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Finance

Source #5: Venture Capital

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“I never invest in someone who says they’re going to do something; I invest in people who say they’re already doing something and just want funding.” John Doerr

Venture Capital. There are few words which ring bells in my ear and this happens to be one of them. It represents a stage in your entrepreneurial career which makes up for the roller coaster ride that you may have been through. To be substantially venture funded is a stamp of approval from seasoned veterans of this field that you have what it takes. All that is between you and immortality such as the likes of Google and Amazon is a little money. Getting here for most is a long and difficult process. This source of funding in todays day and age comes after you have used one of the previous sources outlined earlier. Diligence and persistence are two core personality traits which are vital.

Once your startup is at a stage where you believe venture funding is required to take your concept global, several steps must be taken. Some of the critical ones are outlined;

  1. Find someone who can refer you to a venture capitalist. Referrals comprise of the majority of ventures which are backed.

  2. Your business plan has to be professionally done with all the major topics covered. Sequoia Capital has outlined this very nicely on their website and every business plan should cover all the sections discussed.

  3. Have a prototype or proof of concept ready before the presentation. This is absolutely essential when pitching to VC’s today as the cost of developing them has been reduced considerably. It is an added advantage if your business concept is already running and you require the VC firm to take you to the next level.

  4. When preparing your pitch presentation please follow the 10/20/30 rule which Guy Kawasaki aggressively promotes. Having the presentation structured in this way will give you the ability to focus as well as to allow for discussion time. During the discussion you can use extensive research to answer questions.

Be as prepared as you can be for this meeting. I have been on both ends of the firing line both as a judge and a presenter and the first impressions in this encounter make all the difference. Know your presentation like the back of your hand. Be confident about your product or service, most importantly, belief in what you are pitching must be clearly apparent.

If you are stuck on step number one where you do not know anyone who can refer you to a VC firm there are a few things you can do.

  • Firstly you have to increase your level of exposure through networking (this is a topic which I will talk about in the coming weeks). Networking is an essential skill that every successful entrepreneur must have or develop.

  • Secondly join entrepreneurship clubs and committees. These provide you a platform to meet with and interact with  successful entrepreneurs which may become possible links for you to get introduced.

  • Use Linkedin or other professional networks to find individuals in your network who will be able to provide you with connections to the right VC firm.

  • Scout the web for prominent VC’s who regularly blog such as Kawasaki’s blog to find out more about them.

In essence you have to become a lot more proactive if you want to increase both your network and exposure level. You have to put yourself along with your product/service out there and get valuable feedback. Entrepreneurship is all about getting out there and giving it all you have because you believe in your company that much. Get inspired to be more today!

 

Finance

Source #4: Incubators

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“The genius of investing is recognizing the direction of a trend – not catching highs and lows” Anonymous

If you find yourself in a precarious situation where you haven’t been able to raise any money through the three methods outlined in the previous posts; incubators may be the route to take. Incubators are essentially centers or organizations where startup companies are provided seed funding and a office location to launch their business. An example which comes to mind immediately is Y Combinator. The website provides you with a basic idea of how incubators are run.

I was introduced to the concept of incubators very early on as the university I attended runs several of them. The way it worked was;

  1. Write a comprehensive business plan and send it in for review.
  2. If you get short listed you were called in to give a presentation about your concept or idea to a panel of seasoned entrepreneurs.
  3. Once you get through, you negotiate with the university on an equity swap for seed financing. Usually the sum would be below $15k and they would take anywhere between 5-10% of the company.
  4. You are allocated a small cubicle where you have access to shared services such as a receptionist and a business center.
  5. You are allocated a mentor to guide you along your startup route until you are ready to meet an angel investor or VC.

In theory this is a relatively easier route than the ones outlined earlier. However due to the severe shortage of incubators in most countries I left this source out earlier. I would appreciate if comments could be made regarding incubators in your country of residence to facilitate anyone who may be looking to use this source.

