For this special New Year’s Eve edition of Entrepreneur University we turn to marketing expert David Frey. David is the author of the best-selling manual, “The Small Business Marketing Bible” and the Senior Editor of the “Small Business Marketing Best Practices Newsletter. David shares with us his five step formula for getting new prospects to call you:

Are you tired of prospecting for new business?

Are you sick of networking, begging for referrals, or spending a small fortune on advertisements that produce little results?

Wouldn’t it be nice if you could just sit down at your desk and have the phone ring knowing that new business is on the other end of the line?

Who wouldn’t, right…?

The Secret Formula for Getting People to Call You No matter what product or service you sell, there is a formula for getting people to call you (instead of the other way around.)

Let me take a moment and explain each step in this formula and give you a few examples of how it works…

Step 1. Interrupt their train of thought People are busy, busy, busy. At any one moment you and I have a thousand things going on. So the first step to effectively market to someone is to interrupt them and grab their attention.

You can do this with…

a. Bold, compelling headlines b. Unusual graphics or photos c. Unique opening statements I run an ad in a trade mag in the most competitive section of the publication. But my ad sticks out like a sore thumb because I place it UPSIDE DOWN!

That ad pulls as much as a quarter page ad does and it’s only a tiny little 2′ x 2′ ad.

(By the way, if you want to see that ad and you have in interest in coaching you can find it in my Coaches and Consultants Marketing Bootcamp program.)

Step 2. Engage their mind with relevant content Once you have your prospects attention, the next step is to pull them into your message. The best way to do that is to use relevant content.

By that I mean, say something that they would be keenly interested in. For instance, I have no interest in cats so I would skip right over the headline, “How to Stop Your Cat from Ripping Your Couch and Carpet Apart.”

It’s not relevant to me.

But if I saw a headline that said, “The Deal Is Sealed…Shaq Gets Traded,” that would stop me in my tracks (I’m a basketball nut).

Your message must be relevant to your prospect.

Step 3. Educate them on how to solve their problem Now it’s time to educate your prospect. Education-Based Marketing is one of the most powerful marketing strategies available today and does a number of positive things for you:

a. It gives your prospect the REASON WHY they should care about what you’re saying.

b. It appeals to the prospect’s emotional need to solve their problem. (People buy with their emotions)

c. It positions you as the expert and someone to be trusted.

For instance, why do you think you find all those long, long salesletters on the net? Because they work! The more you tell the more you sell.

Step 4. Prove that your solution actually works People today are so SKEPTICAL. No one believes anybody anymore. Every marketing message is taken with a grain of salt.

That’s why you MUST PROVE what you’re saying is true. Proof can come through customer success stories, study findings, quotes from experts, before and after photos etc.

You have to consider yourself as being on trial and your prospects are sitting in the jury box. You’ve got to prove to them what you’re saying is true.

Are you proving your solution in your marketing efforts?

Step 5. Offer them additional help for their problem The last step is to naturally offer your prospect additional help. Up to this point you’ve only teased them. Now you must lead them to the next step.

The next step should be some offer for help. This could be a free report, a video, an audio program (notice that I like low cost information products) or a free catalog, or even access to a free question and answer help line.

If you want to decrease your response and increase the quality of prospects that come to you, you can charge a small fee to make the next step.

Case Study I used to do a lot of direct response advertising to generate leads for potential hot tub buyers.

I offered a free video to the respondents. We were getting a lot of leads, but many of them were from people who already owned a hot tub (if you can believe that).

So we simply asked for a shipping fee of $2.95 for the video and it cut down our leads but dramatically increased our closing rate.

How to Use this Process for Your Own Purposes You might be thinking, thanks David, but “how” do I use this information for my own business.

It’s simple…take each step and ask yourself these questions…

Step 1 - “What headline, photo, or gimmick can I use that would stop my unique prospect and make them pause for a moment?”

Step 2 - “What problem does my prospect have that is painful, ugly, dirty, and smelly?” When you have the answer to that question, use it in a headline, sub headline or opening statement to engage them in your message.

Step 3 - “How can I make the problem in Step 2 sound even worse and then how can I explain to them how my solution solves it.”

Step 4 - “What proof can I come up with that my solution actually works and has worked for many companies (or people)?”

Step 5 - “What offer can I come up with that would be so irresistible that my prospects would have to pick up the phone and call me immediately?”

