Middle Market Deals and how to buy, sell and raise capital from $5 to $500 million

Elevator Pitch:  The phrase "elevator pitch" is a reference to the time you have in an elevator to introduce your deal to an unsuspecting investor, especially a venture capitalist.

In reality, entrepreneurs do go out of their way to be in the same room with venture capitalists just to have that quick chance to pitch.  Without an appointment, an entrepreneur better bring it.  Fast.

A good elevator pitch starts with a simple, clear, jargon free statement of what the business is.  For instance, you might say, "MedDevTech Co. is a medical device company that has patented a new technology for the treatment of a specific, common birth defect."

Then, you'd want to go on to identify up to three points about the business that differentiate you from your competitors.  You might say something like, "Our new device both reduces the cost and the pain involved in the treatment of the disease as compared to the market leading technology."

One of your three points should also touch on the size of the market and the quality of the team leading the effort.  Statements like:

"Every year four million people are treated for this disease at a cost of $4,000 each; even at our lower costs, the market size remains over $2 billion."

"Our team is led by Dr. Smith, a leading researcher in the field; we've been working together for two years and have hit all of our key milestones on or ahead of schedule."

Brad Feld, one of my favorite VC bloggers, posted about an article that one of his partners, Chris Wand, had written about debt financing. 

What a great time to borrow money.  I've never seen banks so eager to lend in my entire 20+ year banking career.  Things won't always be this way.  In a few years, there will be a recession and the banks will see higher credit losses and will increase credit standards and relative pricing to reduce their exposure to marginal credits.

So Congress will hold hearings.  In one hearing room, say in the House, they'll talk about why credit losses are up and what were the banks thinking back in 2006 anyway!  In another, say in the Senate, they'll hold a hearing to discuss why banks won't make loans any more.  After all, "my constituents are good credit risks" each Senator will say.  Trust me on this, I've been there.

So, take advantage of the market while you can.  Just remember, the credit loss they may be talking about in Congress, could be about this great little business backed by some smart VC's who had the brightest prospects--before the recession started.

Brad Feld of Mobius Venture Capital articulated something I find to be true and quite interesting even though it is not well understood among entrepreneurs on the topic of Non-Disclosure Agreements or NDAs.

It is not customary to ask investors to sign NDA's when you pitch them your venture deal.  The primary reason that this is so is that a deal better have a better "special sauce" than can be given away in a business plan.  For instance, a software firm may describe in a plan what its technology does, but it won't likely provide a copy of the code, so their truly proprietary information is never jeopardized.

In contrast, it is customary to execute an NDA when conducting a negotiation for the sale of the business.  As Brad points out, it is driven largely by the motivation if the buyer and seller to open up a dialogue that will include some genuinely sensitive information.  While this applies in fact when the buyer and seller are truly competitors, in practice it seems to work even when the acquirer is a private equity firm--with no competing business.