Finance

Source #3: Angels

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“I want to work for a company that contributes to and is part of the community. I want something not just to invest in. I want something to believe in.” Anita Roddick

Angel investors consist mostly of high net individuals. They have domain expertise in some specific area and are very well connected. Once a company decides that it wants to take itself to the next level, angel investors are usually a good first step. At this point, the advice I give startups is , find an angel investor who has domain expertise in their particular industry or field. They become an excellent reference point for you to get connected, gain exposure and set yourself up for a much larger round of funding. To begin the search for an appropriate angel investor you should;

  • Prepare a formal business plan with an attractive executive summary.
  • Get your elevator pitch and presentation fine tuned.
  • Preferable to have a working prototype or demo of your product/service.

Angel investors usually fill the void for investments ranging from $100k – $1m. Assessing your companies valuation (This process will be talked about in a couple of weeks) is an essential step before pitching to them. This will help you to gauge how much equity you will have to give up to raise the amount of capital you require. Armed with this information you are ready to begin your search. If possible get a referral from someone who may have contact with an angel group or the angel him/herself. This will increase the likely hood of getting an appointment. Without a referral, search for prominent angel groups in your city or country. Such as BANSEA in the SEA region.

Angel investors provide startups with flexibility which is not available in venture backed companies. Angel investors provide you with the ability to sell or buy your stock from them during the initial stages. This gives cash strapped founders the ability to benefit along the way. This flexibility also brings with it some unique challenges. Angels can be a lot more intrusive than venture capitalists. Some take advantage of cash strapped founders by increasing their shareholding at the expense of the founders and may even take an active role in the company which may lead to undermining the founders authority. Some ways you can guard against this scenario’s is to have a lawyer draft out a comprehensive agreement. In this way you can ensure that your rights remain guarded and you will not be caught off guard by the angels contract agreement terms. Making sure both parties understand the agreement fully before entering into this partnership is vital.

This is the stage in a startup venture when your dreams begin to take shape. When an angel shows interest don’t reach the conclusion that it is a done deal. Continue to market yourself, this will raise your companies exposure level. With a greater level of exposure you will have considerable leverage to ensure that you get the better end of the deal. Rushing this stage is never a good idea, you are selecting a partner who is essential in your journey to an IPO or acquisition stage. Keep your eyes and ears peeled and once you get that “right” feeling just go with it.

Finance

Source #2: DIY

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“The great majority of men are bundles of beginnings.” Ralph Waldo Emerson

Todays source will talk about a common scenario which comes up when you have your NABC proposition in hand but unfortunately don’t have the funds to get your product off the ground and have been unable to secure funding from friends and family. At this point many begin to lose heart. They begin to doubt themselves and their belief in their idea gets shaky. An entrepreneur who has complete belief in his concepts and ideas will not lose hope at this point in time. We have several options still available to us which include angel investment, venture capital or even getting some leverage from your bank. The advice I give to individuals in this space is to get some funds together yourself or with your team mates the old fashioned way with a plan with specific goals.

In todays day and age angel investors are becoming more sophisticated and a proof of concept or prototype has becoming a necessity. Plans look great on paper and if you are an A-grade presenter you may make it through at the angel investment level. However, it is becoming increasingly more difficult to make it through without a prototype or proof of concept. The other day a friend called me asking for advice on an online stock photo website he wanted to launch. He had a lot of new twists to the conventional business model and he was essentially looking for some seed capital to convert this concept into a reality. Being a professional photographer with a good team I told him that they should raise money themselves and get a prototype of what they want to do together. This would make it easier for them to approach angel and VC investors.

Here is when things get a little blurry. Say you have skills in flash based development. You set up a home-based consultancy to promote your services with the goal to raise $10k to create your prototype. Things start to go reasonably well and you find yourself making relatively decent money without having to work at a full time job. You need to keep things in focus now, consulting work is highly customized and cannot be scaled. A lot of angels and VC’s would not be very interested in funding a project which does not have a viable exit strategy. Stay focused on creating a standardized product which can be used by millions of individuals rather than custom work developed for a specific individual. Falling into this trap is relatively common. Staying focused on the bigger picture is a vital key.

