Raise Capital Smarter: Target the RIGHT Investors First

You.

And I decided to reschedule that person. And the reason is the number one thing that people are asking me for today is they're asking me how to raise capital. They're telling me that either how to raise capital or how to get the resources that they need to move something forward. So whether it's raising money or finding money or help with a website or help with this or that or the other, it's the number one thing that people have asked in the last week. And so I decided to basically scrap our previous plan and do a lesson on acquiring resources and on raising capital. And so that's what we're going to do today. And I want to make sure that I get that up in the academy because I think it's so important. I think that when I look around today.

There'S a lot of people. And I'm going to go back to pre Covid. There's a lot of people that look around at entrepreneurs, and they look around at people who are very successful entrepreneurs that are, you know, they'll look at, like a Richard Branson or they'll look at, you know, an Elon Musk. They'll look at these people on the outside. They'll look at Sarah Blakely, and what they'll say is, they'll say those people must have had some kind of advantage. They must have had everything that they had before they jumped in. And if there's one thing that I've learned, it's this. I've learned that the people who are the very best of the best at what they do, and when I say what they do, what I mean is at starting taking an idea, what, bringing it to market, launching a company, growing a company, scaling a company, these people never, never start with everything that they need. Instead, what they do is they learn how to identify what resources they're going to need each and every step of the way, and they acquire those things one step at a time. You know, I think one of the biggest mistakes that entrepreneurs make is they simply fail to start. They fail to start because, again, they think they need to have everything and everything needs to be perfect. And so what I decided was today I wanted to kind of get rid of that myth. And I wanted to talk to you guys about the difference between having resources and being resourceful. Number one. And when we talk about that concept, the idea is really around this idea of barter. And then number two, I wanted to share with you, if we get past the basically the ability to barter and we really do have to go out there and raise outside capital, Whether it's in the form of a loan or selling equity in our company. I want to share with you how you do it. So you guys cool with that today with our plan? Awesome. So let me just jump right in.

I think that I really got my first lesson in being like super resourceful back in the day when I worked for Tony Robbins. And here's the way it happened. When I started working for Tony, I was 20 years old and the job that I had was me and a small team. It was usually five to seven people. We would go into a city. Now this is a long time ago. Like I'm 20, he's 30. This is like 30 years ago, a long time ago. But what we do is we would go into a city and we'd be like an advanced team. And our job was to go into a city two, three months before Tony was going to be there, a big stage doing a one day seminar. And our job was to sell it out. And the way that we would do it would be to go into companies and do a small piece of what Tony was going to teach and then try and get them excited and upsell them into buying a ticket to the live event. And a lot of people don't realize that. You know, where we started back then, it was a sales program. At one time, I think Tony had the largest sales training company in North America. In the program we taught was the power to influence. So anyway, but here's how I learned how to barter, is that we would go from one city to the next and all we had was our boxes, our cardboard boxes, a label from like FedEx or UPS, and that was it. Maybe a plane ticket. Then when we get to that other city, we would literally land on the ground and we would have a place to stay, but we wouldn't have cars, we wouldn't have cell phones, we wouldn't have expense accounts, we didn't have business cards, we didn't have anything. And so what we had to do was learn how to be incredibly resourceful. So, for example, what we would do is we would get together at the beginning, like when we first got to town, and let's say we're at the airport and we'd all huddle up. Like we go to the bar and we grab something and we huddle up and we would assign every single person a thing that they were going to go and get. So for example, there was one person that might be really great at going to a car dealership and getting free cars. For us to use and think about how hard that would be. Hey, you just show up, you don't know the person. You ask for seven cars for three months at no cost for a bunch of 20 year olds. Like how hard? Like think about how difficult that sale could be. So somebody would be good and they get the car. Somebody would be focused on cell phones. Somebody would be focused on getting printing and business cards done. Some people would focus on doing a gym. And everyone kind of developed their thing. So we always figured it out. So it's important that when you create your deal, it's something that you believe that you could not only achieve, but over deliver on what it is that you offer. It's also really important that you recognize you can't just spend all of your time doing barter deals because it doesn't work either. So you're only going to be able to do a couple of these types of deals and you're going to have to be able to perform. So what does that deal look like? And then finally, it's all about over delivering. It's all about, like I said earlier, making sure that you are constantly, constantly in front of that person. You're constantly doing leave it with money and the exchange of money. There's an energy there. And so let's say I gave you. Let's say you gave me a $20 bill. Let's say you give me a $20 bill and I gave you $100 bill back. So you give me 20 and I give you a $100 bill back. Like you do that deal every day of the week. You just made 80 bucks.

