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Author
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Topic: Fundability
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Doug
Proprietor
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posted August 01, 2002 03:18 PM
   
What makes a project fundable?Each year, the Haas School of Business at UC Berkeley, Columbia Business School, and the Goldman Sachs Foundation sponsor a competition called the National Social Venture Competition (NSVC) quote:
... to catalyze and promote the creation of financially self-sufficient or profitable social ventures. To achieve this goal, plans will be judged according to the feasibility of their business concepts, and the feasibility and potential impacts of the stated social and/or environmental goals.
I would like to get something like that started at Medaille. Except for the emphasis on social goals, the criteria for fundability are the obvious ones.It is also interesting that except for the social value, their criteria for fundability are about that same as those on the evaluation form for each of the four projects we looked at on Tuesday, July 30. On August 13, you are going to put on your venture capitalist hat and be in the position similar to that of the NSVC judges, except you don't have as much $$ to give out.  Now that we've used that form for the first four, we have the opportunity to modify it for the next nine. In response to this message, discuss the following questions: > What makes a project fundable?
> How do you weight the criteria? (That's weight, not weigh.) What about the form? Did the questions apply? Can you see a way to re-word, add or delete questions that would make the form more useful? |
McChomp
Member
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posted August 05, 2002 12:26 AM
In trying to define what makes a project fundable, I did a bit of research. This article http://topten.org/public/AG/AG103.html names the Top 10 secrets for developing fundable grants. If you don't have a chance to read it, here's what they say in a nutshell:
- 1. Begin with the end in mind.
- 2.Make the target group real.
- 3.Articulate compelling outcomes.
- 4.Leverage resources.
- 5.Build new partnerships or strengthen existing networks.
- 6.Use technical assistance if it is offered.
- 7.Involve organizational members and target group members.
- 8.Provide evidence of your credibility.
- 9.Describe how those in your target group will benefit.
- 10.Present a buff proposal.
From this list, I'd say the key things for our purposes would be 1, 2, 5, 7, and 9. Involving those who stand to benefit most from the project is crucial. They need to "buy in" to the concept in order for it to sell. As for the form, right now I think it is a more general approach. Likely what would be helpful is to use this form prior to the final presentation. Perhaps for the sitemap presentation instead so that changes can be implemented in time for the final presentation. ------------------
:) Michelle |
rdtrege
Member
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posted August 05, 2002 09:04 PM
In order to make a substantial investment in any start up company, or in any phase of a company’s business cycle, I would want to have no less than the following information that can be found in the prospectus for any initial public offering. I am not yet sure how I would weight the single parts of this, because each and every section has its own significance, and is vital to the whole picture.1. Summary of financial information including statements of operations and balance sheets
2. Management’s discussion of each part of the consolidated statement of operations data.(A short blurb by the management on what the numbers mean, and an explanation for any changes which may have occurred.( hey, why did that happen? A managers perspective)
3. Risk factors related to business, related to industry (as an investor I may not be entirely aware of the risks, I surely want the management to have a strong grasp of the companies risks) SWOT analysis
4. Capitalization (debt, bonds, stock holders equity)
5. An overview of the business (nuts and bolts)
• General overview
• Growth strategy (are they thinking big or small, realistic or fantasy)
• Corporate culture, mission
• Product
• Services
• A marketing plan
• Organizational chart including major job descriptions
• What the competition is doing (they better know it)
• Government regulations and how the company is complying (ADA, labor, franchising)
6. Legal proceedings (are there pending litigations?)
7. Outstanding securities (how the company dug up money in the past)
8. Key management (compensation relative to the companies net…draining the company? Current employee agreements…. May unfairly or inappropriately lock management in positions without regard to performance do you want to buy into this?)