Once the prototype is developed get back out there and get some serious investment into your project to get it kick started. When you use this sourcing method to raise funding for your project remember to stay focused on the bigger picture. If you are developing a stock photo website ask your clients whether they buy photo’s online and if they don’t, how much they would want to pay for them. If you are a software programmer continue to take on projects which help you in developing modules for the larger project. Use this as a platform to get traction on the idea and to help you refine it along the way. Just remember to work with a specific goal , do not get sidetracked and lose sight of the ultimate objective .

Finance

Source #1: Friends and Family

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“The holy passion of friendship is so sweet and steady and loyal and enduring in nature that it will last through a whole lifetime, if not asked to lend money.” Mark Twain

It is natural that when we first start out on any business venture, friends and family are the first ones who are asked to support them. I used this method of sourcing for money in my first media startup. However, it wasn’t like knocking on a door and saying, could I please have $5k. I wish life was that simple. Before you embark on taking money from anyone you have to be completely sure about what was talked about yesterday. We need to be completely sure where we are going with our idea, with whom and how. So when I approached an uncle of mine for a loan I prepared a detailed document outlining how the business is going to run. It was a basic executive summary which showed him:

  1. The market need
  2. Our value proposition
  3. The market size
  4. Our services
  5. My team
  6. Payback period

A lot of individuals overlook the fact that taking money from friends and family is risky business. We have a lot invested in our relationship with them and any sort of complication leads to friendships being lost and family ties strained. You have to make it absolutely clear to them from the very beginning what it is that you need the money for. I feel this gives them much needed relief, because from their perspective they will realize that you have put serious thought into the venture and that in itself is a good starting point.

Another factor that you have to take into account is whether they will be buying in to the business in return for equity or the funding will serve as a loan which will be paid back. I have a relatively strong preference for the latter. Involving family and friends is complicated as it is, if they buy into the company this further complicates matters and they may have completely radical ways of viewing your business model. If you take a loan from a friend or family member make sure that they are financially capable of withstanding the loan. If not you could get a call out of the blue one day requesting the loan money be returned straight away due to an emergency. That is another situation which can be the end of an early stage startup.

Whichever route you take be sure to do it professionally, with openness and honesty and get everything in writing. These will help safeguard both your relationships as well as your startup’s future.

p.s Source #0: Using savings that you may have. I have made the assumption that like most younger entrepreneurs you don’t have significant savings to initially fund the startup process. However if you have a some money saved up I would strongly suggest that you use that instead of venturing out to the next source.

Finance Inspiration

Is it all about the money?

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“You must not for one instant give up the effort to build new lives for yourselves. Creativity means to push open the heavy, groaning doorway to life. This is not an easy struggle. Indeed, it may be the most difficult task in the world, for opening” Daisaku Ikeda

I hear it all the time….”I will start up my own company when I have enough money” or “I can’t start a new business because I don’t have the funds”. I used to think along these lines once upon a time as well. The reasons why some think this way are purely psychological. We set up sub conscious barriers which inhibit us to go into unchartered territory. We fear that we may fail or that we wont have the confidence that is needed. Since nothing can really prepare anyone for this deep dive I just ask the question “Do you believe that your product/service has the potential to become something huge?”. The answer to this question helps you break down any internal barriers you may have. It will strengthen your resolve and make you think deeper about what you are actually wanting  to achieve. I sincerely believe that money should not be an hurdle when you believe that you have something unique to offer the world coupled with the confidence you can deliver it .

I have been part of and have created quite a few companies in the last couple of years. I don’t recall a time when money was the primary hindrance in wanting to execute what we had in mind. Don’t get me wrong, money is a great thing to have while running a business, its just over reliance on it which causes a blur. Over the next week I am going to be talking about some of ways that you can look into raising funds for your startup. Pre-requisites would be, the belief that you have a potentially value adding service/product, have part of your team in place and a burning passion to succeed  to bring about positive change. Without these factors I am certain that even if you raise capital, chances of success are reduced.

The fact of the matter is that when you want change in your life or you do not want to go down the the beaten path you have to want it bad enough. Stuff like finding the right team and the right investment partner become much simpler feats. I had mentioned this before, when you are looking for success it has mysterious way of creating pathways for you to find it. Letting the world tell you that it is too difficult is just its way of testing your resolve. If you truly believe that you have what it takes to make it,  I am very sure that you will have no problem crossing this hurdle.