Selection Meetings - January 2014

Introduction

Our intent is to find 4 to 6 start-ups per year that have the potential to build real wealth for the founders and yield great returns for their early stage investors. If the founder does not become wealthy within just a few years from starting this business then the early investors will probably not reach the very high returns appropriate to the risk they accepted. This is not about making a good pitch. It is about evaluating a good business opportunity. The experienced entrepreneurs that make up NTAN know how to recognize a good plan when they see one. Most good plans turn out to be very simple.

There are 6 Major Steps in the NTAN relationship with a start-up company. The NTAN “Entrepreneur Orientation” document briefly describes each step. This document more fully describes what happens at the monthly Selection Meeting. This is what the orientation document says on the subject:

Opportunity Review and Selection

Usually occurs on the 3rd Tuesday of each month with presentation to Selection Team of about 10 Members. Can be via web, but in-person better. Entrepreneur explains investment opportunity being offered in 5 to 7 minutes and answers questions. This step makes the company an NTAN Applicant for Funding and requires a once-per-company-lifetime fee of $250.

A word about vocabulary:

The connotation of a “pitch” is that you are selling something. It is detrimental to you to try and sell anything to these investors. It cannot be done. This fact is not because of you or the investment opportunity you are presenting – nobody can sell anything to these guys! You must be an amazing communicator and be able to clearly explain the business opportunity you have discovered and how you will monetize it for yourself and your investors. But it is not about making a good pitch. It is about explaining a good opportunity. So don’t think about “pitching your deal”, think about explaining your business.

A word about confidential information:

The matter of confidential and/or proprietary information must be resolved at the very beginning of discussions. Data and information security is a serious matter. Because we have several hundred conversations a year with start-ups we cannot possibly remember what we heard from whom about this or that market space or product category. Hence we cannot possibly agree to keep a set of ideas secret. It is also true that we are organized into a group for the purpose of discussing start-ups and it is beneficial to the entrepreneurs that we discuss their situation freely within the group and with our close associates. The time for disclosure of true confidential information, such as technical details of a patentable invention or knowledge of a customer list, is once a due diligence team has done all they can do without access to specific details.

A final word of introduction:

If a company is not ready for strong light to be directed into every corner of its business then it probably isn’t ready for investment by strangers. We are willing and able to make changes to our process when the unique conditions of a particular company require it.

Opportunity Selection meeting

The NTAN Selection Team that meets the 3rd Tuesday of every month to select 2 or 3 companies to be invited to make full presentations at the following monthly meeting. We usually review 6 to 8 companies that have passed the informal evaluation activities of Members and/or the Executive Director. There is a $250 fee to participate in this formal review. Each company must have submitted an approved Opportunity Review form.

At the Selection Team Meeting each company will have the floor for 15 minutes total. The presentation can be as long as 7 minutes, but 5 minutes is better. This is plenty of time to explain an investment opportunity to these experienced investors. It is an error to waste time telling us why this is a good deal – we already know you think that. Explain, do not try to sell. The point of the process is for the investors to make their own independent decision as to the quality of the opportunity. Our Executive Director, and perhaps some Members, will help you understand how to prepare for this meeting.

We do not specify a set of required slides. Use slides that help us understand the main points you want us to remember. You should review the rightly famous Guy Kawasaki 10-20-30 Rule of Powerpoints. If you think you can improve on his recommendations then please do so. There are situations where slide decks are prepared to be “standalone” and understandable when sent to people without their hearing the actual presentation. This is not such a situation. The slides you should use for this event need to be a visual aid to helping your audience understand your most important points. Never put yourself in the position of having to explain what a slide means.

The earlier such slides are available for review the better. Multiple dry runs can be conducted via phone. Unusual or difficult matters will be presented to specifically qualified NTAN members for clarification. The point of a good presentation is to suppress unnecessary questions, yielding extra time for critical items.