If you ask yourself these five questions and can come up with some good answers then you’re well on your way to getting people to chase you down instead of you begging to steal a moment of their time. (Yuck!)

Have a great 2008!

Evan Carmichael

Trend 3: Popular Support
As more and more people are becoming entrepreneurs, popular support for entrepreneurship is dramatically rising. It is no longer taboo to want to start your own business – it has actually become a popular thing to do! Friends and family are also becoming increasingly encouraging, providing the supportive environment to help entrepreneurs get their businesses off the ground.

According to the Internal Revenue Service (IRS), there were 26.4 million business tax returns in 2002. The United States Census Bureau estimates that there are 16.5 sole proprietorships in America. A further one in 15 adults in the United States has invested in at least one start-up business. This is the highest ratio of any country in the world. Chances are if you’re not already in business for yourself, you know someone who is. As the entrepreneurship trend continues to gather momentum, popular support will only increase.

Trend 4: Technology Democratizing Entrepreneurship
Joseph Howe, Nova Scotia’s founding father, perhaps put it best when he said “You don’t need a big field to raise a big turnip.” Gone are the days where the only way to start your own business is to buy a plot of land, build a shop, and hire employees. All you really need today is a computer, an internet connection, a comfortable chair, and a reliable late night pizza delivery person and you’re in business!

Home based businesses in the United States already earn as much as non home based businesses in the construction and transportation, communications, and utilities industries. Home based businesses also already account for five percent of all firms grossing over one million dollars! Technology has paved the way for today’s entrepreneurs to quickly set up and grow the business of their dreams – and it’s only getting easier!

Trend 5: Government Support
Governments at all levels have recognized the importance of entrepreneurs to the health and growth of the overall economy and are progressively establishing channels for access to the information and capital that new entrepreneurs need to succeed. Small businesses in America contribute two thirds to three quarters of net new jobs, represent 99 percent of employers, contribute 40 percent of the GDP, and employ half of the workforce in the private sector.

Through a multitude of grants, reduced rate loans, and support programs, chances are there are a number of government resources available to you that you were never even aware of! If you haven’t checked with your city, state or provincial, or federal government to see what programs they have to offer, go to their websites or pick up the phone and call them today!

Evan Carmichael

Following last week’s post on the importance of Body Text (The 15 Most Important Onsite SEO Factors: Part 3 - Body Text) I wanted to continue the discussion on Onsite SEO Factors today and talk about the use of URLs.

URLs

There are typically three component to a url: the domain name, the folder name and the file name. A typical structure looks like this: http://www.DomainName.com/FolderName/FileName.html.

Each of these names provide the opportunity for you to inject some of the keywords you want to rank for. Because domain names are relatively short you do not have much of an opportunity to explain what the site is about. Google therefore sees this as being a good measure of relevancy.

For example, www.YoungEntrepreneur.com is likely a site that caters to young entrepreneurs. Why else would it call itself YoungEntrepreneur.com? The relevancy is high and Google rewards the website. As a result, youngentrepreneur.com ranks #1 for the key phrase “young entrepreneur” and many keywords relating to young and entrepreneur.

Domain Name

If you already have a website then you don’t have many options here. You could create a subdomain or buy up other domains that do have your keywords in it. If, however, you have not yet purchased your domain name, consider getting one that includes your keywords. You will likely have to be creative as most of the good domain names are already taken but many registration sites will give you a list of options that are available if you submit your keyword.

Folder and File Names

The folder and file names represent a great opportunity to use your keywords. Many websites were built for efficiency and speed - not for SEO. As a result if you click through their pages you will see folders and pages with unrecognizable names. For example, if you have an e-commerce site that sells computers, a typical page selling notebooks might look like this:

www.DomainName.com/c0039/index.php?productID=133

In this example the Folder name is c0039 and the File name is index.php?productID=133.

Instead, a better optimized page would look like this:

www.DomainName.com/Cheap-Computers/Best-Notebooks.html

Here I have put descriptive names in which makes it a better user experience and also will help be rank for keywords Cheap Computers and Best Notebooks.

* A side note for people using database-run websites. Always try to avoid any page that ends in .php?=

Google has a hard time reading them and you won’t rank nearly as well for the keywords you’re targeting. While it may be much more efficient to run everything off of one page, it’s better for your rankings to create a unique page for each one. My site used to be run this way and we did the painful and expensive switch but it has been well worth the effort!

