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Corresponding with Investors

Off and Running..

You have signed up a BBB accredited funding network, created a profile and made the final edits on your business plan. You are finally ready to post your funding request, upload your business plan and start contacting investors. You wait for a period of time, and you get some solid responses to your postings and your inquiries.

You see a first name and a last name initial, and one person has a company listed in their description response. The other two responses don’t mention a company, just a first and last name, and only one of the two potential investors has a telephone number. What now?

What Next After I Get Some Responses?

First, you have to look at what types of funding providers and investors generally belong to an accredited funding network. The idea of being part of an investor’s network is appealing to most investors and funding providers because it creates an organized approach for finding many great start-up companies and funding requests without having to sift through hundreds of telephone calls and written funding requests that may not suit their interests. Some funding network members enjoy a degree of anonymity, while some want to promote their company when they do find the right investment seeking matches.

Some investors may ask for your business plan, or they may ask that it be posted online or sent to their email address. Some investors may not want anything sent to their email address until they get a chance to further evaluate what you are trying to accomplish.

To NDA or Not to NDA, That is the Question

Start-ups and other business ventures that require funding will sometimes wonder: What if the investors steal my idea? Yes, this can be a legitimate concern. However, to appreciate the full picture of communicating with investors you need to know that 99% of those on a trusted funding network are out to make money by looking at many, many deals and would rather benefit from your idea by investing and not by stealing. Some investors don’t mind signing non-disclosure agreements ( NDAs), while some do, and some have their own NDAs that they may provide.

Who are These Investors?

A trusted funding network that is accredited usually pre-qualifies investors and funding providers with telephone interviews and/or by checking out websites, but that would be the extent of the prequalification process. The process is designed to not exclude the small individual investor that may have $20,000 to invest in a good business idea and to not limit larger individuals or groups that prefer a degree of anonymity. Usually the initial prescreening process weeds out most of the scammers trying to pose as investors. Ultimately, practicing due diligence is up to you prior to releasing any information other than your business plan and your telephone number and prior to paying fees.

Funding providers typically found on a trusted and accredited funding network include Angel Investors, Venture Capital, Individual Investors, Investing Groups, Institutions, Foundations, Micro Lenders, Banks, Brokers (nominal prepaid fee) and Brokers (paid at closing).

How Do I Know if an Investor is Legitimate?

Typical red flags indicating an investor may not be legitimate include not having a track record of successful deals and representing themselves as having been in business for a period of time though you can’t find information on their company through the state or country of their office of origin. Another red flag is an investor that wants an upfront fee prior to financing. However, there are successful brokers that have a proven track record that do require a nominal fee.

It’s a good practice to have an experienced attorney do some research on potential investors prior to accepting any funds. It works the other way too. Investors should never release funds without investigating business investments. If you find an individual wealthy investor, you may want to travel to meet him or her as you establish your correspondence. It is not uncommon in larger deals that are $1million or more for investors to require a nominal fee be placed in escrow while they pay to conduct some due diligence of their own, appraisals etc. The criteria for return of the funds should be spelled out.

Preparation is Important

When you decide to move forward with an investor or funding provider it is always good to clearly have your terms defined prior to your postings and before contacting them.  In that way, if an investor starts negotiating any additional terms, you are ready to defend your position and stand your ground. It is important to be patient and not to rush. Let the investor make the next move.

More detailed information and useful advice can be found at http://www.funded.com or the Funded Blog at http://www.funded.com/blog.

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In The Eyes of an Angel Investor

One of the best ways to prepare for a search for startup funding by angel investors is to pretend you are one.  Investors have money they are willing to put into new enterprises, but they also want to minimize their risk as much as possible even with the understanding there is always a certain higher risk associated with a new business. If you consider what you would require if you were investing personal funds, the element of risk becomes much clearer and you can hone in on what information you need to assemble to prove your venture is a good investment.

The truth is that funding requests in the form of business plans submitted to any type of investor, whether for venture capital or to equity partners or to angel investors, should focus on answering questions before they are even asked. So it only makes sense to ask yourself the questions first as if you are investing your own funds.

It can be difficult to look at a new business with an objective eye when you are excited about a new idea, and it’s your business under the microscope.  Looking at the proposal from the angel investor’s viewpoint can help you keep your proposal targeted on the ultimate goal which is new funding.

Question: Am I It?

