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Because perception is reality; the most critical element of becoming an innovative organization is what occurs after good ideas have come about and have started down the path to business fruition.

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September 14, 2009

Finding Funding for Your Venture

Finding Funding for Your Venture

Republished due to popular request !

Everyday thousands of Entrepreneurs ask themselves and others how to raise capital for their business venture. This is the first in a 4 part blog designed to educate the novice and advise those currently struggling with finding funding.

The 4 parts of Finding Funding For Your New Venture

  1. Basic Information and Getting Started
  2. The Business Plan
  3. Targeting and Meeting Investors
  4. Making the Deal

Basic information: There are several sources of general funding available and the ability to capture funding is usually dependent on the stage of development.

·         Founders, Family, Friends and Fools (FFF)

·         Angel Investors (High Net Worth Individuals) (Investment range – 25k – 1 million)

·         Venture Capitalists and Private Equity Groups  (Investment range $1-20 million)

·         Institutionalized (banks and SBA)

·         Government sources– such as SBIR and STTR

·         Regulation A – raise up to $5 million

·         IPO’s and acquisitions

 

The stage of development is important. Generally speaking VC and PE groups do not invest in companies looking for start-up or seed money. The best bet for start-up and R& D monies is with FFF and Angel Investors. SBIR and STTR grants are not easy to get and require patience as well as professional grant writing skills.

Where Should Entrepreneurs Start?

The first questions you should ask yourself are:

 Q1. Have I thought my idea, venture, concept, innovation through?

The business plan you will do will define your idea. A business plan for the purposes of raising capital is critical. Part 2 of this blog will address the basic do’s and don’ts of putting together your business plan. If you need help getting started, reviewing or revising your plan, The Entrepreneur’s Advisor can help you.

Q2. Why would a family member or stranger (Angel, VC, or PE) lend me money?

The realistic answer is they probably won’t. Visionaries often believe their idea is the greatest thing since sliced bread and guaranteed to make millions or billions of dollars. The truth of the matter is that there are thousands of great ideas and countless new high technology innovations waiting for development. To increase your chances make sure you are “putting your own skin” into the venture.  Outside investors are very unlikely to invest if you are not willing to put your own money up.

Q3.   What will I need to do to persuade someone to invest in ME and my venture?

Finding investors is about building relationships and being able to convince a decision maker to invest in your company and the opportunity (not your product). You represent your company. It is you they are investing in at the early stages. It is about networking, networking, networking! Investors spend a lot of time building their influence and deal flow network. A warm introduction to an investor by someone they trust is priceless.

Starting point pitfalls:

·         Investors want an exceptionally high rate of return (20-45%) or substantial equity. If you are not willing to give up ownership perhaps over 50% you will have far more difficulty in obtaining capital.

·         Trying to do it all yourself. Immediately develop a set of trusted advisors (Board of Directors is even better)

·         Don’t wait until you run out of capital before you ask for help. This puts you in a very weak negotiating position.

·         Understand you will rarely get what you are seeking; you may or may not get what you need from any one source. “Cash is King”

·         A weak business plan

 

Next blog – “The Business Plan Do’s and Don’ts.

If you need assistance with your business plan or have questions regarding this blog please visit

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