Dashes versus Underscores

One final issue to discuss on URLs is the use of dashes and underscores. When buying a domain name I have found that the best case scenario is to get one without dashes or underscores. That is, buy BestFastComputers.com instead of Best-Fast-Computers.com or Best_Fast_Computers.com. You can buy all three to protect your brand but use the one without dashes for the main site that you try to get ranked.

I have also found that the rules change when it comes to Folder and File name. Here the best thing to do is use dashes instead of combining the words or using underscores. For example:

Bad: www.DomainName.com/CheapComputers/BestNotebooks.html

Bad: www.DomainName.com/Cheap_Computers/Best_Notebooks.html

Good: www.DomainName.com/Cheap-Computers/Best-Notebooks.html

I would also suggest that you don’t get carried away with your use of keywords in the Folder and File names. A good rule of thumb is to keep it at 3-5 words maximum.

Evan Carmichael

Venture Capital - How Venture Capitalists Structure Their Investments

It is first important to understand how venture capitalists achieve their targeted rates of return of 30% per year. Not every company will make this return on equity but there are ways around it.

Much depends on the exit value of your company. A 30% rate of return reflects a price-earnings ration of 3. If the investor can exit at a higher price-earnings ratio they will earn more than their 30% desired return.

Another way to reach this target is by offering options. An option is the right to purchase shares of your company in the future at a pre-determined price today. If you grow at 20% annually and your earnings were 100 in the first year, your earnings would be 120 in the second year and 145 in the third. By using options the investor can then immediately purchase additional shares at 100 and sell them for 145 which can be added to their 20% annual return to reach the desired 30%.

A 30% return is an average figure and relates to the degree of perceived risk. If you have an early stage company you will need to provide a high rate of return. If you have a more mature business that has traction and you need financing for expansion or working capital, 30% may not be the required target due to the lower risk level.

Younger companies may also be forced to give up a disproportionately high percentage of shares to compensate for the high degree of risk. However, venture capitalists will frequently sell a certain amount back to you based on you meeting clearly defined performance objectives.

Another investment structure is subordinated debt. This usually caries a high yield and is usually not accompanied by equity. Subordinated debt is ideal for companies with solid cash flow and who need addition capital to grow thereby raising the value of their shares before raising any equity capital.

A 30% annual return may sound high to you. The reason why venture capitalists require such a high return is that anyone can purchase shares in the public markets in major companies and get a 15 to 18% return on their equity. Venture capitalists do not have this flexibility because, as a private company, your shares are not very liquid. Investors are locked in for a period of years and face the risk of your company failing. They therefore need a higher rate of return to compensate for this risk.

Of every 10 investments, no one can predict at the outset which will be successful and which ones will not. On average 1 to 2 will be very successful, 1 to 2 will go bankrupt and the rest will be what are known as the “walking wounded.” They will continue to operate but investors will never recover their investments in these companies. Venture capitalists therefore need to average out the good investments against the bad to ensure their 30% annual return.

An example is a department store that is unsure which items will sell the best over the next season. For that reason store managers will put a high markup at the beginning and at some point have to mark some of the products down. They just do not know which products they will have to mark down at the beginning of the season.

Venture Capital - Venture Capitalist Governance Requirements

Once a venture capitalist becomes an investor they will want board representation. They will either nominate their own staff members or an outside representative of mutual consent. The last thing a venture capitalist wants to do, however, is run your company. They have enough problems trying to run their own firm and do not want to get involved in the operations of your business.

Board members want to stay informed, monitor your progress and feel comfortable with the progress that is being made.

A board of directors is like your own private management consultancy group. Some entrepreneurs are very good at getting the most out of their directors and some are not. Understand that directors are the cheapest consultants working for corporations.

Board members are elected to represent shareholders. Since the venture capitalists will become significant shareholders, they will usually request at least one seat on your board.

The board of directors is responsible for broad policies and strategies for your company. Directors will want to know what your budgets will be, who you are hiring and help you develop your ongoing business plan.

Remember that the board of directors is in a position legally to approve or disapprove your actions.

The frequency of meetings is usually a direct result of how effective you are at using your board and how well your group works together. The board can provide strategy and policy recommendations but can also help in specific ways such as introducing you to key players in the industry.

