Posts Tagged funding
Part 3 of 5: Tech Wildcatters’ Suggestions for the Successful Fundraiser
Posted by Steve in Experience, Miscellaneous on October 21, 2009
The last two days, I introduced Tech Wildcatter micro-seed project and discussed their program for entrepreneurs. One of the areas of conversation focused around what made entrepreneurs successful at fundraising. This will give you a little insight into not only how to get their attention but also how to be a successful business person.
Gabriella Draney and Jon Feld started Tech Wildcatters. On Sept 3, I had the great opportunity to sit down with Gabriella and talk about her new venture. I organized her responses into each of these general question categories.
What is the best way to stand out from the rest of the pack?
This can also be looked at, “What is the biggest mistake entrepreneurs do?” Our discussion actually started on this point first and Gabrielle was quick to respond, “Lack of follow up.” One would think that at the funding stage the most important action would be to follow up with potential investors, contacts to investors, or with customers. Unfortunately, many entrepreneurs do not do this.
The best way to be “written off” is to not do follow-up. Respond to emails. Call back if someone leaves voice mail. If you do not have the answers yet, at least call back to let them know you received their message and when you can deliver the answers.
What are some of the other mistakes that entrepreneurs do when they look for money?
Gabrielle sees a lot of mistakes. In addition to not following up with phone calls and emails she listed off the following. Start-ups are:
- Not thinking about customers and revenue.
- Focused too much on raising money and not enough on running the company.
- Not being aware of what investors do, not looking at their website, and generally being unprepared for the interview process.
- Not being able to strategize. If you have been turned down by too many investors rethink your strategy. If you do not know why you are not getting any money, then get help.
Two ideas stand out. The first is that although these points seem like common sense, there are a lot of people are obviously not doing it. The other is that you need to run your business like your life depends on it. Balance between making money and raising money. Stay focused and in contact with people. Ultimately, standing out is not as much about doing something new and different but more like doing what the successful businesses do.
Tomorrow, we look at what Startups Tech Wildcatters will pursue.
Sources of Funding
The following is a general list of sources of funding.
Funding in this case is defined as increased cash (the working capital) in your company.
The list follows the following three groups: sell more product, borrow money, or sell pieces of itself. That list is too vague, so in the effort of making a it bit more real, I constructed the below.
1. Yourself – put your own money in.
2. Personal credit cards – very high rate of interest, but easy to get cash.
3. Loan on personal collateral item – second mortgage, pawn a car/boat/jewelry. Very risky and you could lose your goods.
4. Line of credit from bank – typically has fees whether it is used or not, reduced if you carry a large balance and have a good relationship with them.
5. Sell products – (increase cash flow) you sell products and reinvest the profit back into your own company.
6. Sell off business – sell part of your business or the contracts
7. Factoring – advance against receivables
8. Advance Against Royalties/Against Contracts
9. Accept Credit Cards – accepting credit cards on average increases a business by 35%!
10. Merchant Cash Advance – a loan against future income not realized by a contract
11. Friends and Family – get them to put their own money in. It can be a gift, loan, or stock purchase.
12. Loan from bank – includes collateral loans, SBA-backed loans.
13. Grant – government or private sponsor to either do research, or provide funds to a need category
14. Private Placement Memorandum using a reg d wholesaler – selling securities in your company via a person who represents your company to financial advisers (they sell the securities) who in turn find investors
15. Angel investor – private investor who uses their own money
16. venture capital investor – private/public investor who uses third party money
Items 1 to 3 do not require you do convince anyone of the viability of your company or products. You only have to spend your own money, or have a valuable item you are willing to collateralize.
Item 4 is typically not a problem if you have decent financials. It becomes more of a problem if you want to negotiate out of your fees or lower your interest rate, but you do not have to convince someone that hard about
Item 5 now gets into the area of convincing others to buy your product. This is the most basic but does involve improving your budget management and taking less money for personal gain.
Item 6 is actually a lot more common in certain industries. You have steady customers in one arena, but while steady they probably will not grow. Why not sell off the future business and get that cash up front? This can be easy or difficult depending on the industry and mix of customers.
Items 7,8 and 10 typically are only used when the business is doing well and needs to increase their working capital. You do not have to work that hard to convince someone to do this but just have the right type of business and financials. Item 10 sometimes requires to you to already accept credit cards but in other cases you may be able to get cash against contracts.
Item 9 sounds simple but its hard for a new business to get credit cards. If they do then it will be more costly, and most likely require a personal guarantee.
Item 11 now gets into the realm of convincing others to bet on the future with you, without collateral. This is the focus of this blog. The first step is get friends and family who already know you and ideally, believe in you.
Item 12 is difficult. Banks will not loan to start-ups but they will loan against someones financials (because they personally guarantee the loan).
Item 13 is getting a grant from the government or some private entity. Takes time, money, and the ability to know the right people. This actually may take longer than any other category.
Item 14, 15, and 16 now getting into the realm of selling securities in your company to strangers. While Item 11 was selling a security (maybe) it was to someone that knows you. Each of these requires work.
Items 12-16 definitely require a business plan.
As you can see, there are at least 16 different ways you can raise money for your business to expand. I tried to put it in the rank of easiest to hardest, but there would be a lot of argument on that.