Every single thing that I do, I try and have that same kind of exchange in energy. For every $20 you give, I'm trying to give $100 back. I'm committed to it. And so when you're bartering, it's really important that you have that mindset as well. So number one, again, when we're bartering and we're being resourceful, again, the difference between having resources and being resourceful when we're bartering, Number one, what do I need? Number two, who can provide that service for me? Who in my network? Number three, what currency do I have to offer? Number four, what's the deal? And number five, how is it that I'm going to over deliver on the promise that I made? Does that make sense?

You guys have any questions about that? Any questions about bartering?

Yes, Norman. Thank you, Scott. Hello, everybody.

Are there networks or places one can search online to find barter networks?

You know, I don't know if there are barter networks, but what I do know. That's a great question. So are there places I can go? Are there places I can search online to find barter networks? Like I said, I don't know if there are actually barter networks. But what I do know is there's a barter economy. And what I mean by a barter economy is this kind of trading happens every single day, all day. The people who are successful at it though, and they don't get disappointed, are the ones that go through that process I just took you through, like they are really clear on what they need, they're really clear on what they have to offer, they are really clear on what the deal is. They over perform consistently. What I do and what I know I recommend, and a lot of my friends do, is they'll go to LinkedIn and they'll take a look at their network at LinkedIn. Now, if they don't have a big network in LinkedIn, what they'll do is become very intentional about building one is what they'll do. You know, so look for people out there that have a job description or a job title or a core competency that's in line with the things that you need, you know. And again, the key though is not just to find the right person, but make sure that you can do a deal with them where they feel good about that deal. Now, I will say this. When you're bartering, if you're trying to barter with a big company or you're trying to barter with somebody that's really super busy, you'll probably be disappointed because they're not getting paid and they're getting paid from other places and they just might kind of put your work on the back burner. So right now, during this Covid economy, there are people in transition everywhere. There are people who are amazing at what they do, incredible at what they do, that also feel a lack of resources, but they have resourcefulness. So there's probably never been a better time for you to be able to go out there and to find what it is that you need and barter with somebody who's really badass and what it is that they do. Does that make sense? Yep. Okay, great. Any other questions from anybody all across?

Yes, I got one quick one for you. So actually I think it's really great that you're saying this because I'm actively doing this. And so I'd like to like maybe just say how I did this, how I came across it, which might actually answer that question.

Awesome.

So I am absolutely terrible at marketing. I. I'm not good at it. I'm just very straightforward about it. I have a limited functional knowledge. I'm also a small business, single member. You know, I am the one person.

Here, solopreneur, grinding away. Yeah, yeah, yeah, yeah.

What is my job title? Yes, all of them.

Yeah.

So what I did is I found a marketing person, come and try. You know, she was going to sell me, you know, her products. She was good. Vetted her out, did exactly what I would do if I was going to be her client. And I said to her, look, here's where I'm at. I'm a solopreneur. You know, I don't have. I don't want to, you know, I don't want to pay less for your product. I don't want to ask for anything for free. But I just, I don't have the resources right now to pay you.

Yeah.

However, what I do, though, is I write platform speeches.

Right.

And she was going to be giving. She was going to be giving a speech about a month later. And so I said, here's what we're going to do. Can I barbecue one speech for one marketing plan?

Amazing.

We came up with the exact dollar amount that it was going to be. So if I were to charge you for this, it would be this.

Yeah.

And we did that to start off with, to make sure there's. That we're getting an apples to apples comparison or we're getting exactly the value. There's a. There's an equal value exchange. And it worked out to be a great relationship. And I've done this a couple of times with people.

Yeah.

And so that might be something where I had a need for somebody to help me with my marketing while I grew up my business, whereas she had a need for somebody to help her develop a speech that she was going to give regularly to then generate leads. And so, yeah, so it happens.

Yeah.

I was on a random webinar with her one day and it just did not know who she was. We said, I need to talk to you. You know, marketing person, you have 20 years experience. Let's have a talk. And that's how I found mine.