Some of the items that directors care about are law suits, environmental problems, and when you are about to sign a major new contract. Directors are highly allergic to unexpected bad news and unexpected good news. Make sure to keep your board and bankers informed at all times.

Generally, governance is a great help to you more than it is a hindrance. It will keep you focused on your business and help you grow. This is of particular importance if you have aims of one day going public.

Venture Capital - How An Intermediary Can Help Close The Deal

An intermediary can help save you a lot of time which you can then use to concentrate on running your business. An intermediary will help prepare you for going into the market, set up times and appointments and guide you through the presentations, get you to the point where you have a legally binding term sheet, and then close the deal by making sure that al the needed documentation is completed.

This is not always a smooth procedure and requires someone to manage the process to ensure that your legal bills do not get out of hand.

Most Important Lessons About Raising Venture Capital

Remember that in most cases, the deal you end up with is not the deal you thought you would get when you started. You have to be flexible and able to turn on a dime in order to make the deal progress.

Deal with people of quality. Associate yourself with experienced people who have gone through several cycles and have a proven track record in a wide variety of industries.

Do not be greedy. In the market the bears can make money, the bulls can make money but pigs go to slaughter. If you are too greedy, you cannot make a deal. Markets will change. Windows open and windows close. To some extent investing is a fashion business. Certain types of deals are in fashion and then they are out. When money is being made available you are better off to take it when it is being offered.

Always be very open and candid in your discussions. Do not hide. Do not play games. Be totally open. And whatever you do, do not bluff. An investor will find out quickly when you are bluffing and you will lose the deal.

Financing is just one of the tools you need to build a good company. It is like the blood in your body. Financing is not the heart and soul – your business is.

Good entrepreneurs build great companies because they are good at motivating their employees, excellent at working with suppliers, have an obvious ability to satisfy customers and they also treat the venture capitalist as a supplier, albeit a supplier of money and not a physical product. If you think of investors with a “me against them” attitude or with any degree of hostility you should not enter into the deal. You will need their support when times get tough. A good working relationship with investors will help ensure your long term success.

Evan Carmichael

“I had to make my own living and my own opportunity. But I made it!” said Madam C.J. Walker. “Don’t sit down and wait for the opportunities to come. Get up and make them.”

Born into a slave family, Madam C.J. Walker rose from her humble beginnings to establish herself as the first self-made woman millionaire in America. After experiencing a personal setback, Walker turned her fate around and used that setback to create a fortune. At a time when most African Americans were struggling to find work, Walker pioneered her way to the top of the hair care and cosmetics industries.

In 1917, Walker commissioned a 34-room mansion to be built for her on the Hudson River. It was her dream house, something she had worked for years to be able to afford. But when area residents found out who their new neighbour was going to be, they were less than happy. “One of the race,” wrote one newspaper, “is invading the domains of New York’s aristocracy.” The New York Times even wrote, “No woman of her race could own such a place. Does she really intend to live there?”

Walker did intend to live there, and she did so until her death. Despite her success, she never fully overcame the discrimination that had plagued her since she was a little girl. So, how did this poor girl from the cotton fields become the country’s first self-made woman millionaire?

I am a woman who came from the cotton fields of the South. From there I was promoted to the washtub. From there I was promoted to the cook kitchen. And from there I promoted myself into the business of manufacturing hair goods and preparations….I have built my own factory on my own ground. I am not ashamed of my past. I am not ashamed of my humble beginning.

I got my start by giving myself a start.

I had to make my own living and my own opportunity. But I made it! Don’t sit down and wait for the opportunities to come. Get up and make them.

God answered my prayer, for one night I had a dream, and in that dream a big black man appeared to me and told me what to mix up for my hair. Some of the remedy was grown in Africa, but I sent for it, mixed it, put it on my scalp, and in a few weeks my hair was coming in faster than it had ever fallen out. I tried it on my friends; it helped them. I made up my mind I would begin to sell it.

When we began to make $10 a day, [my ex-husband] thought that was enough, thought I ought to be satisfied. But I was convinced that my hair preparation would fill a long-felt want. And when we found it impossible to agree, due to his narrowness of vision, I embarked on business for myself.

I am not satisfied in making money for myself. I endeavour to provide employment for hundreds of the women of my race.

There is no royal flower-strewn path to success. And if there is, I have not found it for if I have accomplished anything in life it is because I have been willing to work hard. Perseverance is my motto.

