innovate arkansas

We all remember the days about 10 years ago when a company could get venture-capital funding with some slick PowerPoint slides, an internet strategy and a creative management team. 

This immature PowerPoint slide deck was all many companies needed to reach VC funding, and with a little luck and some hype, maybe even reach the public markets or sell in a hefty buyout. Many companies got funding before they were ready, and if timed perfectly, the company and the investors exited before the true business fundamentals caught up with the inflated valuation.

Fast forward to 2010 and the world is much different. Investors have learned their lesson from the tech bubble, and as a result, most companies that attract the attention of investors need much more than a slick PowerPoint presentation. Even the most immature company, the startup, needs a relatively mature PowerPoint presentation these days supported by a business plan and financial plan that can stand up to rigorous due diligence prior to investment.  

What is a "mature PowerPoint"?  At Innovate Arkansas, we have seen hundreds of PowerPoint presentations in the last two and a half years, and in response to observing numerous one dimensional presentations, we formed a PowerPoint outline. The IA PowerPoint outline is what we would call a well rounded, mature PowerPoint guide. 

The outline incorporates the primary factors that a company should consider when building a company toward a successful commercial enterprise. Those factors include Management, Problem/Opportunity, Solution/Technology, Competition, Market, Marketing Strategy, Business Model, Financials, Funding Need and Exit Strategy. 

Some thoughts on the components of this outline:

Management - Management is first on the list for a reason. The right management team can take a second-rate product and beat competition that has a better product.  Investors ultimately place their bets on management, so the team needs to show they know what they are doing and do their homework before getting in front of an investment audience.

Problem/Opportunity - If the product or service does not fill an unmet need, solve a pain point in the market, or take advantage of a significant opportunity in the current market, it is just a cool idea or a nice to have. Few, if any, businesses of any significant size are built around a nice-to-have product or service.  

The Solution/Technology - Does the solution fit the problem and is the technology protectable and/or novel? Does the IP give the company a competitive advantage? If not, can the management team demonstrate its ability to move swiftly to grab market share before it is copied? The technology is important, but when presenting to investors, many early-stage company founders focus too much on the product or service since that is what they know best.

The Competition - What is the current method in the market for addressing the problem or pain point in the market? Who is involved? This includes direct and indirect competitors. Management needs to know all competitors almost as well as his own company. Just like the best football teams, scout your opponents.

The Market - What is the size of the market? In general, if the addressable market is $1 billion or less then it is hard to find a way to build a sizeable company fast. In any case, the size, growth and trends in the market need to be identified and supported.

Marketing Strategy - We see many companies discuss their advertising strategy.  Advertising is expensive and usually just creates awareness. More important is the manner, both near term and long term, in which a company will truly acquire customers. Investors want information on the sales process, the sales cycle, the number and type of sales people in the field, channel partnerships and other methods used to get customer leads and turn them into paying clients.

Business Model - Investors want to know how you will make money. What are the key revenue drivers? What is the pricing strategy for the various lines of businesses or products offered? Is this a one-time sale or is there a recurring revenue component?

Financials - Investors want to hear about the value creating milestones that the company will reach as it grows. How long will it take the company to reach profitability?  Who will be the beta customers? Are customers local, regional, national, international?  Will there be new product/service offerings or product/service extensions?    

Funding Need - How much money will it take to reach some value creating milestones (beta success, key customer traction, profitability, etc.) in the next 18-24 months? If you only get enough money to last up to 12 months, then the company runs the risk of running out of money before achieving anticipated milestones and spending too much time raising money rather than growing the business.  

Exit Strategy - Investors would like to see that you have thought of exit scenarios.  Instead of the statement "we will sell or go public," think about when you will likely be an attractive target and who the likely acquirers will be and why.

Innovate Arkansas helps prepare its technology clients for potential investors and hosts Technology Showcases for companies that have prepared and practiced their presentations with IA staff. IA clients raised about $5 million in 2008 and over $25 million in 2009.

While this is nanofunding compared to the coasts, it is an improving trend and a testament to the growing, maturity of these Arkansas based technology companies as they reach the investment community. This month, 11 Innovate Arkansas client companies will be presenting at the Arkansas Venture Forum on Sept. 15.

We hope that all who are interested in the venture community in Arkansas will attend. Visit ArkansasVentureForum.org for the agenda, recent press releases and registration information.