Developing a financing map

There is a clear destination, and the prize for reaching it is intoxicating - the fabled Initial Public Offering (IPO) or the successful trade sale of the company that turns the founders & investors into latter-day robber barons. There is a generic five-to-seven-year map that has been established by prior generations of entrepreneurs regarding how to build a business.

But this is new terrain. Every new business that has world-beating aspirations is unique. There are lots of issues. What competitors are out there lurking in the tall grass? If a competitor or some other roadblock thwarts the company, is there a way round? Are there small steps that the company might take up front to block competitors? Is the destination as clear as it seems at first glance? Or are there multiple possible destinations - might some of them be even more interesting than the most obvious destination?

Take the example of Creditica. Clearly, it is a modest creation today. At its simplest, it is a 20-page slide presentation containing insightful perspectives on the opportunity, put together by some smart mathematcians. It is plausible to look forward five to seven or more years and to see it as a good-sized company capable of undertaking an IPO. The situation is pregnant with possibilities. But it is dizzying to think of everything that needs to be done on the journey from here to there. What should be done first? Who should be hired and when? Which customers should be approached first? What happens if competitors get to the market first? How is Creditica going to be financed?

Communicating the complexity of all these execution issues to investors, while still conveying the sense of opportunity, is very difficult.

An early stage venture should simplify its business plan by breaking the planned development of the company into 3 or 4 major stepping stones on the way to the prize. These stepping stones should become the financing blueprint for the business. This concept of building a valuable business through multiple staging posts, each of which is financed separately, is the core tenet underpinning entrepreneurial finance. All the complexities and incongruities on the way are derived from this one concept.

The best place to start is to show how the 5 to 10 year plan for a business can and should be split into a series of major stepping stones, normally 3 to 4.