That is. That is. That is a great story. And congratulations. You know, there's a couple things that kind of stand out to me from what you just shared. The first is this. When we're bartering with people, make the barter One thing to start. Don't start with, hey, I'm going to do these 10 things for you, and you're going to do these 10 things for me. What I would do is one thing, make sure you guys do the one thing and then move to the next. So that's number one. Number two is we have to treat the people that we're bartering with just like they're our customer. And what are the two most important questions I always ask you to ask your customer? Number one, what's most important to you? Because we may see this person, we may talk to this person, we may think that based on what we do, we know what they need and we deliver what's important to us. But then if you ask them what has to happen, how do you know that you're getting what you want? The person says, you know, I need a speech. Well, what has to happen? How do you know you're getting a speech? That's a killer speech. And the person gives you their rules. And it's going to be 20 minutes. I'm not going to have any slides. You know, I have to do it over zoom. I have to develop rapport with people that actually aren't even in front of me. They're through my computer. And what will happen is you'll be able to create this map in this buyer blueprint. And, boy, if you just deliver to that and over deliver to that, you're going to have a barter person on the other end that's then going to say, hey, what else can I do for you? I really appreciate what can I do for you. That makes sense. Yeah. So that's barter. And, you know, the thing is, for a lot of companies, barter is all that they need. In fact, most people. I think there's a lot of people out there that think that lots of businesses get funded, that maybe the majority of businesses get funded. And this is a really interesting stat for you.

And by the way, if you're in certain industries, like I was in the tech business and I'd read the tech trades, and every day if I was raising capital, I was reading these trades, it looked like everybody else in the tech industry was getting funded except for me. What a buzzkill. And I couldn't understand why. But here's the reality. The reality is only one third, actually less than a third, 30% of companies in the United States ever get funding. So only 30% of the companies in the US ever get any funding. The average company that gets funding has already been in business for three years before they take in their first dollar. Now, businesses that get funded, that bring in loans. Those businesses oftentimes don't need to go back and get another loan. On the other hand, businesses that raise capital and exchange equity on average end up raising capital three times. So it's two kind of completely different worlds even in that world, right? Of raising capital. But let's talk about how we do it. Let's talk about how we raise capital. So let's say as an example, you're a person that's gone out there, you have bartered, you've been really successful at it, but maybe you've taken it as far as you can go. Now you really actually do need some more cash for your business and you're not sure where to start. Well, here it is.

