Finance

The Best Places to Look for Money, How to Present Your Ideas, and What to Say to Get It

You need funding to put your business plan into action now that you have drafted it and have your preliminary financial data in place.

I’m curious as to where you’re able to locate such a large sum of cash. You can use your savings, if you have any, or you can ask your family and friends for a loan if they believe in you and your idea. (F, F, and P phase)

Angel investors and venture capitalists are two other funding options.

To produce a Proof of Concept or the actual product, startups often receive funding from Angels ranging from $25,000 to $1,000,000 (usually $1,000,000 from an Angel Group). If your project requires a Proof of Concept, or if you need less than $1M to get your product produced, you should seek funding from angel investors.

Before approaching an Angel or Angel Group, there are a few things you should consider. Find out by doing some digging:

1. What kinds of investments the person or organization you’re thinking of approaching for funding normally makes?

Secondly, if they are open to using venture capital in the future.

Third, if they plan to contribute additional money in the future to help you get to the “next” goal.

4. If they know anyone who could be willing to donate more money if necessary.

5. If they know anyone who would be interested in buying your services or products.

Sixth, the extent to which they desire direct participation in running the business. (Would they be interested in being on your Board of Directors or Board of Advisors, and would they like a role in how their investment is allocated inside the company?)

7. whether you need a lot of money soon, ask whether they work with or know any venture capitalists that would be interested in your business or product.

TDBell Enterprises, Inc. suggests treating your Angel Investors like equity investors and giving them ownership stakes in exchange for their financial backing. We advise against borrowing the money.

A Venture Capitalist is an individual or organization that has raised a sizable sum of money from a number of investors (such as wealthy individuals, corporations, pension funds, or other entities) in order to finance businesses in a specific market. Stock in the company is used as “collateral” when the funds lend the business anywhere from $500,000 to over $200 million.

Similar to approaching Angel Investors, Venture Capitalists will want to know the following information:

1. Has this individual or organization previously backed other businesses in your sector?

2. Where is the business at the moment (Proof of Concept, Development, income in place (and if so, what is the minimum level of income needed), etc.)?

3. Will they be the only investors in this round, or will other parties be participating?

4. What level of commitment do they plan to provide to your business? (Are they interested in running the business?)

When one of their portfolio companies has a need for your service, will they introduce you?

Sixthly, how many shares of stock in the company do they need?

Will they be willing to invest more money into the business if it becomes necessary? (If so, at what personal cost?)

8. What kind of reporting commitment do you have to them?

Consider all of the Angel investors and VC firms before settling on the one that fits your company and your own “style” the best.

After answering the above 8 questions (and probably a few more), and settling on the Venture Capitalist you intend to approach, you must then decide whether or not you should initially approach an Angel investor.

Starting now, you should tailor the financial component of your business plan specifically to the requirements of the Investor you plan to approach. While this is happening, the overall business plan does not change (unless it is being fine-tuned to meet development/production demands due to feedback, etc.). Only the Financial Section(s) of the business plan should be tailored to specific investors. The actions required to launch and begin generating revenue are already outlined in your plan. The plan details your goals, timeline, etc., and the budget includes “line items” that map back to those objectives.

Example:

To launch your software/hardware-heavy service product, you’ll need Concept Approval from the FCC. The FCC requires $750,000 to develop the Proof of Concept, but the total cost to move to revenue is approximately $35,000,000. An F/F/P (Friends/Family/Personal Pockets) round up to $150,000 is available to you.

You’ve done the legwork and discovered that, in order to secure funding from a venture capital firm, you need to have the requisite FCC licenses, a prototype of your service offering, and at least one paying customer.

To raise the remaining $600,000 needed to get your prototype up and running and perform the testing that will satisfy the FCC, you can, for instance, approach one or more Angel Investors for funding. Finding an Angel or Angel Group that is open to additional rounds of funding from Venture Capitalists is essential. In order to get around any “gotcha’s” that may come up as you answer the FCC’s requirements, this team should be willing to contribute a bit extra if necessary.

You have decided to go to an angel investor or investors, so you update your financial section to reflect a $150k (F/F/P) investment, the necessity and use of the $600k from the angels, and the timing and purpose of the remaining $34,250,000 contribution.

You should include the current financials, the living business plan, and a discussion of your needs in your written presentation to the Angel(s).

Later, when you’re preparing your written presentation for the Venture Capitalist, you’ll leave out the Proof of Concept phase because you’ve already successfully done it and it’s no longer part of your plans (living business plan, remember?). Financials currently indicate how you spent the previous $750K and what you will do with the following $34,250,000 that you are asking from the Venture Capitalist to indicate the next stages over the next three to five years as perceived today.

Targeting your financing request in this way will save you time and effort, and increase your chances of success.

Don is an experienced Venture Capitalist who has backed startups for over 15 years. His fund’s website can be accessed at [http://www.tdbellenterprises.com/fund.html]. His firm also advises fledgling businesses on everything from creating a business plan to launching.

admin