When I wanted to start ViaLynx, I researched on many ways that could show me a step by step approach of making my first company a success. What I found was varying methods each having some form of good advice.
I’m going to discuss my version of how to start a start-up and I hope it will help you in some way to achieve success in your business ventures.
Business Plan + Presentations = Idea
We all have wild imaginations and when it comes to business ideas or inventions we tend to think that our ideas are perfect. The ideas you come up with are only the first step to achieving your goals but then you have to put them in black and white.
A Business Plan is a formal document that describes your business’ products and services to people who will show interest such as investors.
The following format is the international standard for a business plan:
Executive Summary:
A one to three page overview of the total business plan. Written after the other sections are completed, it highlights their significant points and, ideally, creates enough excitement to motivate the reader to read on.
General Company Description:
Explains the type of company and gives its history if it already exists. Tells whether it is a manufacturing, retail, service, or other type of business. Shows the type of legal organisation.
Products and services plan:
Describes the product and/or service and points out any unique features. Explains why people will buy the product or service.
Marketing Plan:
Shows who will be your customers and what type of competition you will face. Outlines your marketing strategy and specifies what will give you a competitive edge.
Management Plan:
Identifies the “key players” – the active investors, management team, and directors. Cites the experience and competence they possess.
Operating Plan:
Explains the type of manufacturing or operating system you will use. Describes the facilities, labour, raw materials, and processing requirements.
Financial Plan:
Specifies financial needs and contemplated sources of financing. Presents projections of revenues, costs and profits.
Once you have completed your business plan, I encourage you to make PowerPoint presentations for other aspects of your business including individual products and services. This will further increase your understanding of your business.
Whenever we develop a new service for ViaLynx, I first, individually compile every presentation with simple diagrams so that employees and investors can understand what I’m trying to build because at the end of the day as CEO, I’m the one driving the vision of the company forward.
Investment Contract + Perseverance = Venture Capital
The majority of people, who start businesses, don’t have the required financial capital to materialize their business so instead you might opt for angel investors and venture capital institutions with the money to fund your business in exchange for an equity share in the company.
In order to start receiving funds from your financial backers you need a formal agreement in place between the company and each individual investor. To save on legal fees, I advise you to draft a contract with all the clauses that you and your investor have agreed upon and only consult an advocate or lawyer to read over it to check for any irregularities.
Below are the steps to compile an investment contract:
Step 1:
Write the opening recitals of the investment contract. The recital should state the date that the agreement is entered into, as well as the name and address of both parties involved in the contract. Use the company name and address if applicable, since the company contact will be identified later in the agreement.
Step 2:
“Whereas” the first company is seeking investment into its venture, and “Whereas” the second company is willing to provide the investment. Follow this up with a “Therefore” statement. This usually reads as “Therefore, in consideration of the covenants and promises considered hereinafter, the parties agree as follows:”
Step 3:
List the articles of the agreement. The articles consist of everything that has been discussed and agreed to previously, only they now take written form as part of the investment contract. List the article one at a time, with them appearing as “Article 1”, “Article 2”, etc. The typical articles for an investment contract include the amount of money to be invested, how the investment will be used and what the investor can expect to receive in return for their financial contribution.
Step 4:
Note the payment terms in the investment contract. These terms vary from company to company, and often depend on how large of an investment is being received. Sometimes the investment is given as lump sum payment, in which case the amount of the transfer, the agreed upon date and the receiving bank account details should be listed. Other times the investment is distributed across several payments. In this event, refer to an attachment, and add a sheet at the end of the contract that lists the dates and amounts for each transfer into the receiving bank account.
Step 5:
Identify any deliverables that are associated with the investment. Many times the investment will require certain benchmarks to be reached by specific dates, or products to be developed as a result of company activities. These items are known as deliverables. List the deliverables in the investment contract, along with the date that each is due by.
Step 6:
State the term and termination of the investment contract. The term identifies the length of time that the agreement is valid for, and is essentially the length of time it takes investor to make the financial contribution and to receive the agreed upon return on investment (ROI). The termination aspect identifies. How the agreement will end, and in what manner the parties involved can terminate the contract early.
Step 7:
Show the company contacts for both the investor and the company receiving the investment. This portion of the investment contract should list the name, title, address, telephone number, fax number and email address for both companies. List the preferred method of contact for each in the event that any portion of the contract requires discussion or amendments.
Step 8:
Clarify the choice of law that will govern terms of the investment contract. Because the law may vary slightly from one location to another, it is important to clearly state what area will have jurisdiction over the agreement. In most cases, the law of the state where the investor resides is listed as the law that rules the contract, and any disputes must be taken to the appropriate courts in that state.
Step 9:
Sign the contract. Each party must sign the contract in the presence of two witnesses. Each witness must also sign the contract. Ideally, one witness will be a Notary Public and be able to notarize the signatures, although this is not necessarily a requirement. Sign two copies of the contract, so that each party may retain a copy for their own records.
Tips & Warnings
Always have the investment contract reviewed by an attorney before signing it. Investment contracts can be simple and are not always complicated documents, but it is a good idea to have a lawyer look at the agreement to make sure you’re best interests are properly represented.
Persevere:
I think the most important thing is that you must have perseverance throughout the entire business process because one thing I realised is that the longer you persevere the better opportunities become available.
Expenses + Infrastructure + Revenue = Profit
Once you have secured the funds for your business, things become slightly less stressful as you can practically take action on the most important tasks set out in the business plan.
Managing the way you spend investment capital can be very difficult because the money is very combustible, before you know it, it’s all gone so you have to prioritize your expenses and infrastructure costs.
The advantage of being a start-up though is that you are able to keep overheads as low as possible by only hiring new employees when you have to and not spending money on things that can be accessed for free.
Selling the Business at the Right Price
If you get to this stage then, well you have reached the home stretch or the rainbow after the storm so one more thing though, selling at the right price is very important. I can’t give you an exact model on how to price your company because it depends on the industry your in so I will give you an example on how we might sell ViaLynx.
The amount of annual revenue we plan to have to be around $20 million in five years time. Excluding our predefined post-money valuation we could sell the company on a five year revenue based model of $100 million.
Because ViaLynx is an internet start-up, we have the opportunity to sell the company based on a number of factors that will inflate the selling price such as the amount of users using our products will be important which we expect to be about 60 million as well as the amount of market share our products have. These factors could allow us to negotiate a price from $100m to well over $250m.
I hope this comprehensive guide has enough information for you to cover the main aspects of how to start your start up and feel free to comment your suggestions on improving this post and share it with people who you know need such advice.
ViaLynx Co-founder Louis-Junior Tshakoane