Evan Carmichael

For this edition of Entrepreneur University we turn to marketing expert Thomas Young. Thomas is a marketing consultant helping companies increase revenues. He is the author of Intuitive Selling. Thomas shares his 12 tips on how to build word of mouth referrals for your business:

The most powerful form of marketing is word-of-mouth referrals. This is true regardless of the size of your company or marketing budget. When generating referrals, your customers become your sales force! Who better to promote your products than loyal customers? Following are 12 things you can do to help develop word-of-mouth referrals for your business.

Ask for Referrals The easiest way to generate referrals is also the most important. People want to help others, especially when you are good at what you do. Let your customers know that you are looking for referrals. They will be happy to oblige and some will go out of their way to help.

Be Specific Provide your referral sources with a few details about your target market. If you are not specific in your request, referral sources have the entire universe to think of and will generally not be able to think of anyone. Make your referral request specific.

Align with Your Customer’s Vision Get inside the head of your customers and align with their vision. Be a resource; understand the needs of your customers. Referrals will come when customers realize that you really do understand them and that your goal is to help, not just make money.

Develop Word-of-Mouth Marketing Promotions MCI’s friends and family promotion was tremendously successful and built market share for the company that has been the key to their growth. Develop a marketing promotion plan which encourages referrals and benefits your existing customers. Make the promotion worth your customer’s time by offering valuable incentives for new referrals.

Promote Client Feedback Ask your clients to evaluate your products and services and provide feedback on how you measure up. Share this data with current customers and new prospects. Obviously, correct the areas in which you are deficient and remove barriers to customer service.

Continue Self-Development Make your organization committed to constant learning. You must expand out of the box and constantly grow and develop your knowledge and abilities or you will be left behind by the competition. Knowledge is powerful and people will come to you for expertise before they buy from you.

Build a Customer Community Find ways to bring customers together with other customers. This might be a chat room on your web site or other customer events sponsored by your company. This brings a community of customers together and stimulates word-of-mouth.

Communicate Your Competitive Advantage Understand why you are different from the competition and what sets you apart in the eyes of the customer. Communicate this message in your promotional activities. Be clear in delivering this message. It is the most important component of your direct marketing efforts and the reason people become loyal customers.

Listen Become known as an excellent listener. This communicates that you care about others and builds an enormous amount of trust. The fact that you are the best listener customers know will be communicated to others and result in valuable referrals.

Build Alliances Determine how you can reach your target market by developing win-win alliances with other organizations. This is very common on the Internet as sites link to each other with great results. Look for organizations that currently service your target market and find ways to help each other.

Learn How to Network Properly Take time to learn how to network effectively. Establish a networking plan and plan on helping others, which is the key to successful networking. Read and learn more about how to network effectively and go to lunch with world-class networking professionals to ask them how they do it. They will gladly share all their secrets because that is how people network effectively.

Develop a Web Site That People Talk About Establish a web site that catches peoples’ attention. When web surfers come across a hot site, they typically tell others about it. It is very common to email web site links to friends. Find a way to make your site unique by adding value to your target market. This value is expressed in knowledge you can provide them to help improve their business operations or personal lives.

These are a few ways to build word-of-mouth referrals for your business. Remember, there is no quick fix in sales and marketing and no substitute for excellent customer service and valuable products and services. Take the time to strengthen your marketing efforts in these areas and watch the referrals come pouring in.

Evan Carmichael

The first thing that today’s entrepreneurs have going for them is an increasingly supportive environment. Here are the five major entrepreneurial trends that are helping more and more entrepreneurs succeed:

Trend 1: Service Economy
The fact that the economy is becoming more service based has helped democratize entrepreneurship. Entrepreneurs typically rely on their personal savings and assets to get their companies started. Service businesses by their very nature are typically time-intensive and require little startup capital.

Businesses from tax accounting to lawn mowing don’t need much money to get off the ground and can be run from your home until you gain enough momentum. While 80 percent of new businesses fail within five years of operation, in the service industry, entrepreneurs who work from home have a much higher rate of success. The sustainability rate is 98 percent for legal services, 65 percent for management consultants, and 60 percent for engineers, architects, and accountants.

With low overhead costs and a higher success ratio it’s no wonder why so many entrepreneurs are striking out on their own in the service sector!

