When 14-year old Ashley Power
unleashed her views on life on her Web site, “Goosehead,” who knew she would be
a media sensation in a matter of months? Toiling away, night after night, the
teen built what is now one of the hottest young adult sites on the Web with
little money and no staff.
However, when the word got
out, it soon was obvious to the teen’s parents it was time to invest and take
the little Web site into the big time – and who knows, the same process may
hold true for your own firm or company site. What if you don’t have a nest egg
to fuel your entrepreneurial effort?
Basically, there are two
types of capital: debt and equity. If you go the debt route, you secure a loan,
maintain total control of your company, and must repay the loan plus interest
and fees. Going the equity route provides capital and investors who trade an
investment for a share of your company and, they hope, the associated profits
If your company requires a modest amount of capital, you may
consider going the debt route by securing a bank loan, a Small Business
Administration loan, personal loans from friends, family or partner (silent or
not) that invest a large portion of the money required to get you where you
want to go. Commercial finance companies also can provide financing. If,
however, you are in an industry where a considerable amount of capital is
required (such as high tech), you are better off going the equity capital
No matter who you make your pitch to, you will need:
- An Executive Summary – 3 to 5 pages
- A Business Plan – 50 pages maximum
- Due Diligence Material, including market studies, research
- Company Business Valuations and projections of post-investment
- A strong, short presentation you can make in person
Venture capitalists (VCs) usually enter the game at around
$250,000. Below that, you may want to look at angel investors: wealthy people
who invest in a similar manner as VCs, but do it independently rather than with
a firm. They are called "angels" because they usually are more
interested in acting as a mentor rather than controlling your company.
VCs and angel investors look at your business plan and, if
everything looks good, they will invest in your company. To ensure you look
“good,” be sure you supply the answers to these questions in your materials:
- How much can the investor expect to make? What is the
return on investment?
- How much could the investor lose? What collateral is
- How do you know your company will make money? Do you have
third party documentation that can support your claims?
- Who is running the company? Why should they trust you and
your team know what you are doing?
- Who’s going to buy your product or service? How will you
market to your target? Does your plan
have marketable validity?
will the investor be paid back? What is
the deal structure and terms?
Seeking venture capital isn’t for the faint of heart. VCs
typically receive about 100 plans per week and invest in about 5-10 businesses per
year. But, you never know when your presentation or business plan may land in
another investor’s hands as a result of your VC actions. Who you know is very
important when seeking venture capital. Networking takes on a whole new role as
you try to meet potential investors. Ask your business advisor, attorney,
banker and other colleagues who they know in the VC world.
Your action list for securing capital should look something
- Develop documents
- Create presentations – one short (5-10 minutes) and one long
- Hone your presentation skills – try Toastmasters or personal
- Rehearse your presentation – your family and friends are a
good place to start
your list of potential investors
- Talk to colleagues and add to your list of possible investors
- Remain focused and enthusiastic throughout the process –
- Do your homework and avoid risky investors
- Remember to sell your vision and the investment, not your
service or product – What’s in it for the investor?
- Each week, make a
to-do list and follow it until you secure the capital you desire
No matter what stage of growth your company is in, financing
is available to those who are patient and persistent. Let us know if we can
help you as you attempt to secure capital.