The Value of Prepping for Due Diligence: Interview #4 – The Matrix

Due Diligence #4

The Value of Prepping for Due Diligence: Interview #4 - The Matrix

Tony Drexel Smith is "The Man With the Plan."


Tony, founder, and CEO of Blue Moon Advisors, Inc., has written upwards of 1,000 business plans in his career. You've read about some of the entrepreneurs like Krista Whitely and John Humphrey that came to Tony to become funding-worthy. The business plans Tony wrote helped these and hundreds of other entrepreneurs gain traction in the funding game. But the business plan is only one aspect to fund-worthiness. Fund-worthiness, the Blue Moon Way, is really a plan within a plan -- with the business plan being one aspect of a comprehensive Capital Readiness process Tony takes companies through. And it's been successful an astounding 87% of the time when entrepreneurs do the work necessary to score at least 925 points on the Blue Moon 1,000 point matrix.

Recently, I spoke with Tony at his offices in Las Vegas about the value and the limits of a good business plan and what it really takes to be fund-worthy.

Tony, did you always want to have a career writing business plans?

No, that was the furthest thing from my mind when I started my first entrepreneurial adventure. I grew up around entrepreneurs and my entire family was involved in really successful food industry companies. Early on I knew I wanted to own a restaurant. After serving a tour of duty in the U.S. military, I came home and decided it was time to pursue that dream. I knew I'd need funding and I knew I'd need a business plan in order to get funding. So, I started researching and writing and developing my concept and business model. The plan led to funding and I opened my restaurant. Not long after that, a gentleman came to the restaurant asking for me. He'd heard through the local SBA that I had written my own business plan for the restaurant and he wanted me to write one for him. So I did. And it just started from there. Word of mouth. More clients willing to pay me to write a plan for them. Before I knew it I had a second business. Eventually, I sold the restaurant and started helping entrepreneurs write plans full time.

Were your plans effective in helping people start their businesses?

Absolutely. But over time I noticed definite trends -- factors that led to whether a company got funded or didn't and these factors went well beyond whether they had a good plan. Someone could have a stellar business plan, but little ability to execute on it. Or, they could have a great plan and a great team that could execute on it, but they lacked knowledge and expertise around how to raise money and how to structure the company to receive investor capital. Others had the plan, the team and the funding documents and strategy, but lacked the skill or materials to pitch successfully. Others had all of those things but needed a pivot because investors perceived their market as too small or too risky or too competitive.

In other words, a great business plan gets you in the door, but isn't nearly enough to get you funded . .

That's right. So after writing 700 or so plans, I started to put a matrix together that covered every aspect of what it takes to be truly fund-worthy. I ended up with 100 factors and I weighted each in terms of its' importance to getting funding. Then, I ran all 700 or so plans I'd written and companies I'd helped through that matrix.

What did you learn?

I learned that there was a gap between those that had received funding and those that didn't in terms of the overall completeness of their entire set of materials. I don't just mean documents. I mean documents, marketing, messaging, team composition, website and other communications, compliance for SEC and state law purposes, thoroughness of market proving and financial model research and more. As I ran each company through this 100 point matrix a pattern emerged. Those that scored at least 925 out of 1,000 possible points nearly all received funding. And just as important -- not one company I worked with that did not get to 925 did get funding at a level necessary to execute on their plan.

Are some factors more important than others?

Yes in a way, but sometimes even a small missing item can hurt someone's chances for funding. For example, a company might score really high in terms of its' business and financial plan and it might be suitably prepared in terms of funding documents and ok in terms of its marketing, messaging, branding and communications as far as effectiveness and compliance -- but still fall short of a 925 score because the team is missing a key player. No matter what else they do, we've structured the matrix such that until they fill that particular gap they aren't going to reach 925.

Team Composition is something we at Intelliversity hold as vitally important to success. You've found this as well?

No question. And the player we focus on most for early stage companies is a knowledgeable, competent CFO with relevant industry experience. Investors want to see that your team has a really top-notch person in that position because they ultimately are responsible for how the investors' money is spent.

Any other factors that tend to keep a lot of companies from reaching 925 in the Blue Moon Capital Readiness matrix?

Believe it or not a lot of clients don't know what business they're in because they're so focused on their invention, product, device or service. They haven't put enough time into understanding exactly who it is that is going to buy it, or how they are going to sell it, or how they are going to price it. We end up advising clients to make major pivots more often than you'd think, because what they think they're going to do just isn't a profitable or provable business.

So, you engage in hypothesis testing with clients?

We start with a very comprehensive research project around what a client thinks they're going to do in business, based on whatever documents or conversations they provide us with. Often, research shows real problems in their hypotheses about costs, time to market, proposed pricing structures or even how they propose to structure the business and what they plan to offer investors. When we point out these gaps our hope is that clients will go back to work to re-think things in a way that will promise more success, then come back to us and we review. A lot of times we go through that process hand in hand with clients. The goal is to take the best of what a company has and wrap it in a package that's going to be more attractive to investors.

What was "magic" about 925 out of 1,000 as opposed to 850 or 900 or even 924?

The data of over 700 plans told a story about the overall completeness of a company's profile vis-a-vis attractiveness to investors. The weighting of various criteria in terms of overall point-scoring is such that if a company falls below 925 -- even if they're close -- it means there is a significant missing component that will inevitably come out during the fundraising process. I'm not saying that no company can get funded if they don't score a 925 in our matrix. I'm saying that statistically, over nearly 1,000 companies and a decade of time, companies that do achieve a 925 or higher score had and have a dramatically higher probability of funding -- and just as important a dramatically higher probability of being in business and providing a good ROI years later.

How can companies learn more about what Blue Moon Advisors can do for them?

We work only with certified Blue Moon Advisors that were vetted just as thoroughly as the companies we serve. Rob, you're one of our certified advisors so readers of this blog should contact you for an introduction and overview of how we can help them get funded.

Key Takeaway: A great business plan can get you in the door sometimes, but it rarely, if ever can get you funded. Investors take a look at a wide range of factors about you and your company when making investment decisions. Most of the time they say "no." Even if you have a strong overall profile, one important missing thing can lead to funding failure. To get an edge in the funding game and stand out from the crowd, consider having a thoroughly vetted plan, strategy, team and investment document compliance package in place before trying to raise capital.

If you do contact Blue Moon Advisors directly, please mention you heard about them from Intelliversity.