In the eyes (and mind) of an angel investor approached about a potential investment, your new business is untested.  The initial questions that will arise include:

  • What other potential sources of business funding is available to the new enterprise?
  • Could the startup business find funding through more traditional sources like business loans?
  • How long has the entrepreneur been looking for funding and is there any interest in the project by other investors?
  • Is it possible that several angel investments could be pooled to establish business funding while spreading the risk?
  • Is the entrepreneur asking for funding able to prove that he/she is a legitimate requestor with a solid business plan and not simply an “idea” person who has trouble following through?

These types of questions are just the beginning of a detailed analyzation process. Angel investors considering startup funding will want comprehensive information about projected income and expenses, marketing, project team members, business organization, a SWOT analysis, management, legal matters, future capital needs and more.

Question: Is Break Even in the Picture Anytime Soon?

One of the reasons some entrepreneurs are unable to attract any type of investment including venture capital, equity partners or angel investors is because they have not looked past the initial startup. Lack of capital is one of the main reasons small businesses fail according to the Small Business Administration. In the excitement of bringing a new business idea to the marketplace, the details are overlooked like when will the business break even?

Question: Do You Have Answers Prepared

Pretend you are the investor as you prepare your business plan including the financial section. What would you expect to get answers to before approving any investments or business loans? If your business plan doesn’t answer those questions about your venture then angel investors are going to see the proposal as too risky before it even gets off the ground.

More detailed information and useful advice can be found at http://www.funded.com . Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

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Attracting Equity Partners for Strategic Success

Two of the main reasons an entrepreneur or business may want to attract equity partners for business funding are: 1) to fund a particular project, or 2) to fund general business operations for the purpose of advancing the goals established in the strategic plan. It is critical that you precisely define your reason for needing additional investment dollars to insure that you target the investors most likely to fund your financial needs.

When you talk about funding a particular project, the word “project” takes on a broad meaning. A new project can include introducing a new product line to the marketplace or buying another company that sells products or services that will enhance your current company market position. A new project can also include expanding sales into foreign markets or expanding production.  Also qualifying as a new project would be the acquisition of equipment that will strengthen the company’s ability to meet customer demand.

On the other hand, equity partners may also agree to fund company operations based on a long-term strategic plan. Instead of a finite project, the investors may agree to provide startup funding for a new business that is equivalent to venture capital. Unlike most venture capital and business loans though, the equity partners will take part ownership of the company and participate in the management of the business.

Minority or Majority Ownership

What makes equity partners different from other types of investors like angel investors or venture capital is that the institutional or private equity investors will require a share in the ownership of the business (thus the use of the term ‘equity’). When the equity partners invest in a project, they will remain business owners usually up to the point the project is completed and the expected returns have been earned.  In these types of funding arrangements, the equity partners are often willing to take a minority ownership share.

When the equity partners offer business funding for general strategic operations, the requirements often include taking a majority share in the company. This makes sense if you consider that the equity investors are putting cash into the company with the expectation operational expansion or revisions will lead to higher profits in the future. The longer term nature of this type of funding naturally means the equity partners will want to control operating activity.

In the final analysis, it is clear that there are equity partners willing to consider almost any type of business financial need including startup funding.  One of the steps a business should always take when preparing a request for funding is to consider the various investment alternatives including business loans or angel investors that can fund the type of activities whether they are project based or based on strategic operations. If searching for equity partners is the best option, the business plan will be written to make it as attractive as possible to that particular type of potential investors.

Learn more at http://www.funded.com. Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

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Start Up Business Funding – Don’t Take No for an Answer

Your cousin Lou has told you that he wishes he could help out but start up business funding is out of the question. There’s the mortgage to pay and gas prices are rising and the kids need braces and on and on the excuses go. You received the same answer from Aunt Sally, your best friend Dave and even your own father. You have a great idea for a new business but can’t seem to convince anyone to help you get it off the ground.

Many entrepreneurs are rich in great ideas and have plenty of enthusiasm and a willingness to do what it takes to succeed. But desire and excitement are not dollars, and that is what is needed to get any business off the ground. Finding startup funding can be one of the most difficult challenges faced.  You haven’t proven yourself to potential investors, but you can’t prove yourself unless they give you business funding. It’s the proverbial catch-22. It reminds you of the time you were looking for your first job and the employers told you that you had to have experience first!

