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Wednesday, February 6, 2013

Getting to the Term Sheet: Raising the Dough

Kathleen and Stephen Volandt run Auroros Inc, whose technology can help security systems accurately and safely identify unique users in five milliseconds (.005 seconds, or 1/200th of a second). That speed is normally reserved for camera shutter speeds.

The Volandt's are deep in conversation about their technology with a table of the Triangle's tech entrepreneurs and two investor coaches, Elaine Bolle and Mike Elliott. They're talking about the specific action steps that came as a result of completing their Funding Assessment.

More than 60 entrepreneurs are gathered at the Research Triangle Foundation for the CED Funding Series event "Raising the Dough," which, according to Jay Bigelow, director of entrepreneurship, the funding series is specifically designed to help early-stage technology entrepreneurs gain valuable knowledge on how to successfully raise capital and introduce entrepreneurs to investors.

What's the First Step?

Flash back to Table #1 and Kathleen Volandt describing the main selling point for her technology. "What we provide - the unique value - is accuracy and speed." The efficient technology, Volandt describes, can help high-security buildings process and track people's movement more efficiently. It can be deployed in government buildings, or in the maternity wards of hospitals, and ensure access is granted only to those with exclusive permission to enter.

This is the first step of today's Funding Series - identifying the unique technologies and the "value-add" technologies the companies can market and sell. Elaine Bolle, a Triangle-based angel investor, jumps into the conversation, pulling in the rest of the group sitting at Table #1. Before you can even think about 'the funding question,' says Bolle, you need to know two distinct facts. "Who are you going to get to buy your product - your specific product, and how much does it cost you to get a potential customer to actually purchase that product."

If you can answer this question, your company just may be ready to consider fundraising.

Understanding Your Sales Pipeline (& How to Spend Your $)

Across the room, angel investor Jan Davis is holding a similar conversation. Their table is discussing the initial data a company might want to show to an investor to demonstrate traction in the market. "Whatever signaling you can develop to show that you can sell to a target market," says Davis, "will help you immensely when you seek funding."

Understanding the sales cycle and the sales pipeline is crucial for any business. Nearly every investor at every table will make a recommendation that aligns closely with this central tenant of business-growth strategy. Mark Easley, an angel investor, asks the companies at his table "if I gave you $100,000 tomorrow, what would you do with it?" Intersouth Partners' Mitch Mumma asks his table "what two things would you do tomorrow if you were able to raise the money you need today?" not more than five minutes later, prompting entrepreneurs to sit back and think about the scenario of actually receiving the funding they've dreamed about.

Of the more than 60 entrepreneurs, some are ready to pursue funding. Many are not yet ready, but understand the importance of meeting investors early and staying in touch regularly. And some have already received funding from seed investors, accelerators or angel investors and are pursuing an additional bridge round or chasing a Series A round from venture capitalists.

For two hours, entrepreneurs like the Volandt's receive coaching sessions, learning from their peers and from four investor coaches. Entrepreneurs dig into the pain points of growing their businesses, and their coaches and peers help troubleshoot. One entrepreneur described the current capacity of his sales force and in answering a follow up question from coach and investor Bruce Boehm realizes he wants and needs to restructure his efforts and the efforts of his staff to drive sales.

Getting to the Term Sheet

The session closes with an in-depth discussion led by Justyn Kasierski, partner at Hutchison PLLC. Kasierski facilitates a mock-negotiation between Brian Handly, CEO of StepLeader, and David Jones, partner at Southern Capitol Ventures. The group discusses the process of receiving and negotiating a term sheet from both perspectives, and dives in deep to discuss each potential sticking point on terms.

CED is providing the Kasierski slides - at no charge - to any entrepreneur who wishes to review the discussion on negotiable terms within an investment deal. We're also providing an example term sheet, courtesy of the National Venture Capital Association (NVCA), because as Kasierski  indicated, "the last thing you want when you receive a term sheet is to be surprised at the format or how long it is."

What's Next? 

If you're an entrepreneur, whether or not you attended the CED Funding Series, spend an hour this week reviewing these resources. Need further clarification or explanation? CED's director of entrepreneurship Jay Bigelow hosts regularly occurring Office Hours for any of CED's 300 Entrepreneurial Startup Members. Join today and get involved.

Think you'll want to dive in deep and set yourself up for rapid growth? CED's FastTrac program, starting in late March, is a 10-week intensive business strategy program specifically designed to help companies launch and grow their business. Applications are now open - the class will take place on Thursdays at HUBRaleigh.

Want to get more involved in CED and learn from your peers and successful investors? Consider attending CED After Hours - a monthly networking reception that features the area's emerging companies and their entrepreneurs.

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