to thewind? Caution - University of Edinburgh Business School

usiness developmentbusiness developmentWHEN MALCOLM GOOD (CLASS OF 1997) WAS LOOKINGFOR THE BEST WAY OF CRAFTING A PRESENTATION FORPOTENTIAL INVESTORS, HE TURNED TO THE SCHOOLPerfectpitchOne of my elective subjects during my Full-timeMBA between 1996-97 was ‘Entrepreneurship’.That course gave me the insight into buildingbusiness cases and plans along with much of the theoryassociated with being an ‘entrepreneur’.What I do not remember the course exploring, at thattime, was the piecing together and presentation ofcorporate deals for would-be investors.Recently, along with another alumnus, Derek Smith(Class of 1997), we established Independent FinancialAdviser business Melville Hutchison FinancialManagement Ltd. As part of our business proposals wewere looking to raise finance to acquire similar businesses– to accelerate growth through gaining economies fromconsolidation. This then sent us on an adventure into theland of the business angel and business investment clubs.We had pulled together what we thought was a rathernatty looking presentation that covered off ‘everything’.Well, nearly everything. One thing that we wereuncertain about was how to present the investment dealto those who may wish to back our business expansionwith their money. We recognised that these deals areusually more complex than the ‘Dragon’s Den’ approachof being grilled by the prospective investors and thenoffering a percentage of the business in return for therequested funding. Thinking on where to go for advice,we contacted Jane Crawford at the Business School and‘DEALS AREUSUALLY MORECOMPLEX THANTHE DRAGON’SDEN APPROACHOF BEING GRILLEDBY THE INVESTORS’Malcolm GoodPREFERENCE FOR CREEPS?CREEPS shares are:• Convertible: from preferenceshares to ordinary shares. Ifrepayment of the initial amountinvested plus yield is missedABOVE: Practice makes perfect for Derek Smith (left) and Malcolm Goodshe put us in touch with Gavin Don, the BusinessSchool’s Professor of Entrepreneurship.I had never met a Professor of Entrepreneurshipbefore and I was slightly nervous that he might take an‘academic’ approach that perhaps did not recognise thepracticalities of what we wanted to achieve. However,my fears were ill founded. Gavin could not have beenmore helpful. He gave us a crash course on how tostructure a potential deal. This included practical adviceon how to word and present the deal.In particular, he highlighted that any would-beinvestor would want:• An equity holding that is fair in relation to theamount invested• Their money back by an agreed future date• A return on their money while it is invested• To deal with people who had a well-thought-throughapproach which was presented professionally.Following our discussion with Gavin, we were betterthen the preference shares‘explode’ into an agreednumber of ordinary shares, thusgiving the investor a largerpercentage of the ordinaryshare capital in the business• Cumulative: a yield is attachedto the shares (a set percentage tobe paid annually). This gives, ineffect, an interest return on theinvestor’s funds. And cumulativebecause if one year’s yieldThe Entrepreneurship Clubruns regular introductoryable to meet these requirements and to pitching workshops andarticulate them in our financial projections and competitionsinvestor presentations. This included detailing:• The amount of ‘hard equity’ that the investor wouldreceive. These ordinary shares shown as a percentage ofthe funds we were looking to raise.• The number of preference shares the investor wouldreceive. These shares represented the balance of thefunding that we were looking for (the balance of funds nottaken as ordinary shares). In addition, these shares were tobe Convertible, Cumulative, Redeemable and PreferenceShares or, as they are known, CREEPS (see below).Thanks to our alumni connection, plus Gavin’s expertknowledge, we were better able to articulate the offeringto investors and what we were looking for in return (inmonetary terms, knowledge and time commitments).This insight improved our presentation of the material,our level of professionalism and gave us greater confidence,which is now paying its own dividends.payment is missed it rollsforward into the next year• Redeemable: a set-date isagreed by which time theamount of money that theinvestor bought the preferenceshares for must be repaid(along with the associatedyield). Failing that thepreference shares becomeconvertible• Preference Shares: they holdno voting rights, unlikeordinary shares.Did youknow?WANT TO KNOW MORE?Malcolm Good is the author of Self-Helpfor the 21st Century and is a Director ofMelville Hutchison FinancialManagement Ltd.Gavin Don suggestsspending one hour ofpreparation andrehearsal for everyminute of your pitchTOP TIPS FOR AWINNING PITCHEntrepreneur in Residence Gavin Donprovides tips on how to make apresentation to potential investors asuccess...• Remember that you are beingassessed from the moment you walk in.Everything matters – how you look,does your laptop work, are youorganised, are you flexible andresponsive. Half of your presentation isnot what you say, but how you say it.• If you can’t sum up your businesspitch in less than ten slides then youhaven’t got your ideas properly inorder. A good starter is ‘Who we are,what have we achieved, what do wewant, what are we going to do foryou’. Use very few words in the slides,and lots of pictures.• Each minute of your presentationshould take approximately an hour ofpreparation and rehearsal.• Business angels live on numbers.Make sure yours are clear, and add up.Use key numbers only (if you can’tidentify what those are then youhaven’t prepared enough).• Think of the proposition as an‘input-output’ plan. Theangel’s input is ‘xxx’.The angel’s output is‘yyy’. Part of ‘yyy’ willbe the dilution factor –on average expect 35-45per cent dilution at eachround of finance. Offerless and your credibilitywill evaporate (unlessyou have anoverwhelminglyattractive proposition).• Businesses live on theirsales. The presentation isa selling exercise. Youraudience is looking forevidence of sales skills. Ifyou can’t sell your ideato them, then what hopehave you of selling yourproduct or service tosomeone else?• A presentation toangels is a one-shot-killexercise. If you lose them at thepresentation stage don’t expect to winthem back later.24 | aluminate | april 2009 www.alumninet.man.ed.ac.ukwww.alumninet.man.ed.ac.ukapril 2009 | aluminate | 25