Raising Money For Your Business � The Ben Franklin Way

SBOCTeam — Mon, 20 Oct 2008 18:26:00 GMT

by Adducent

Even in good economic conditions conventional bank funding can be difficult to get unless you have strong credit, a business record for them to rely on, provide personal guarantees and collateral. Current market and economic conditions are making things even more difficult for many business owners and entrepreneurs.

Without credit or collateral to get debt based funding for your business, the only avenue you may have is to try to raise capital by selling equity. If you have not done it yet, the best starting point to accomplish this for your business is for you is to get what you want to do down on paper. Developing your business plan helps you to make your dream a reality but only if you work at it to do the things necessary to reach your goal. A good business plan is something that funding sources and/or prospective investors are going to want to see so developing an investor-ready plan should be a priority for you.

If your business plan is solid and the business a viable opportunity you may be able to find an "Angel" investor who would provide some funding for you. Angel investors can and do put money into small private businesses that are opportunities of interest to them but getting the attention of investors can be difficult. Sometimes an indirect approach actually gets you better results than a direct one.

A little story to illustrate this is in order:

I read once about how Benjamin Franklin lined up funding for the Continental Congress to continue the Revolutionary War. As the story goes, he managed to wangle several million dollars from France though he (and the Continental Congress) was not exactly in a position of power to bargain from. Instead of fighting what would probably have been a losing battle (so to speak) dealing and discussing directly with the French decision makers (all men) ... instead, at parties he spent time with the women (the men's wives) and became quite a favorite with them. His belief in his mission and purposeful need for the money resonated with them and circled back via the women to the men ... who agreed to loan the money needed. An oblique approach that worked.

I have sometimes seen that same oblique approach work when finding seed money or a key angel investor for businesses. It pays to "sow as many seeds" as you can and when you talk about your business, focus on your belief in the opportunities your venture holds.

As Ben Franklin was wise enough to know, sometimes those that you talk to have the "ear" of a decision maker that might just become interested in your company and want to talk to you further about it. Sometimes, contacts you make and discuss your business with; the conversations whether planned, inadvertent or indirect can lead to good results. So when you are speaking with people about your business or venture, speak with confidence, eloquence and belief in it and always in a professional way and manner.

You never know who may be "listening".

About The Author

Since 1983, Dennis Lowery has started up, funded, bought and sold a number of businesses; helped private and public companies grow and worked with private businesses going public; providing consulting services to over 352 clients. He is President of Adducent, Inc., http://www.Adducent.TV, and a Founding Partner of Wilshire Capital Funding Inc.

Dollars From Heaven

akgold — Sat, 21 Jul 2007 01:03:00 GMT

Borrowing money-from a financial institution or from family or friends-is one way to raise cash for your business. But there is another: equity investment.
By Chris Freeburn

Unlike banks that loan you money expecting repayment with interest, equity investors infuse money into a business in exchange for a share in the ownership of the company. Not every small business is suited for this form of investment. Generally, equity investors are interested in companies or start-ups that offer the potential for dramatic growth and high returns over a relatively short period, typically within four or five years. “If I’m an equity investor I don’t need you to give me my money back,” says Elliot Reiff, chief operating officer of the Venture Alliance, an Irvine, California consulting firm that helps companies raise equity capital. “I already have my money. I’m looking for you to quadruple it.”

Equity investors come in two primary forms: angel investors and venture capitalists. Many small businesses turn to angel investors after they have survived the startup-stage and are ready for a larger capital infusion. Angels typically are wealthy individuals willing to back a modest-sized venture or on-going business in hopes of big returns down the road. Many angels set minimum investments that run around $250,000, but others will kick in amounts as small as $50,000, or even less. In 2005, 120,000 wealthy individuals—so called angel investors—funded 50,000 deals worth some $22 billion. “We’ve seen steady growth in angel funding since 2000,” says Jeffrey Sohl, executive director of the Center for Venture Research at the University of New Hampshire.

Aside from cash, angels often provide vital support to the firms they fund. Such support might come in the form of referrals to other investors or to suppliers and potential customers, or advice about how to solve a cash flow crunch or a problem related to your supply chain. “Many angels are former entrepreneurs, so they often know what you’re going through and how to help,” says Sohl.

Four years ago, John Regan and three friends were sinking a combined $30,000 a month into their fledgling business, Parcxsmart. The company develops smart cards for small transactions, with a primary focus on parking meters. “It was a very, very difficult time to say the least,” Regan recalls.

Fortunately, help was on the way. One of Regan’s partners had contacted a former employer—George McQuilken—in hopes that he could help them raise money. McQuilken is an entrepreneur himself, and a founder of eCoast Angel Network, whose members invest in early-stage companies in the New Hampshire coastal region. After a series of meetings, the Angels agreed to raise $2 million to invest in the business. “They did a good job of grilling us,” says Regan. “It was six months before we had any money.”

The firm began generating revenues in November of 2005, and Regan estimates that it will become cash flow positive within the next year or two. Meanwhile, his group of angels has put up another $1 million, and helped the firm land a crucial strategic partnership with another payment systems firm. That partnership will make it easier to raise additional money—and has boosted the valuation of the business.

Though the gilded days of the late 1990’s Internet Bubble when venture capitalists lined up to give money to every geek with a Web related patent are long gone, venture capitalists remain a strong force. From 2001 through 2004, VC firms funded almost 6,700 deals, for a total investment of more than $62 billion, according to Dow Jones Venture- One, and maintained a similar pace in 2005.

Venture capitalists can provide not only money, but other forms of assistance, including management guidance, market expertise and business contacts. Since their return only grows if the business does well, they have an interest in shepherding the firm toward growth. Venture capitalists can be tougher to approach than angels, and they’re not worth the trouble for most small companies. Most VCs won’t look at a firm unless it requires a significant investment, often $3 million or more. Like angels, VCs monitor their investments closely, and they can provide various support services to the company— from board nominees to troubleshooting in times of crisis. However, venture capitalists usually become part owners of the business and usually demand some say in the conduct of daily operations. In short, accepting venture capital can lead to a loss of total control over the firm. Not all small business owners can accept that.

Whether you hope to sell out after a few years, or ride your company all the way to an initial public offering and beyond, you can count on one thing: You’re going to be busy for a while, and the outcome of your efforts is far from guaranteed. Then again, building a business can be an awful lot of fun. And who knows? One of these days you might be using your profits to fund someone else’s growth business.

+Chris Freeburn is an Associate Editor/Writer for Business 24/7 Magazine. Additional reporting by Clint Willis+

Loans and Lines of Credit

Raising Money For Your Business � The Ben Franklin Way

Dollars From Heaven