CHAPTER 2

PREPARATION: MONEY, MODEL AND

MENTORS
 What’s Your Big Deal?
Idea is the prerequisite for a business
venture. Without a good, doable idea,
• Funding or Money cannot be justified,
• Model or business model cannot be
designed, and
• Mentors that can add value can’t be
matched.
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 Exhibit 2-1: Preparation Needed to Bring an Idea of Life

Money

IDEA Model

Mentors

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 Exhibit 2-2: Basic Questions to Address in an
Elevator Pitch for Waters Bio Mineral Pot

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 Exhibit 2-3: Why the 4 Basic Questions are
Important to Investors

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 Exhibit 2-4: 3 Levels of Strategy

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 While entrepreneurs must be prepared to answer
more in-depth questions, it is equally indispensable
to understand and be realistic about two things:

• The value chain cycle until the company can be

operational and products capable of being sold to
a paying customer.
• Consumer’s path to purchase, in order to know
how long the sales cycle will be as this will affect
cash flow.
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 Cash flow is one of the biggest reasons why
companies can stop operating, an access to
which new companies or underfunded neophyte
entrepreneurs may not readily have.

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 Personal Branding
From an investment perspective, entrepreneurs
must have integrity as part of their personal
branding-a term used to describe the image of
one’s self in the public’s mind from previous choices
made that will affect the future level of personal
influence, which is part of self-awareness and self-
mastery.

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 Having good personal branding will be
advantageous as the entrepreneur becomes
investible. The Chinese call this “shin doing”
(creditworthy). Each success adds, “shin doing” to
their personal branding, each wrong move removes
“shin doing” from their personal branding.

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 • Integrity issue
-Collection deposited to own account instead of company
account
-Transferring funds from company to personal bank account
-Charging personal expenses to the company
-Padding expenses
-Getting personal commission from company’s deals
-Intellectual property of the company registered in own
name instead of company name while using company funds
Borrowing or using lots of money without board approval
-Creating bogus board resolution

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 • Priority issue
-Lack of accountability, acting like they work only
for themselves and not considering other partners
-Not spending enough time in partnership business
while using company resources to build own image
publicly
-Mismanaging internal operations-confusing
publicity with good management skills.
-Valuing loyalty over competency in promoting
people to key positions
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 • Political issue
-Blaming others as non-supportive to save face
while having no remorse
-Delusional self-image
-Having a sense of entitlement by hanging on to
power and position
-Changing agenda to avoid discussing real issues

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 Raising Funds
There are many ways to raise funds for the
business, the more basic ways are listed in exhibit
2-5, and the more advanced ways from outsiders
are noted in exhibit 2-6, taking into consideration
the ideas formulated in exhibit 2-2.

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 Exhibit 2-5:4 Simplest Ways to Raise Capital

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 Exhibit 2-6:5 Sources of Funding from Outsiders

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 Why partners are needed?
The right partners can provide the needed initial
funding, opening doors to further fund and spread
financial risk, creating immediate credibility and making
the entrepreneur highly accountable.

They can open their own their own network of contacts

to be accessible to the entrepreneur, as well as provide
mentorship, preferably not just at a professional level
(operational and strategic issues of the company) but
also at a personal (personal growth) level.
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 Exhibit 2-7: Inventory of Benefits of Having Great Partners
1. Provide immediate feedback on strength and weaknesses of plans
2. Help give operational and strategic directions
3. Provide additional funding
4. Spread out financial risk
5. Narrow your knowledge gap
6. Offer immediate credibility to your company
7. Open their network of contacts to you (key suppliers, customers)
to lower cost or raise revenues
8. Give assurance of fairness on dealing with valuation and stock
ownership, specially after recovering investment
9. Mentorship on a professional level
10. Mentorship on a personal level

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 • Outside Investors and Your Company’s Worth

If outside investors would be needed, discipline

is needed and the entrepreneurs cannot do the
business leisurely as investors expect the
entrepreneur to work hard for long hours to
grow fast, attain goals, be better than
competition and be market leader.
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 • Exhibit 2-8: Three Series of Investment

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 Endowment Effect and Loss Aversion

In order for investors to gain, a challenge of

entrepreneurs is to avoid the “endowment
effect”, a supply-side thinking of overvaluing the
things they have, more than what they are
actually worth in the market, a reflection of
emotions and cognitive blind spots.
.

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 Endowment effect also happens even if the seller
acquires the things for sale at much lower than what is
being offered to be bought, an indicator of loss
aversion where people typically place more importance
on potential losses than they place on potential gains.

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 What is ROI Expected?

Note that the best investment is always the one that

gives the highest return on investment (ROI), that also
pays out dividend consistent with investor’s goals. This
is because an investment may gain substantially but
unless an investor will not actually benefit from the
gain unless they sell stocks. Dividends allow real cash
that can be reinvested elsewhere or simply be enjoyed
as fruit labor.
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 Who to Partner With?
In considering which types of investors are best partner
with, based on their expectations and the pressure
they might impose, expect venture capital and private
equity investors, who are composed to people
organized to maximize their ROI, to be the most
demanding investors.

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 • Factors to consider:
1. The pros and cons of the different types of
investors;
2. The exit strategy expected by venture capitalists
and private equity investors;
3. That venture capitalist and private investors will
demand veto power to protect their investment.

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 What Investors are Looking for?

There are four important and inter-related clusters of

questions that investors will likely be asking and
entrepreneurs must have answers for these: Market,
Product, People and ROI.

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 Exhibit 2-9:16 Questions Investor Need to Ask?

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 Forming your Team
Entrepreneurs cannot create a business by themselves.
They need to work with other people and create an
ecosystem. Three issues need to be planned well.
Choosing partners, choosing founding members and
choosing mentors. Entrepreneurs need to realize they
need to be effective first, then efficient, and then
create an impact.

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 Choosing Partners

- Networking opportunities
- Family commitments
- Leadership
- Fellowship

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 • Choosing Founding Team Members
-Entrepreneurs need to find partners who can
complement their weakness.
- Hiring qualified people
- A shareholder agreement is highly recommended to
anticipate issues and avoid resentment in the future.

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 Exhibit 2-10: 12 Agenda items for a Shareholder
Agreement

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