Plenty of Options for Those Who Persevere

Many entrepreneurs exhaust all of their own money before they even start looking for outside investors for start up business funding. If you were lucky enough to convince some of your family and friends to invest in your new business, there is still a good chance it was not enough money. That means you have to find other sources of funding in order to take the business to the next level which may include buying inventory, purchasing equipment, or making the next 6 months of payroll. The thought of your business never getting off the ground or coming to a screeching halt is distressing to say the least.

Fortunately, you have plenty of options when it comes to funding sources. Given the complexity of convincing financial institutions or private investors to invest in a tight credit market and limping economy, it is always best to get professional assistance. Gaining access to a network of funders is critical, and like any “private” club you need an introduction.

What are these sources of funding?

  • Angel investors and angel organizations – Earthly angel investors are really private investors willing to invest their own funds in fledgling businesses. The often invest in the form of equity or convertible debt. They truly seem like angels when you need funding, but these angels are investing because they believe they can get a higher rate of return by investing in your company as opposed to investing in traditional financial tools. Many angel investors are also interested in promoting businesses in which they have personal experience or a special interest.
  • Business Loans – These are loans from financial institutions like banks. Despite what you read, the banks are lending to businesses. But since credit is still tight due to the recession, you improve your chances of success by accessing those banks with a record of lending through the recession. That is where a professional can be of invaluable assistance in locating funds domestically or globally.
  • Venture Capital – Venture capital is money that is loaned by a venture capital firm or individual. Larger amounts usually come from firms. These firms are often looking for start-up businesses that have high potential for fast growth and early returns. They take an equity position in your business meaning the venture capitalists take part ownership. But there are innumerable ways to structure the financing and equity arrangements so don’t rule out this type of  funding as a possibility.
  • Equity Partners – This is start up business funding in which private individuals invest in your firm in exchange for part ownership.  Ownership can take the form of stock ownership, but in some cases the investor may want to be involved in a way similar to a partner.

Make No Assumptions

There are numerous types of start up business funding as you can tell. There is no reason to assume that since you are a new business that money is not available from traditional sources like business loans or non-traditional angel investors.  You can pursue startup funding from equity partners or venture capital firms. And while you are looking for business funding, you should go ahead and ask your cousin Larry if he is interested. He just might be the first one to say, “Yes.”

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Potential Investors Come in All Shapes and Sizes

Finding investors is probably one of the more difficult activities you will have to do as long as you own a business. It doesn’t matter if you are just starting a new business and need startup funding or have been in business for years. Locating organizations or individuals willing to invest in a business is the easy step. Convincing them to actually give you the money is the hard one.

There are three ways to get money for your business. You can use your personal resources. You can bring in investors who take part ownership. You can get a loan in which the investor requires payback but not business ownership. Since most people aren’t millionaires, the majority of business funding for start up or expansion comes from outside the business.

Networking with the Right People

Investors come in all shapes and sizes. For example, you can bring in a partner who shares equal decision making authority in the form of an equal partner, but many entrepreneurs prefer to maintain control. But there are other ways to bring in partners without giving up the majority control of the business. For example, you can find equity partners who take a less than 50% ownership stake and will function as silent partners. They have no interest in day-to-day operations as long as their investment brings expected returns.

If you have no interest in bringing in partners, there is a network of organizations, funders, banks, private investors and even other firms looking for ways to earn greater returns than they can get in the marketplace. That is especially true today with interest rates near zero and an uncertain recovery underway.  They include business incubators, angel investors, royalties agreements, Small Business Investment Companies (SBICs), venture capital and others. If you are not familiar with any of these sources then you are arbitrarily limiting your search for investors.

The network of funders also includes business loans from banks or other commercial institutions.  Many entrepreneurs avoid banks and commercial institutions believing they will not qualify for funding.  But there is money available and by developing a high quality detailed business plan with the right elements, banks are much more likely to approve new loans.  Assuming up front you will be turned down is self-defeating.

Give Investors Want They Need to Know in Your Business Plan

A good idea for a startup business or for business expansion is not enough. Investors will look for certain things before even considering your ideas whether they are angel investors or equity partners or banks when it comes to business funding.

  • Your personal qualities as evidenced by a background check
  • The ability of business decision makers to successfully steer the new business or project to success while protecting funding investors have put into the business as proven by past experience
  • Likelihood the business or project will be able to pay off the loan or return investor money with interest
  • Ability to create an agreement that is acceptable to both the investor and the entrepreneur
  • Availability of collateral depending on the type of funding

It doesn’t matter if you search for angel investors or venture capital, it will be necessary to have a well thought out business plan that addresses these components. With a good business plan, you can then join the network of people and organizations that enable new ideas to hit the market and businesses to grow through business loans and a variety of other funding sources.

