6 Things you want to know before looking for funding

Posted in: Blog, Funding by Brian Cauble on December 5, 2010 | 1 Comment

So you’ve determined that you need some money to build the next Facebook or create the next Viagra. Well, I’m not a full fledged expert about raising capital, but I’ve learned a few things from talking with investors, venture capitalist, and people who’ve successfully raised capital. While this list isn’t exhaustive, you need to know these things if you hope to raise money.

1. Build your projections bottom up – Entrepreneurs often tell investors something like “If we capture 1% of total market, our revenues in year 1 will be $1 million.” This generally makes you look naive to investors at best. You need to look at it in terms of what is realistic. Think that you can get 10 sales per month in the first 3 months, 13 sales per month in the next 3 months, and so on. Be prepared to show something along these lines. Also, be prepared to back it up by showing why this will happen. For example, you will be adding two full time sales people that are expected to produce these sales.
2. Ideas are cheap - I know you think you have a brilliant idea and it’s going to change the world. However, you need to have created something and likely you will need some sales or users. An angel investor (small $’s) may invest in just an idea but it’s not nearly as likely these days. These days, venture capitalists put their money on what they call implementation risks. That means that you have a successful company and they are betting on you being able to grow really quickly if they give you money.
3. You need skin in the game - Time and time again, you will see entrepreneurs ask for money without any real risk to themselves. They haven’t drained their retirement account, quit their full time job, or borrowed money from family & friends. If you don’t believe in your ideas enough to go all in, investors generally won’t believe either.
4. You can’t be a mess – If you are a financial or personal mess, it will hurt you when raising money. If you’ve had 4 divorces or declared bankruptcy 5 times, you probably aren’t getting any money. Investors will assume that if you are personal or financial disaster, you will do the same thing to the company.
5. Don’t lie - Don’t lie about deals in progress or a personal problem. Many things can be worked around, but investors don’t like being lied to, and if they are going to give you $3 million, they are going to check into you pretty hard.
6. Experience matters - Investors bet on successful teams and successful people most of the time. If the company you started is in bio-tech and you used to be an insurance salesman, it is going to be hard to raise money. It will also work against you if this is your first company. That doesn’t mean you won’t be the next Mark Zuckerberg, but it will make it more difficult to raise money.

I truly hope this helps you if you intend to raise money. Like I said, it’s not exhaustive, but you need to be aware of these things before you walk in to pitch your idea. Good luck and let me know what other things you think people need to know when raising money.

Borrowing money to fund expansion

Posted in: Blog, Funding, Uncategorized by Brian Cauble on September 13, 2009 | 4 Comments

You have a few options if you need a decent, but not huge, amount of money. There are three main types that I can think of that would apply in this situation: Debt Financing, Equity Financing, and Commercial Finance.

Debt financing means taking out a loan. Not all loans are created equal and some will want you to put up your personal property, others will not. I would consider going to the Small Business Association. It is their mission to help people like yourself. Also check with any bank that you have a long standing relationship. They will definitely want to look at your business finances to determine if they think you will be able to pay them back.

Equity financing means taking an investor. When you need 50,000 to 500,000, Angel investors can be a good option. The key is they will be looking for a good return on their investment. So if your company is likely to grow slowly, I doubt they would be interested. The Birmingham Angel network is one place to look at.

Commercial finance means borrowing from a lender based on your business assets. If you have anything worth money in your business (real estate, equipment, stocks, A/R, etc), you can borrow against this. Porter capital is a local firm that does this. It is a loan, but only against your business assets.

I hope that helps you get the money you need. For what it is worth, I am discussing having Superior bank talk in November about this subject at a meeting.

Temporary finance for your business

Posted in: Blog, Funding by Brian Cauble on May 15, 2009 | No Comments

Imagine for a second that your business is experiencing a shortage in cash flow. You sitting at your desk late at night looking at the screen wondering how you make payroll. The funny thing is that accounting shows that you are profitable. You have made money. The problem is that your money is tied up by people who owe you money (accounts receivable). If you could only get those people to pay your invoices, you would be fine. So how do you do it? You can’t.

However, you can get the money that is owed to you through a method called Factoring. Factoring means that you are selling your invoices at a discount. Factors will buy (most of) these invoices and they will collect it. The upside is that you get your cash immediately, and you can make payroll. Another upside is that you don’t have to collect the money. The factor now owns these invoices. The downside is factoring can be an expensive form of financing. However, some times it can be a good form of temporary financing in your business.

If you have relatively good credit, you should consider borrowing against your assets instead of Factoring. You can borrow against your A/R, Real Estate, Inventory, Purchase Orders and anything else of value that can be liquidated. This is called Asset Based Lending and it works much more like a home equity loan for business. Except your collateral is not your house. It is your assets. Just like any loan, you pay a rate (normally lower) on only what cash you borrow and you pay it back in the future.

These are both good alternative methods of getting cash when you are generally a strong company but in need of temporary cash. Just use them sparingly and make sure that you shop around for the best rate. The are thousands of Factors and practically all banks will lend you on your assets. Good luck!