Consummate-Entrepreneur.com

How Much Money Do You Need?
Angel Investors and The Importance of Cash Flow Projections

You’re going to start a business making a highly unique product that you and your partner thought of and designed. You both feel that it will solve a major industry problem.  It does things that no other product out there will do.  It’s a winner.  

You think it through.  To get things going you’re going to purchase the parts, assemble them, include whatever printed or digital matter is required and package the finished product. You need financing so, to check things out you go to www.consummate-entrepreneur.com and check out the Angel investors seminars. You find a seminar that's nearby, and you go to it so that you can meet some Angels face-to-face. 

While you’re having coffee you start talking to a couple of folks that were previously talking to each other.  You quickly recognize that these folks are venture capitalists (angels), possibly partners. As soon as you get an opening you go into your 1-minute presentation.  You've got their interest in the first 10 seconds.  Just like you're supposed to.  They seem to like what they hear.  You're excited.   Then the older of the two asks you “How much money do you need?” You don’t know what to answer. You don’t want to give them a number that’s too low and you don’t want to scare them off with a number that’s too high. You mumble something like “…I really don’t know at this point. We’re just trying to get things started….”.  They both lose their enthusiastic smiles.  Their entire demeanor changes.  It's as if they had just withdrawn from the conversation.  One of them pulls out a business card, hands it to you, and says “Call when you work it out.”, and they both walk off. You feel terrible. You know that you blew it, but you don't know why.  You're baffled.  You don't know what you should have done to save the situation?

Too start with don’t be discouraged. They gave you a card for future contact. That's not an easy feat in and of itself. They must have liked what they heard, but in that simple question “…How much money do you need?” they learned volumes about where you were in the evolution of your business, and they learned something about you and your experience as an entrepreneur. They knew that you weren’t ready so they walked off.

To answer their question you should have already projected your maximum, negative cash flow position,  approximately how long it will take to reach that point, and when you thought that you would start generating positive cash.  Had you had that information your response to their question would have been “…We’ve projected that our maximum negative cash flow position will be $_________ , and it will take us (time) to reach it. We should start generating positive cash in the __(month)__ of operations."  If that fit into their parameters then, most likely, the three of you would have walked off together.

For you to have had these answers would have required, knowledge of your market, the costs that you will be incurring, an understanding of what it’s going to take to start generating positive cash,  and a realistic projection of how cash will flow in and out of the business.  You weren't ready and they knew it.

Had you been prepared you would have been able to answer their question. By going to an Investors seminar unprepared your actions where like answering a phone to take a message without paper and pencil in hand. They realized it, but thought that your idea was good enough to give you and your business a second look. Hence, they gave you a business card.

We've told you what you should have done.  Now let's see if we can help you prepare it.

 "Preparing a Cash Flow Projection for your Start-Up"

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