9. How will the monies be used should I chose to make this investment To one degree or another, every fundable proposal should have most or all of the preceeding information. How this information is deciphered regarding the propensity, or the probability, for the company to continue (or begin) to be succesful will be based upon the skill, background, knowledge, investing experience and the analytical ability of the or investor. I felt that the questions on Riccistreet, once again forced me to think and analyze rather than to hear and regurgitate. In preparation for future projects, it would be beneficial to have most of this basic information. Most of the answeres for the questions on Riccistreet would be found within this layout. (look hard and analyze, it's there) [This message has been edited by rdtrege (edited August 05, 2002).] |
evelynkerney
Member
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posted August 06, 2002 06:13 PM
What makes a project fundable? I agree with all of the previous comments including the following:
The project has to identify a need that is not being met or to create a need that customer’s will buy into. Investors are interested in making money and a project has show a profit can be generated; in terms of social value funding can occur because of social need (research)
How do you weight the criteria? The weight of the criteria varies with the risk and the rate of return also how you are investing bonds, preferred stock , common stock What about the form? Did the questions apply? Can you see a way to re-word, add or delete questions that would make the form more useful?
The form is very general and I would have preferred an instrument that defined the component being evaluated and a numeric rating. We could have used DNA when the component was not addressed and then overall comments
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mengs15
Member
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posted August 06, 2002 11:13 PM
In order to invest in a new startup company I would want to know about the market/industry that the company will be entering. I want to know the facts, statistics, and risks. I want the information so I can decipher if the “need” the company is trying to solve really exists and if the company will actually solve the “need.” Then I want to know why I should go with this company instead of the competitor. If the company is the first in the industry then why should I invest now instead of waiting for this company to make the mistakes?I also want to know about the Market Strategy. If the product/service is excellent but the company can’t sell the product/service then where’s the $$$$$. The one suggestion I have for the form is that you have the students fill the form out the next day. I believe when people are filling out the form they are concentrating on the questions not on the presentation and therefore missing important information.
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Christian
Member
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posted August 07, 2002 04:41 PM
What makes a project most fundable is the leadership of the potential project. Of course there needs to be a solid idea behind the whole thing, but there have been plenty of sub par products out there that have made profits (Microsoft). Good leadership would be the biggest factor in my decision. With strong leadership everything else will fall into place. Financial strategy, corporate culture, business model, and all that other criteria is fine and dandy, but without the leadership there could be problems. Leadership is a crucial in times of change. No matter how great a business model or financial strategy an organization will have to face change, and without leadership the organization stands a pretty good chance of crumbling. We need not look to far to see what poor leadership can do to an organization. We have seen companies like Adelphia and Worldcom beat down from poor leadership. Most would probably agree that those organizations possessed the criteria of fundability, but where are they now? As far as the form, I did not get much use out of it. It is a good starting point, and could be used to start discussion. But, it is just stating the obvious.
[This message has been edited by Christian (edited August 07, 2002).] |
cherylwright
Member
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posted August 07, 2002 06:42 PM
What makes a Project fundable is the potential return on the investment. As Michelle has stated, a venture capitalist will "Begin with the end in mind." The bottom line is that the Project must grow financially. As a venture capitalist, I should see strategic methods and/or practices in place to show that the Project will be financially productive. For example, to name a few:
1. Who will the Project cater to, i.e., population and/or class of people?
2. What will the management style of the company be like, i.e., hierarchical vs. flattened organization, inclusive of a team structure?
