they can become successful as a private companies. If your business model can't enable you to become successful before you go public, your funding model is a disaster. In my future blogs, I am going to dedicate an entire release in going public vs. staying private. Most investors want an the exit strategy of going public before they will fund a company, which has caused companies to go public too soon and die. This demand has also caused companies that should have remained private to go public just to satisfy their investors. Remember, good potential investors will care about the long-term success of your business.
How Important Are These Tips
In a recent business that I create AMBER Ready, we had a product that our customers needed and we provided retail outlets to enable our customers to acquire the product and service. We had a great pricing model that enabled parents to receive the product at no cost when they renewed their wireless contract. I decided to enable our customers to acquire the product through their mobile phones, which also changed the product, as well as the business model. We called the new product "AMBER Ready II", which became an overnight success. Allowing our customers to download the product in their wireless phones, made the product revolutionary. I chose an investment bank that wanted the company to go public before we were able to develop the business model and acquire the necessary customers to grow the company. When I was raising the money for the company, I oversold the company to the investment bank, which made them want to own the entire company. The investment bank was totally driven by greed and wanted to take over the company so they could cash out by selling their stock. They did not care about the long-term success of the company. The investment bank arranged for the company to receive a bridge loan from their partner company. They structured the bridge loan to enable the partner company to take control of my company. The deal enabled them to receive additional stock if the company did not file a registration statement to go public within 30 days of the close of the funding. This was a trick to steal the company from me. The additional stock was called penalty shares. They also put a clause in the funding agreement to require the company to acquire 500,000 unit sales within 18 months of funding, or I would lose all of my stock. This was another trick, because all they needed to do was distract the company's sales efforts with the registration statement. The deal was structured for me to concentrate on going public within 30 days after funding, which is next to impossible for any startup company. The investment bank also demanded the company hire a consultant that insisted the company launch a 32 city tour around the county, to market the product in the same month the company was required to file its registration statement. To make matters worse, the company's attorney was referred by the investment bank and worked with the investment bank to conceal the structure of the deal. They concealed the number of penalty shares required to be issued to the partner company if the registration statement was not file on the due date.
Once I learned of the scheme, I threatened to file a lawsuit against the investment bank, the partner company and the law firm. I also refused to issue the stock certificates because I knew the scheme would cheat the investors, since the partner company bridge loan was repaid by the investor capital raised from private citizens through the investment bank. I also received a commitment from a company to purchase millions of enrollment units. Before I knew anything, documents were falsified to terminate me by the Chief Operating Officer that was given a $250,000 raise to replace me. They needed to terminate me before I could execute the agreement to sell the millions of enrollments so I would lose my stock. Although I had an iron tight employment and shareholders agreement, CEOs can always be terminated for fraud, which is why they falsified documents to represent I committed fraud. The new CEO issued more than 50 million penalty shares to the partner company of the investment bank and other investors. The stock certificates were issued by using my forged signature to implicate me in the scheme, but were dated after I was terminated; how stupid. The Securities and Exchange Commission never approved the stock to publically trade, so the company had to survive on sales. When I was terminated, the company no longer had the wireless phone downloadable application and did not have anyone in the company to design a new wireless application. They thought it would be easy to find a software engineer with mobile phone development experience. Rather than contract a company to develop a new wireless phone application, the new CEO decided to sell the customers a PC based application without disclosing the wireless phone application no longer worked (See: http://bit.ly/d57IsC). The investment bank and new CEO tried to hide the wireless phone application problems from the customers and investors, which was not smart. The new CEO continued to lower the price of the product without a working wireless phone application, but was unable to acquire any considerable sales. The product was like a broken rubber band. The company was unable to achieve the necessary sales and its operation eventually closed.
This is a textbook example of an investment bank and new CEO that got too greedy for their own good. The new CEO and investment bank did not care about its customers or investors. The company had bad management, because the new CEO was greedy enough to falsify documents to cause my termination and lie to customers by selling a product that did not exist. The new CEO eventually showed everyone who he was and his value system. My mistake of choosing the wrong investment bank and management cost me my business and almost cost me my freedom. The new CEO used the falsified documents to file a complaint to allege that I misappropriated funds in an attempt to prevent me from taking legal actions against the parties evolved. Fortunately for me, the registration statement the company filed to go public contained an audited financial statement that confirmed the documents were falsified and I did not misappropriate funds from the company (See: http://bit.ly/cCrKp8). I also had an angel looking over my shoulders, because the falsified documents contained a typo in my e-mail address that alleged I sent and received the falsified documents. The typo confirmed I never sent or received the falsified documents. This was an expensive lesson that I don't want anyone to have to experience.
After this experience, I created a new company that will fill a need within our society. The product is projected to earn several millions within its first year of operation. This week I learned my new company was approved to receive its first million dollars in funding; so my principles do work. The company is scheduled to launch its operations in the first quarter of 2011. I will keep you posted on the success of the new company. Please stay tuned and read my blog next week that will provide additional investment tips.
Sincerely,
Kai D. Patterson