NTAN does not claim to offer insight on how to work with investors in general. There are many sources of risk capital and all are good in the situations they find interesting. The information in this document is about good communication with this group of active investors. Simple and tight communication is possible because the Selection Team consists of experienced operators who look at start-up companies every month. Be simple and direct with NTAN.

We want to hear a presentation about the business, not a product sales demo. We do not allow videos, more than very brief show-and-tell of products, be they web sites, application software, medical devices or industrial equipment. If you have prototypes or actual products of course hold it up for all to see, but mostly tell us about the business opportunity. There is much more to a good business than a good product.

We want 1 presenter, not a tag team type format. Members of the founding team are welcome at the meeting, but it works against opportunities if it is not possible for 1 person (the guy in charge?) to get up and tell all there is to tell about it. On the subject of “Founding Team”, be very clear who is fully and totally committed to the success of the venture and who is merely “involved”. If you tell us such-and-such person is your advisor and famous and successful within the industry we are going to ask how much they have invested and what are the terms and conditions of their advisory contract with you. You don’t want to tell us “invested nothing and there is no contract”. The “founding team” brings to mind the expression “lives, fortune, scared honor”.

Very seldom does it work well having “back-up” slides to use when answering questions. What is best in this group is to answer a question simply and directly and then ask if you’ve answered that question properly.

Each founding team will be in the room hearing all the other presentations and the Q&A. We believe this part of our process conforms to the expected rules for a Quite Offering per the JOBS Act. There are a number of advantages of this for all concerned. In the first place, each applicant company needs to understand they are competing for scarce investment dollars with the other deals being offered to these investors at the same time. You may get unexpected insights from such interaction.

At the end of the presentations the entrepreneurs will be excused and the Selection Team will discuss the offerings in private. Their goal is demanding: decide which investment opportunities to tell their fellow members, “We think you should spend your time on this.” Note that they are not obligated to recommend any companies go forward, only those that appear to hold potential for real wealth building. It is usually quite clear which opportunities are most interesting and ready to get in front of the Monthly Member Meeting. Often there are companies that really should make some specific progress before they hold themselves out to such a tough crowd. Sometimes the Executive Director is tasked with getting answers to a few detailed questions before they make a decision on a particular opportunity. Whatever the results are, they will be communicated to the presenters the following day. Most will be encouraged to re-present when they have made more progress.

Sometimes opportunities get the attention of 1 or more members, but are not recommended to present to the Monthly Member Meeting. Our culture encourages members to become engaged with such a founder and to help the company get ready for full presentation. Never, ever, will one of our members suggest or accept compensation, cash or otherwise, for such assistance. Sometimes the member will actually make an investment and of course expect ownership interest for that investment. This situation could prove to be the best of all possible outcomes for the entrepreneur when it is time to come back into our funding process.

Below is the table of contents for our Due Diligence workbook. Not each these topics can be addressed during your Selection Meeting presentation. This is included here to help you understand the rigor of the process from Selection Meeting to a funding event.

 

The Opportunity

  1. Quality of product/service
  2. Reachable target market
  3. Size of target market
  4. Product plan/milestones
Sales & Marketing

  1. Reference accounts
  2. Acquisition/retention
  3. Sales forecast/plan
  4. Marketing Plan
  5. Sales & marketing talent
Competition

  1. Current and/or expected competition
  2. Competitive position
  3. Analysts perceptions
Technology

  1. IP (Patents/copyrights/marks)
  2. Designs, drawings and process
  3. Product development
  4. Product readiness
  5. Technical executives
Financial

  1. Income statement
  2. Balance sheet
  3. Cash flow
  4. Forecasts
  5. Financing risks
Legal Structure & Status

  1. Organizational documents
  2. Litigation, insurance, compliance
  3. Contracts, agreements
  4. Environmental
Management

  1. Management team
  2. References
  3. Organization
  4. Governance and advisory board
  5. Pertinent contracts, non-competes
The Deal

  1. Term sheet
  2. Valuation
  3. Exit