Frankel's Three P's

I get a certain number of start-ups as clients, many of whom are barely past the conceptual level, which means that in addition to seeking expert advice, these guys are looking for money. Most of the time, these companies are so new that they're looking for the hardest money you can seek: first round funding.

First round funding is the toughest to get because you basically have to get naked in front of a bunch of guys in pin-striped suits who want to know everything about you, down to how often you change your socks. Whether they're venture firms, investment bankers or equity placement teams, most of them seem bent on hanging you by your ankles and shaking as hard as they can until they get what they're after.

But what are they really after, anyway? Your gold fillings? Hardly.

The reason why getting funded is often so arduous is that the applicants don't think about the investors' needs. And what the investors need is information. But not just any information. They want data that they can understand, presented in a way that they can understand it.

I have three criteria that a startup must have before I'll even consider introducing them to a possible venture source. I call them Frankel's Three P's: Proven, Proprietary and Profitable.

"Proven" means that you can irrefutably show that whatever you have developed actually works, preferably somewhere outside the lab. If it's a service, I want to see how it's performing among your beta community. If it's a product, I want to know what the customer acceptance is like and how many returns you've had.

"Proprietary" means there's something special about what you've got that others can't duplicate -- or at least not easily. And don't get lulled into a false sense of security with patents, here. Patents are great for window dressing, but when it comes down to actual investors, they want to see marketing in action, not lawyers. Show me that what you've got was built with competition in mind and you're that much closer to home.

"Profitable" doesn't mean that you've made yourself rich yet, but that you can demonstrate that this great thing you've concocted actually can become a viable, thriving business. How do you make money with this widget -- and how many do you have to sell before we consider going public?

If you can satisfy Frankel's Three P's, you're a long way toward getting investment firms to take your submission a lot more seriously. But there's one more critical piece you need to consider:

Learn to speak investor talk.

Contrary to what you may think, investors are not at all interested in what your product does or how your service benefits humanity. They want to know one thing: how investing in your business is going to make them money. That's why smart folks put that part right up front in the Executive Summary of their business plan. Sure, your Digital Veg-O-Matic will make kitchen duties easier, but unless I know how I can beat a soaring stock market with it, I'm going to pass.

Finally, I want to remind you of how important branding is at the funding stage. After all, if your brand can't convince the investor's of how valuable an item of yours is, what chance does it have in the open market? If your prospects understand at a glance who you are and why you're different, they're not only going to give you their attention, but fine looking cashier's check, as well.

Rob Frankel