Trend 2: Role Models
The easiest way to achieve success is to model the strategies of other successful people. They have proven that their method of doing business works – all it takes is for you to apply it to your business. Seeing someone else achieve great success also gives people just the right amount of confidence to believe they can do the same! Today, there are ever more role models to imitate. Every major corporation at some point in time was started by one person who had an idea and started working towards it. The biggest companies in the world – Wal-Mart, Microsoft, General Electric – were all created by entrepreneurs like Sam Walton, Bill Gates, and Thomas Edison who started with nothing and went on to build huge empires.

Most of today’s high technology companies, for example, have been created by one individual within one lifetime. It no longer takes generations of work to build a successful company. In today’s world we are also seeing high school students building multimillion dollar businesses. We now have a wealth of individuals from many different backgrounds to look up to, learn from, and model.

Part 2 continued next week…

Evan Carmichael

Following last week’s post on the importance of Meta Tags (The 15 Most Important Onsite SEO Factors: Part 2 - Meta Tags) I wanted to continue the discussion on Onsite SEO Factors today and talk about the use of Body Text.

Body Text

The body text of a page is the actual text that can be seen by viewers when they visit your site. It does not include HTML commands, comments and other code that is going on behind the scenes. Body Text is important to Google because it shows how relevant your page is to a particular topic. You can have the nicest looking website in the world but if it’s full of graphics, flash, and javascript and very little text then you are not likely to come up favorably in the search engines.

300 Words Of Text
How much text should you have? A good rule of thumb is to have at least 300 words per page. What I’ve done with many of my articles is if the Body Text is over 1,000 words then I’ll split it up into two articles that can each rank separately for different keywords.

Keyword Density
The next element to look for is keyword density - how frequently should you put your keywords in the Body Text? If you repeat the same keyword too often you can get your page cut out of Google’s index for keyword spamming. To be on the safe side what I do is list the keyword once every one or two paragraphs on the page and make sure that there is valuable and relevant content around the keywords to make the web page useful.

Bold Important Keywords
Another important component to Onsite SEO is to bold the important keywords on your page. If you bold a keyword then you are showing that is more important than the other words on the page. Therefor you should bold the important words that you want to rank for where they appear in your Body Text. Note that this will have an impact on the design and you have to be ok with the look of the site but it can have a positive impact on your Google rankings.

First Sentence of Body Text

Just like it’s important to have your keywords at the beginning of your title tag (see The 15 Most Important Onsite SEO Factors: Part 1 - The Document Title), you want to also put the keywords in the first sentence of your body text. The logic is similar: The first sentence is more important than the rest of the page so it carries more weight. Keep in mind though that the first sentence should be a real sentence, not just a string of keywords. Try to write a complete sentence that encompasses some of the important keywords you are targeting.

Evan Carmichael

Venture Capital - The Next Steps After The Meeting

If the venture capitalists are interested, they will very quickly come up with a draft term sheet for you which gives an overview of the conditions under which they would make an investment in your company. (see next page for a sample term sheet)

They provide a draft term sheet so that they can get an understanding of what the deal could look like and ensure that there is not a disconnect between you and them on valuation, methodology or type of financing.

The draft term sheet is not a commitment on the part of the venture capitalist. It is not a legally binding agreement. It is a proposed framework under which the venture capitalist is prepared to do business. The most important element of the draft term sheet is the valuation. If you are too far apart on valuation the deal will not go any further.

The due diligence process is not a 24 or 48 hour process, it is quite time consuming. In order to save time the draft term sheet is put forward to ensure that a negotiable transaction can be reached before investing further effort.

There are also considerable up front fees that the entrepreneur will have to pay. Among these are the venture capitalist’s legal fees. Some venture capital firms will also require a $20,000 to $30,000 non-refundable payment up front before going forward.

The time period given to accept or reject the draft term sheet is not very long. You will have to commit to it or drop it fairly quickly.

Venture Capital - What The Venture Capitalist Due Diligence Process Looks Like

The venture capitalist due diligence process is intense and can take weeks or months depending on the complexity of your company. It will be the most intensive look at your company that you have ever experienced.

The venture capitalists will want to know everything from your standard articles of incorporation, directors, and shareholder agreements up to the details of how your business processes are run.

Venture Capital - How Long The Due Diligence Process Takes

The due diligence process will very rarely last one or two weeks.

Remember that the venture capitalist is also working on other transactions beyond your company.

The due diligence will typically last at least one month. If there are any complex issues such as environmental approvals that have not yet been met, further delays are likely.