I think that the biggest mistake that I see people make when they're raising money is they talk to all the wrong people. I'll give you an example. So I had this client a couple years ago, and this particular person, I mean, I've raised. By the way, I share with you guys that what I teach, it's not like out of a book. It's not like everything that I'm teaching is based on my own personal experience as an investor, as somebody raising money, writing for this kind of topic for Inc. And entrepreneur and all these different places, being really active in the investor community. What I can tell you is this. I will deal with a client and the client will be so excited because they put together this fancy investor deck. They're in love with whatever it is that they're doing. They're super pumped up and they haven't been invited in to any investor meetings. And then one day I get the call and the call is from the super excited entrepreneur. And they say, oh my gosh, I got. It's always the same thing, the big meeting. They always say the big meeting. And the big meeting is when somebody invites you in, you do your pitch and you think that you're going to walk out with a check. But when the meeting's over, that's exactly what doesn't happen. You walk out, you don't know what happened and why you weren't able to close them or get money or any more interest. And they call me and they say, what happened? It's always the same thing. Again, the biggest mistake people have is they talk. They're spending all the time talking to the wrong people. You see, investors are in the business of making money. And not only making money, but also mitigating their risk. And because their job is to mitigate their risk, what they do is they have a certain set of criteria that they follow to make sure that they're investing in deals where they have the highest chance to succeed. So what your job is, is an entrepreneur is to develop a target investor avatar, the perfect representation of the type of person that's going to invest in your deal and then talk to them. And here's how you do it. The first is this when creating your target investor avatar. And this is step number one. And by the way, this is a great tool for partnerships as well, doing strategic partnerships. So step number one is this. I want to know what, where has a person made their money? In what kind of industry or job did they make their money? Because people invest in things that they know, that they know intuitively. So if I take for example a real estate deal to a tech investor, that may be a mismatch versus if I take an early stage tech deal to an early stage tech investor, does that make sense? And what happens is, say because of your passion and your charisma and all that stuff, you get somebody who doesn't really know your space to invest in your deal, it will be the worst investor that you ever have. It always is. And the reason is that's a person that knows somewhere intuitively that they didn't really know how to analyze the deal. They don't really know if the company's working and if things go sideways, they don't know how to save it to step in and save it. So number one, I want to know where did this person make their money? Number two, what stage of company do they invest in? What stage do they like the idea stage? The we're in the market but we have no money. We're pre revenue. Are they a post revenue up to $10 million in sales? Where are they on the spectrum? So what is the deal or where do they make their money? And what stage? And by the way, stage is so important because you may be talking to an investor that feels like the perfect investor for your business, but you're just, you're early, you're at the wrong stage. And so again, you might be talking to the right person. It's just you're talking to them at the right time. And so what are you to that person? Market research. So what you have to do again is be very careful about these things. So where do they make their money? What stage do they invest in? Number three, what is the average size check that they write? Is your investor somebody that's writing a $10,000 check or are they writing a $10 million check. These are completely different people. And I can't tell you how many times I'll talk to an entrepreneur and they'll say, yeah, I went and you know, I said the minimum investment was 25 grand. But they didn't realize the person worked for a firm where they couldn't write a check for less than two and a half million dollars. That's the way that big VC firm worked, or vice versa. They asked somebody for a million bucks, they write checks for 10,000. So we find it out early. So number one again, where did you make your money? Number two, what stage you invest in? Number three, average size check. Number four, what is the timing for when you want your money back? The timing for when you want your money back? Do you expect a return in two years, in three years, in 10 years? These are very different types of investors. So what is your timing next? What is your expectation for return on investment? What is your expectation for the return on investment? Do you want to get 1 time, 2 times, 10 times, 50 times your money back? You know, you may have a deal that checked all the boxes up to now, but because of how big you think your business can get, it just could never deliver the kind of return that the guy that you're talking to wants. Nothing wrong with that. The only thing that's wrong with it is if you spend a lot of time trying to close that person because you didn't know this important piece of information. And then the last thing is, what is your decision making process? What is your decision making process? Is it just you? Do I just have to influence you or are you part of a group of people that invest together so we in the end have to influence them or are you part of a firm or an institution? So again, the first place we start when going to raise capital, step number one is to create a target investor avatar, the perfect representation of who it is that's going to invest in the business. And what we're going to find out is where do they make their money? What stage do they invest in? What's the average size check? When do they want to get their money back? What's their expectation for return on investment and who makes the decisions? Now how do you find this information out? If it's a firm that you're going to, you can typically go to their website and you can find that information there. Or what I just do is I ask, that's all I do. If I get on the phone with or I'm introduced to an investor, I say, yeah, this is What I'm working on. Let me ask you a few questions before we get started. Well, I'm curious. Where did you make your money? What company or what industry have you been in? Cool. What's the average size? Check that you write. Awesome. What stage of company do you invest in? What's your expectation for your return? When do you want to get your money back? And how do you get to a decision?