3. How much R&D will be required before the Project actually gets on its feet?
4. Who will the Project be partnered with?
5. What is the companies marketing plan?
6. What risks are involved with the Project?Students have also identified several other possibilities of which I can agree with. The form questions were closely applicable to the Projects. A couple however, were difficult to answer based upon the Product. [This message has been edited by cherylwright (edited August 09, 2002).] |
Doug
Proprietor
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posted August 07, 2002 11:07 PM
Chris makes a good point. I'd be curious to know what about leadership is important.It's one thing to recognize poor leadership looking back, as in Adelphia and WorldCom. What what about looking forward? As a venture capitalist, Chris, what would you look for when deciding to invest in leadership? |
smtraficante
Member
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posted August 11, 2002 09:01 PM
I think what makes a project fundable to investors is the idea, the strength of the operations model, a target group that has the need for the product or service and doesn't involve instant change. A good management team that can manage these items and can market themselves will make a project go further. Even a great project may not make it as far as a project that is just mediocre and that can be because of timing, technology and resistance to change. I agree with the points that everyone has made so far, which reminds me to keep in mind that everyone has their own view on a project. These opinions are what can make or break an idea when shared. Open forums for discussions on such ideas could help a project become more fundable. The presentation to investors should include:
- how the business is to be run,
- where outside funding is expected,
- how the funds will be used
- who will benefit
- why would the customer want this
- how will the product/service benefit
- projections, history (if any)
- why the investor would be interested
- how soon before a profit is expected The evaluation form for this project I think would have been more helpful if presented with the site maps. The feedback could have helped us become better prepared for the final presentations and given us more direction and thought into our business. I did gain knowledge from the fact that it is most likely that an investor may not have time to completely research and/or review your idea and should be kept in mind during the presentation. [This message has been edited by smtraficante (edited August 11, 2002).] |
BMW540i
Member
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posted August 12, 2002 08:36 PM
I am going to attempt to answer this question as if I were sitting in the seat of a venture capitalist. Based on the current economic conditions I am very tight with giving away money on far-fetched ideas that cannot prove to me there is a high probability of enormous potential. What that probability is will be determined on each individual case presented to me for investment. Is that fair? No. Our open checkbook for investing in companies during the late 1990’s has cost billions of dollars. The overwhelming feeling was to jump on the bandwagon for technology and dot com stocks. The mistake no one wanted to make was to miss the boat on what looked to be the evolution of our economy. Those days are long gone. Money is still available today, more than enough than we can put to good investment. But the way that money is now invested has changed. Any type of luxury item that is looking at an immediate launch of two years or less will have a low probability for investment. I believe any attempt to go after disposable income in the short term has a slim chance. Jobs are being lost daily. There is a strong sense that Americans will get by over the next few years with just the basics. But, that does not mean luxury items are a thing of the past. Products with estimated to market launch five years away will be looked at closely. I want to be ready for the next economic turnaround. The products will have to be carefully mapped so they do not prematurely hit the market. Non-luxury items that people will need must have mass appeal. I am not looking for a niche market, unless the profitability is very high and the demand stream has a long outlook in terms of years that can evolve with a product. I am looking for mass appeal products or services. I want realistic options that can provide me with ROI in ten years or less. I am still willing to take calculated risks for high potential ideas. But I am not so quick to jump on the bandwagon this time around.
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kschmelz
Member
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posted August 13, 2002 08:51 AM
In my profession I have descretion on how hundreds of thousands of dollars are spent each year. I see proposals daily and the most important things that I need to see (in order of importance) are:
- A clear, easy to understand definition of the idea. I don't like to be wondering where we're going and what the presenter is trying to accomplish
- Whom the target market is (aside from myself)?
- What is the anticipated cost per sale and is it well thought out. This is a little different in this class. How about, 'how much is this product going to cost the end consumer?'
- How soon will this product or service become available to me?
- What variables exist that can affect the price or results?
In the setting which this class allowed, the quick elevator-style pitch, these things would be what I would look for. I agree with Chris about the importance of leadership, but in as far as fundability in the context of a quick presentation goes, my opinion is that the product and its benefits have to be overwhelmingly clear. This may not allow for much conversation about the quality of corporate leadership. Also of course is 'when'. As in when will this investment offer me a return? Perhaps I misunderstood some parts of the evaluation form, but there seemed to be a little redundancy. For example 'weaknesses' and 'reasons for potiential failure' could be similiar in some casses. I'd like more written descriptions to questions like, "What I like most about this product was..." and "What I liked most about this website was..." or "What I liked most about this presenters skills was..." Naturally, a second set of questions could substitute 'least' for 'most'. I think Sheila has a valid point about how an eval form following our site maps would help. Maybe a larger more detailed one would follow the final presentations.
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Doug
Proprietor
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posted August 13, 2002 08:57 AM
Great ideas, guys. Thanks!Makes me think we need a whole course on new venture creation rather than just the tail end of this tech and innovation course. |
JenGratien
Member
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posted August 13, 2002 10:22 AM
I think the most important aspect to making a project fundable is how the idea is pitched and through the project's leadership. It's all about 'selling your idea' and of course your idea most have some potential. If you had two ideas pitched, both with the same risk and same return and same investment, the one chosen would be from the better 'sales presentation'. A good leader will work out the strategies and work with the team to carry out tactics that will make the project work.Looking at the evaluation form, I found it to be somewhat broad. It asked questions that were not covered in our presentations therefore you got 'blank' answers. I think perhaps using a rating scale may be better than open ended. You'd be more likely to get more complete responses.