When you are considering raising capital, make sure to get all your company records and documentation together in advance. You do not want to wait until you get a draft term sheet before trying to find important documents that the venture capitalist will need to move forward.

More and more venture capitalists are also worrying about environmental assessments. You may consider getting your company and property assessed before approaching an investor.

The venture capitalists will also want to speak with your clients, suppliers and bankers to get an understanding of how your company is regarded by the outsiders who deal with you on a daily basis.

The purpose of the initial meeting and draft term sheet is to get an approval in principle. From there the venture capitalist will carefully examine the details of your company before making an official offer.

An intermediary can be helpful in speeding up the process, especially when dealing with the lawyers on both sides. The intermediary is responsible for “cracking the whip” and ensuring the process is progressing. The faster you can make lawyers work, the lower your bill will be. Generally, if you give lawyers enough time, they will make sure to use it and bill you accordingly.

Venture Capital - What Happens After The Due Diligence Process

If the venture capitalists are interested in your company after completing their due diligence, they will offer a binding term sheet. It will reflect the draft term sheet that has already been agreed to but this one will be a legal contractual agreement. Then the real negotiations start.

There are different types of financing to consider: debt, equity, and mezzanine.

Debt financing is the most objective and is therefore the easiest to negotiate. If you have the assets to support the debt and the income to support the interest payments, the negotiation period will be very short.

Equity financing negotiating is more complicated and revolves around agreeing on valuation and percentage ownership. Discussions usually requires several days.

Mezzanine financing involves a mix of equity, debt, convertible debentures and preferred shares. Negotiating the technical aspects of each so that an agreement can be reached between the investor and your company can be time consuming.

Another dictating factor is the number and variety of financing offers that you receive. It is the intermediary’s role to help you bring more than one offer to the table and assist you in evaluating and negotiating which one is best suited to your company’s needs based on their previous experience.

Venture capital term sheets are time limited. You have to quickly make up your mind if you want to accept or reject the offer. The short time period is in place to prevent you from using one term sheet to solicit new offers from other venture capitalists.

Evan Carmichael

“We sort of lived paycheck to paycheck, like a lot of African-American families do,” says Black Entertainment Television founder Robert Johnson, “still do.”

From his humble beginnings in Mississippi to becoming the first self-made black billionaire in the world, Johnson has made a name for himself by focusing on an untapped market. With no prior business experience, he was able to turn $15,000 into a media empire. Today, BET, the world’s first black-oriented cable channel that Johnson founded in 1980, can be seen in almost 80 percent of American homes.

Not every venture Johnson started found success. A BET clothing brand and chain of themed restaurants crashed sooner than they ever took off. But before he had time to lament the failures, Johnson was already on his way to launching something new. How did Johnson manage to go from a childhood of living cheque to cheque to becoming the first self-made black billionaire in the world?

We weren’t a welfare family, but we knew that if I wanted a bicycle it meant that somebody else wasn’t going to get something else. Or if you wanted to go to college, you knew your parents couldn’t pay your way to college.

I failed miserably. I couldn’t get up in the morning. Still can’t.

I knew that if we had a box of cookies in the house, you made sure you got yours fast. It made you make decisions quick…If you talk to anyone from a large family, the tendency is you want to chart your own course, because otherwise how would you get recognized? 

BET was a business opportunity waiting for someone to put it together. When an African-American attains a level of success, he or she becomes the primary go-to person for any other business deal. The broader community does not look for anybody else. They say, I’ve got my Bob Johnson, I’ve got my Oprah. And that’s it. And it just stops.

What I try to do as I’m going up the trail, I try to bring with me other African-Americans who can then use my experience and gain credibility from what I’ve done to be their own successful person. We’re not reinventing the wheel, we’re just painting it black.

Today, if I were to put on jeans and walk into a jewelry store, and I could probably buy the jewelry store ten times over, but the jeweler’s going to look at me as a black guy in jeans who probably can’t afford it, and maybe who just maybe might steal something.

If there’s something I can do and I feel it should be done, I just want to do it. I just don’t want to leave it undone because I’ll sit back and say, why didn’t I do that? Why didn’t I start that business? Anything that has to do with money, I want to be in that business. I’m in business to make money. You can do well and do good. But at first, you have to focus on the blocking and tackling of running a good business.

Evan Carmichael