Here's the thing. In two minutes, I've learned every single thing that I need to know at this stage about that investor. And one of two things is going to happen. Either they're going to be the right person for me and we both know it, or the deal might not be right, but they're the right kind of investor, or we know right away they're not the right investor, in which case I'm not going to go spend the next hour pitching them, you know, or weeks or months, hoping they come in. And what I do is I say, look, I know this deal isn't necessarily right for you, but who do you know? And you will look like such a pro when you start the conversation that way. They will be so grateful that you save their time. When you start the conversation that way, the odds are they know for right investor for you, and they will be the happiest people to refer you. And the first thing they'll say when they refer you is, I think this person's a pro. That's what happens because nobody does it. So that's the first thing we're going to create our target investor avatar. Second thing, where does the money come from? This is a big question I get. Where is the money going to come from when it relates to me going out and raising capital. So at a high level, I'll take you through some of your options or alternatives. The first place that people find money is their own bank account. It's their own 401k, their savings, they go to themselves. Right. The second place would be friends and family. Friends and family are typically people that, they love you, they're behind you, they want to support you, they want to encourage you. They don't even necessarily care what the deal is or want to know. They just want to help. And friends and family will invest anywhere from 1,000 bucks to, to, in a really stretched case, maybe $25,000. But a typical friends and family is probably anywhere from 1 to $10,000 as an investment or a loan. That's the first place. The second place that you would go would be to angel investors. Now, angel investors are Kind of like semi professional investors. And what they typically do is either work alone or, or they work in an investment group. And they'll typically invest anywhere from $10,000 up to about $250,000 in a deal. Sometimes it's them individually and then sometimes it's them pulling together the group and they all come in together. Now, an angel investor typically will have the right one, will have experience in your industry, will have contacts in your industry. 50% of angels like to get involved and they may ask for some kind of consulting deal or some way to be connected and to work on your business with you. So that's just something to know. Okay, so those are angels. The next would be what I call seed stage investors. And seed stage investors are typically investors that are investing anywhere from 250,000 to a million, maybe a little bit more into a deal. So to get to a seed stage investor, you've got an idea, you've taken to market, you've shown success in the marketplace, you are very clear on what your leading drivers are for your business and how it is that you're going to grow to the next step. You got a clear plan and you're going to go to a more professional investor that sits somewhere between a angel and a venture capitalist. And that's who those guys are. And then finally, we'll talk about VCs, venture capitalists. These people typically come in later, they put in much more money. They are, they're experienced, they're seasoned. And you know, the deal that you do with them is going to be a lot tougher. It's going to be a much tougher negotiation. You're going to have to give up more, probably a lot more to work with a vc, you know, and then beyond that is private equity. So again, if you pick up my book Breakthrough from Entrepreneur magazine, Entrepreneur Press, I do a whole section on how to raise capital and what all of your options are and how to approach all of them and how to close a deal with all of them. So I recommend that you pick, that you pick up Breakthrough. The next question that I get is, okay, so now that I know who my target investor avatar is, now that I know who kind of like where, generally speaking the money is going to come from, what do I need to put together? What kind of materials is it that I need to put together from the beginning? Now when I first got into business, we were all taught the same thing. We were all taught to put together these big, fancy, long, elaborate plans. I'm talking a 25 to a 50 page business plan, these long plans that told us everything or told the investors everything they could possibly ever want to or need to know about our business or industry at that time. And the challenge today is that things move too fast. By the time you get to the end of that 50 page plan, the odds are the market has moved on you. And so the most valuable tools, and I should say, and.

Our attention span has gotten so much smaller, so much shorter that it's important for us that we're delivering things that are shorter, tighter, more compact, more easy to absorb in bite sized chunks in order to keep something moving. So what do you need? Number one, you need an executive summary. And your executive summary is going to be a page to a page and a half. And what that's going to do is share what your mission is, what your market is, what problem you're solving, what the solution is, who your competition is, how you're going to make money.

What your capital requirements are, what the return on investment is, who your team is. It's going to have all this type of information.

The key is you got to keep it to a page or a page and a half. And what most people will say to me is they're like, that's impossible. There's no way I could do that. I mean, I can write five pages just on my market. Here's the thing, if you can't explain your business simply, you don't understand it and neither will anybody else. If you can't explain it simply, you don't understand it and neither does anyone else. So it's really important.

On this executive summary, executive overview is to touch on all of these things, have it be a very easy read where you really understand, you really get it in each one of these areas in your business. And the investor or potential investor is able to walk away with a clear understanding. And by the way, this is a really important document. This document can be altered for your strategic partners, it can be altered for your employees so that everybody is on the same page, particularly at whatever stage that you're at as a business. And so I always start number one with the executive summary. Number two, what I put together is my pitch deck. My pitch deck is typically anywhere from 12 to 20 slides. And my pitch deck is kind of like, I look at it as kind of like it's taken the place of what the old school business plan did. So on each page of the pitch deck, you're going to talk about the same things that we talked about in the executive overview or executive summary. The Difference is it's in a presentation format. You can add graphics and things like that to it so it's easier for a person emotionally to connect to each item, to each slide. And that's what you do. What I can tell you is this. What I can tell you is with a pitch deck, what you don't want to do is you never want to go beyond 20 slides. You really have got to be able to explain your business and get through that deck quickly. A typical investor meeting is booked for about an hour. And in that hour that you spend with the investor, here's what you want to remember about your pitch deck. You should be able to get through your entire pitch deck in 20 minutes or less. And then the next 40 minutes should be spent on Q and A. This is the metric that you want to use. The first 20 minutes of that hour is on your pitch deck and you going through it. And the next 40 minutes, the next 40 minutes is you answering questions from the people that you're pitching to. Does that make sense? So again, we've got our executive overview and we've got our pitch deck. And before I tell you what comes next, what I want to do is I want to talk about how we keep a deal moving. Because what you need and how you keep a deal moving along and push it to close are totally interrelated. They're completely connected. It used to be back in the day, like when I started in Silicon Valley, that we make these big debt, these big business plans and we'd send them to an investor. Now I have friends that in Silicon Valley whose firms get ten thousand business plans a year. Ten thousand business plans a year. Imagine ten thousand fifty page documents on your desk. You're not going to get through anything. And so what I advocate is what I call the drip system. This is the technology that I use and that I've created. It's called the drip system of selling a deal to an investor. And the idea behind the drip system is simply this. It's that what we do is we put together small pieces of information, pieces of information in bite sized chunks that an investor can get through quickly, absorb quickly, react to quickly, and then keep the deal moving. So instead of sending a 50 page deck first, where do we start? Number one, you got to have a great elevator pitch the first time you talk to this person. Before you give them 50 pages, explain your business in 15 seconds. And how do you do it? You do it like this. A perfect elevator pitch starts with my name, my title, and my company is my name. Is Scott Duffy. I'm the founder and CEO of the what now Academy. Okay, Number one, my name, my title, my company is. Number two.