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KerryS
Member
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posted August 13, 2002 12:34 PM
Let me first start with the form. The overall use of the form was a great tool! Since the overall goal for the end of this class was to come to consensus on which business idea was to receive the funds from the Venture Capitalists, there needed to be a standardized way of collecting data. While I agree with the comments of Sheila and Karl, it may have been more useful to use the form after the site map presentations, I think that the form contents were beneficial. All of our products and services were so diverse that it would be very difficult to have questions that were more specific. The use of the open ended questions, I feel, were necessary to capture what it is you as the evaluator really wanted to say. While I feel that all of the information on the form was very important, I believe that there should have been other items addressed. As others have stated, leadership is an important factor in the start of any business, this is something that I strongly agree with. Not only that leadership exists, but the type of leadership style that would be used. Another question, if you could call it that, would be along the lines of a gut feeling about the business and the concept or idea. I know that this is pretty wishy/washy, but you know when you hear about something and you get the picture in your head and it comes to life? When I can get this feeling and vision and all of the numbers add up, that person would be on the right track with me. If the idea does not come to life for me, I would have a very difficult time as a venture capitalist handing over a check!!
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Grambo54
Member
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posted August 13, 2002 01:36 PM
As for the form- There was quite a bit of redundancy within the form and then also between individual projects. Seems like even though that many times the projects were so different, the strengths and weaknesses were the same for me. First mover advantage... User un-acceptance disadvantage. For the most part... I felt each idea could be successful if the user acceptance barrier was overcome. Given, the relative similarity between the fundability of everyone's idea… it leaves me with one other value to judge on. People. Chris and Kerry touched upon leadership and I think someone else called it salesmanship… I agree with both. When it comes down to it… all the ideas a fairly equal in their legitimacy… what can set them apart is the people who will execute it. If I was a venture capitalist… I would look for a person who was fired up about their idea… obsessed even. Someone who is supremely confident and can instill that confidence in others (the venture capitalist perhaps). That person HAS to have strong speaking and presentation skills and the ability to present ideas and messages simply, clearly and impactfully. In the immortal words of Doug Anderson… “Ideas are cheap!” When it comes down to funding… Its really the people/person your buying more than the idea!
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michellegrifasi
Member
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posted August 13, 2002 06:50 PM
What makes a project fundable?
Everyone has mentioned vital pieces of the fundability puzzle.1. How the idea is pitched
2. What variables exist that can affect the price or results
3. Leadership
4. Salesmanship
5. Why would the customer want this the list is endless. The one topic that wasn't greatly touched upon is subjectivity on the part of the venture capitalist. We as potential business owners are all products individual thought processes to determine our future business funding. We can pitch a great idea, show potential leadership, profitability and have the best business model “out there”. However, if a VC group doesn’t show interest based on personal bias, we are faced with the dilemma of no money. So, understanding funding is as political as “running a business” can ultimately help us pitch ideas in the future.
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Doug
Proprietor
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posted August 05, 2003 09:01 PM
reply to get it listed at the top |
KaaBa
Member
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posted August 07, 2003 08:55 PM
Thinking as an investor my primary focus would be:1 - How practical is the product or service:
You want to make sure that the product or service stands a chance of becoming successful 2 – The Business model of the company:
You may have an excellent product or service, but if the company has a bad business plan/model the product/service can fail due to poor management. 3 - The return potential of the investment:
The larger the return potential the more risk I would be willing to take as an investor.
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azzarello
Member
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posted August 11, 2003 10:05 PM
I agree with Nick on what's important in being an investor. You have to make sure it's a praatical product or business. There's no sense in investing in something that there is no market pain for. Then if you do choosse to invest in the company, you have to make sure your going to make money. Again, no point in investining if your going to loose what your put in. And finally, it's important to make sure your investing in a company that has goals, and plans to stay in business for the long hall. They need key personal to make the comapany work and prosper. Without that, you've wasted your time and money | |
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