Fund Raising in a Recession

While it seems the Pacific Northwest may be shielded from the worst effect, each day it appear clearer that the country is headed toward recession (if not already fully enmeshed in one). Consumer spending, the engine of the most recent economic boom is drying up, with the problems in the capital markets trickling down to the lowest levels.

We thought it would an interesting time to address the question of how this will affect angel and venture capital investing. Typically, angel money dries up first during a serious recession as angels have no need to spend those dollars on investments. Looking at the dollar amounted invested by the Alliance of Angels over the last 10 years, it closely mirrors an graph of the US economy with about a one year lag. Thus far we have yet to see any real drop off in investments but it is something we will keep our eye on.

Different theories abide on Venture Capital investments during a recessionary period. One one hand, ad revenue dropping will hurt start-ups depending on that strategy and require VC's to keep more money reserved for follow on investments. On the other hand, VC's with a fund already raised will need to find opportunities and valuations on good prospects should fall.

Any entrepreneurs out there- how are you finding the current fund-raising process?

"Conservative" Financial Projections?

As program managers here at the Alliance of Angels, we see 20+ pitches per month. As you might guess, out of those 20+ pitches, we rarely see even one that doesn’t have “conservative” projections. :-) However, we’ve found that investors aren’t as interested in conservative projections as they are in transparency. We find that “aggressively reasonable” projections coupled with full disclosure of the assumptions behind the projections gives investors what they are looking for. This way, investors can see the scenario the entrepreneurs are shooting for while having the information they need to develop their own scenarios.

Other keys for building good, transparent, believable projections include:

• Build from the ground up - avoid building projections that are simply based on taking a percentage of the market.
• Display the projections in an easy to read bar chart.
• Include the key driver(s) (# of customers? # of sales partners signed?) in the bar chart
• Make sure your market analysis, go to market strategy, and projections are all 100% in sync.

Investors love to see a good looking hockey stick at the end of a compelling pitch – just back it up with a full set of assumptions and they’ll have the information they need to decide for themselves if the projections make sense. For a sample financial projections slide and other information about building a great pitch, check out our sample deck or enroll in one of our popular pitch clinics.