This is what we do. This is what we do in a sentence. Number three, this is the market we serve. Number four, this is how they benefit. Number five, here's an example. And that's it. And you can get all of that in, in 15, 20 seconds. This is who I am. This is what we do. This is the market that we serve. This is how they benefit. Let me give you one example. Is this a product that you need? Is there somebody that you need in your network that needs something like this? I always ask a question to wrap the thing up. So what I do is I start with an elevator pitch. The second thing that I do is I go from the elevator pitch into this person's interested, they want to learn more. When I send them that first email, I don't send them a 50 page plan. What do I do? I send them one paragraph, one paragraph that summarizes what I just gave them in that elevator pitch. And a little bit more.

Follow. I'm just dripping information. It's super easy for them to digest. The next thing that I get when we go back and forth is I send them that one page or one and a half page executive overview of the business because they always ask for it after they get the perfect elevator pitch, then they want the executive summary. And then the next thing I do is I schedule a call or a meeting. And during that call or meeting, I, I go through the PowerPoint presentation. Now here's what's important. Never ever, ever send a deck to somebody before you present. If you think you're going to present to them or if it's the day of a presentation, you think maybe you're making it easy because they can open it up on their computer. You never want to send somebody that deck. And the reason is because they're going to be reading it when, while you're presenting and not paying attention to you, they'll be moving around their own version. Okay, so I understand that sometimes we need to send a deck to somebody to pique their interest and get them going. But when you're presenting, you need to make sure that you've got the only version of a deck that's open during your presentation. And one way I do this, if I know somebody got the deck earlier, is I say I going to open up the deck on my end and share my screen. I want you to know this is a new deck. You haven't Seen this with the most recent or latest information in it and then they're not going to open. Does that make sense? So what we're doing is we're dripping information to people. Okay, so now let's say we've done our pitch. Okay. Or we've, and we're going back and forth. Here's what happens. What happens is they say, you know what, I have a question about your market.

What most entrepreneurs do is they say, great, let me answer it. And they send something back that talks about their product and their market and their competition and 20 other things. If somebody asks you about the market, here's your challenge. I want you to respond with one page. One page just on the question that they asked because they don't care about anything else at that time. One page, no more on the question they asked. And then get that back to them again, you're dripping them information. And then once you nail that one thing, they're going to have another question and you get back to them. Raising capital takes a lot of time. It takes a lot of time. We can reduce the amount of time by making sure that we spend our pitching energy with our perfect target customer avatar. That really helps. But to close a deal, it's important that every piece of follow up is customized for that investor based on the specific questions that they have at that specific time. Does that make sense? See, what most entrepreneurs do is they sell what they think is most important. Okay, they sell what they think is most important. But when you're dripping information and you're really listening, it's, it gives you the opportunity to hear what's holding that investor back from making a decision in you. I'm concerned about the market. I'm concerned about your pricing, I'm concerned about your competition. Once you hear what that is, lock into that and just do one page on that, make it great and get that to the person and keep the deal moving. Okay? We on the same page. Awesome. So then the next thing is, what are some of the things? So now let's say, now let's say we figured out who our target customer avatar is. Let's say.

We have put together some great materials to kick off our effort. Let's say now we've got an investor that's engaged and we're using what I call this drip system of going from a great elevator pitch to a great paragraph to a great summary to, to a great pitch deck, to great follow up. Bite sized pieces of information, small chunks that you can use to keep the deal moving.

Let's say you're crushing it and then one day everything is dead. It just dies. And you don't know why.

Let me share with you some of the most common reasons that a deal dies. When you think that you have momentum. Okay, number one, an entrepreneur harps on the fact that they're first to market. Okay, Entrepreneur harps on the fact that they're first to market with anything. When you say you're first to market as an entrepreneur, you may think that that turns somebody on on the other side because you have some kind of competitive advantage or edge. For first to market to an investor means a shitload of risk. And here's why. It's usually not the first to market that wins. It's the first to market that gets through some of the hard stuff, spends all of their money educating. The market usually runs out of money. It's number two that wins. So when you say first to market to an investor, that either sounds like number one, you don't realize how hard it's going to be. And you know, first to market usually doesn't win or they think that you're not telling them the truth and you haven't done your homework. Because seriously, what is first to market today? Like, this is a big world. There's a lot of entrepreneurs out there. Are you telling me that somebody else didn't have this idea and hasn't tried to execute it or something? That's pretty doggone close. So first, first to market is one of those things that can kill a deal. Second thing that can kill a deal is if you focus on this idea that the big companies will never be able to compete. We're small, we're agile, we're fast, we're early, we've got to. Here's the thing, if Microsoft wants to jump in, they have a hell of a lot of capital and they have a lot of people behind them, a lot of smart people. It doesn't mean that they can win your market, but what it does mean is they can compete. And so again, the first two things that we always hear are first to market. We hear that the big guys aren't going to be able to jump in.

Another thing is oftentimes people will come to me with deals that have what I call red flags. And a red flag could be a deal that has really big government need to succeed. So they plan on, as an example, working with the government. Government contracts take a long time. There's a long sales cycle, there's all kinds, so government or regulatory related stuff. So what will happen is the deeper somebody gets into a deal, they realize there's a lot of government or regulatory stuff. All of a sudden they're spooked and they drop off. Now here's what I'd say. There are a ton of investors out there that are totally cool with all of that government and regulatory stuff. You just didn't understand who your target investor avatar really was. We have to go and add that to our list is as this is a person that feels comfortable with these types of things. Does that make sense? The other thing that can kill a deal when you have a ton of momentum, this idea of having a.

Hobby type of business. Okay, so an investor may love the business that you have, they may love what it is that you're doing. Let me give you an example. I live by the coast, a surf shop. I want to go raise money for a surf shop. And one of the things that I share with that investor is how one day we may be able to sell the surf shop. And the investor likes to hear this story because they're going to want to be able to get their money out one day. The problem is the more they get to know you and how passionate you are about surf and a surf shop and the lifestyle, the more they may realize that, you know what, this entrepreneur may never want to sell or this business can only grow to a certain point. And so I'm really capped on how much I'm going to be able to take away. And in terms of a return on investment, if you have that kind of business and somebody pulls out because they realize that, what does it mean? It means you didn't really understand who your target, your target investor avatar was. What you need to do is find somebody that likes to invest in lifestyle businesses and you go and find somebody that has the same passion for surf, the same passion for hanging around the surfboards, the same passion. My point is everything that you need, every investor you need is around you in your network now, or they're within your reach. What's keeping you from finding them is not having a clear enough vision about who they are and what it is that drives them to. Yes. And so those are some red flags that I see quite often now. Let's say you have gotten through all of that stuff so you had a perfect, clearly defined target investor avatar. You put together some great materials to start pitching investors and you got in the door and you leveraged the drip system of communication, giving people small things, bite sized things, bite sized chunks in order to keep the deal moving. You got through all of their objections, there were no red flags that were seen by that investor tied to your deal. And now it's time to negotiate.

How are you going to do the deal? There's three basic ways. Three main ways that entrepreneurs get a deal done. Number one is they get a loan. So they'll do just a straight out loan. Now, if you do a loan, there's a few things that you have to understand. The first is this. What is the term? So how long am I borrowing this money for?

What is the interest rate? And is the interest rate, Is it simple interest or is it compound interest? Am I giving this person back 10% on their money at the end of two years or 10% a year? Is it simple or is it compound interest? And finally, is it secured by me or not? If the company goes out of business and I can't afford to pay you, are you coming after me or are you coming after the business and the business assets? So again, if you get a loan, you want to know number one, what is the term or the timing, what is the interest rate? And is it simple or compound interest? And is the secured note or non secured note? Okay, that's the first thing. Loans. Second is convertible notes, safe documents. But we're going to focus on convertible notes. A convertible note is when you have a document that starts out as a loan and then so there's a timing, a term, a time, and there's an interest rate attached to it. And then after a certain period of time, that note converts into equity in the company. Now the reason that someone would do a convertible note, there's a couple reasons. One is this, as an entrepreneur, it's typically a lot faster and a lot less expensive, a lot more affordable to put together a convertible note versus a big equity deal. So it's faster, it's cheaper, and it provides a lot of flexibility in terms of terms. I will do a whole other class on how to do convertible notes. But just know at a high level, you've got loans, you've got convertible notes. So the note converts to equity and then the final thing that you have is just pure equity. So I'm just selling a piece of my business to other people. That legal work typically takes longer, it's more complicated, it costs more money to do. I highly discourage early stage companies from going that route as a result. But here's what you need to know. Going to share two things with you that could be life changing. The first is this. Most entrepreneurs think when they're negotiating equity or ownership in their deal that that's all that matters. That if they keep the majority of their company, then they've won, that they've kept control, that they make the decisions, all that kind of stuff.

It's one of the biggest mistakes that I see people make. You see, there's two things that sophisticated investors will always try and slip in a deal if you're not paying attention. And the first is this control.

They'll want control things written into the deal. So here's the thing. You may do a deal with somebody, you may be negotiating hard. I want 51%, you get 49. I have more equity. They say. Finally, they say, yes, I'll do it. And you're like, yes, I won. But what you didn't realize is in the deal, they were negotiating control. So who gets to make the key decisions, for example, on things like who has your job, who gets to make payments, who brings in vendors, who ultimately signs deals? There's all kinds of things that people can control, right? So you want to understand control and pay attention. And the last thing is preferences, okay? And again, going back to control, just because you have more equity does not mean you're in control of anything. So it is important that you focus on that. You got a good attorney that advises. And then finally, there's preferences. So a preference at a very high level is this. Let's say there's a financing event. Let's say somebody decides to buy your company. Okay? Now, I just want to make this example simple. So let's say it's two of you. You own 50% and your investor owns 50%. And let's say a bunch of money comes in. So you think that you split the money 50% to you and 50% to your investor. What you didn't realize when you were busy just fighting for who had the most equity is they threw a preference in there. And that means that they get a multiple on their money before you see any. So, for example, they may get two times the money they put in before you split 50, 50. They may get 10 times the money they put in and wipe out everything that was paid in the sale before you split 50, 50. So again, when you're negotiating a deal, I mean, we could do an entire, you know, we could do a day on this. But the two most important things, I want you to pay attention to.

Our preferences. I'm sorry, our control and preferences. Okay, Control and preferences, not just who owns more of the equity. So.

I know there's a lot of information, by the way, and it's just like Boom. But here's the thing. I've spent the last 30 years in this space and around this space, and I've been on both sides of the table as an entrepreneur and as an investor. When you've done it as long as I do, you see patterns and you see habits that people have. And my goal is really two things. Number one is to protect you. I just want to protect you as the entrepreneur. And number two, I want to help you to do the best deal for you, the best deal you can possibly do for you. And so to do that, it's really important we understand all of this. Number one, how to barter. And we talked about that. And if we move past barter because we bartered as far as we can and we have to raise cash, how do we do it? We create a perfect target investor avatar. We create the right materials to kick off our raise. We leverage the drip system of selling a deal in order to keep that deal moving. We overcome any red flags by answering those things one at a time and making sure up front that we're talking to the right person, the right avatar. We clearly know where the money's coming from. We clearly know when we're negotiating, what do we need to pay attention to, like what really matters in the deal. And I think if in the last hour you're able to get a sense of all of those things, it's going to put you ahead of 99% of the people raising money, because nobody's really teaching out there what really happens when you raise capital and how it really works. It doesn't matter what the book is or what the course is. So, like I said earlier, I canceled my guest who was going to come in today, because so many people are asking me about this right now, and I wanted to share the information with you. So do you guys have any questions?

Good. It's a lot. So, on that Note, it is 12 o', clock, so it is time for us to wrap. And I wanted to thank you guys for joining today. We'll be back on Tuesday with office hours. You'll see here over the next 24, 48 hours, all of our previous talks that we've done go up in the academy.