Shorten the Search Time With an Intermediary

If you don’t know how to find available startup funding or you need the money quickly, your best chance of success is using an intermediary. Though you pay a small fee for the service, an intermediary helps people become imbedded in the network of investors and funders which will greatly increase chances of finding the one or more who can support your business plan.

More detailed information and useful advice about investors for your business can be found at http://www.funded.com.

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The Cornucopia of Business Loans

You don’t hear the word cornucopia used much anymore except around the holidays. Did you know that it can mean more than a curved horn filled with vegetables? It also means “an inexhaustible store” and “abundance”, and that’s why it applies to business loans.

You can find plenty of news stories that say that the business of making business loans is almost nonexistent, but that’s simply not true. It may be true if you go down to your local bank and ask for a loan, but what about the bank in the next state or five states over or on the other coast or even overseas?  What about the SBA with its menu of loan options designed to help businesses of all sizes? What about private angel investors?

A Changed Lending Environment

The recession did change the lending environment. The days of easy credit don’t exist anymore. All that means though is that you need to put more effort into finding business loans and not that loans don’t exist. In other words, ‘easy credit’ has turned into ‘look harder credit.’

You just need to understand the new places to look for startup funding. For example, the National Federation of Independent Business points out that small banks are still business friendly. But there are so many other sources of business loans if you know how to find them. For example, you could find private investors who are willing to provide startup funding if you have a well written business plan.

It always comes down to knowing where to look. A loan is debt that you repay over a specified period of time with interest. Private lenders like to provide venture capital to entrepreneurs, offer business funding for business expansion and or become equity partners in businesses for one very good reason – they get higher returns on their investment than they possibly could investing in government securities or putting their money in a savings account. Certainly the stock market and currency markets remain volatile and give and take profits day-to-day right now.

Who Is Holding the Money?

What that means is that angel investors and other private investors are looking for entrepreneurs with good ideas and solid business plans and also offer a likelihood of higher returns. But even if you aren’t interested in venture capital, the SBA is offering a menu of loan programs including what they call the SBA 7(a) Loan Queue. This is actually a program in which the government backs loans made by banks to small businesses.

In fact, there is a SBA microloan program that offers short-term business loans for up to $50,000 to small businesses.  The SBA loans are made through banks, so once again you must find a bank willing to approve your loan. You don’t have to limit your applications to just local banks though which means you should get help finding all banks without regard to location that are willing to give you business funding so you have a real chance to succeed.

If you are looking for small business financing for purchase of inventory or furniture, working capital, equipment purchases, startup funding or business expansion, then you have to know where the cornucopia is or who is holding the money. There are private investors and banks willing to make loans and equity partners ready to share in your success.

More detailed information and useful business loans advice can be found at http://www.funded.com.

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Small Business Funding Is a Searing Hot Topic

Small business funding can’t be called just a hot topic because it’s far beyond hot…it’s searing hot. The National Federation of Independent Business (NFIB) reports that SBA 7(a) loans have fallen dramatically in the last few years. In 2010 only 41% of all businesses were able to get financing from any source, and 16% of businesses didn’t get any credit at all.

You can’t help but wonder how businesses are staying in business when they can’t get credit. But who says they can’t get credit?  The fact is that many of those small businesses did get credit from sources like angel investors and equity partners and other sources of private lenders.  In other good news, there are probably just as many or more businesses that are eligible for private funding, but they are still pursuing traditional financing routes.

Perfect Conditions for Successful Funding

There is much inefficiency in the lending marketplace which is precisely why there is a thriving private funding marketplace. This marketplace was created because of the mismatch between the number of lenders and amount of capital available and the number of borrowers looking for business funding.  It works the other way too. There are borrowers trying to find investors with little success. In a free enterprise economy these are the perfect conditions for creating a thriving market that fills a void.

Small businesses generated 64% of the new jobs in the economy in the last 15 years according to the NFIB. You would think that traditional funders would make sure that small business has the capital needed for job creation, but instead it is estimated that trillions of dollars are sitting idle in banks and corporate accounts.

This is a perfect storm for private lending. If the big companies and banks won’t spend or lend, then it is up to the private business funding market.  The private capital market is lending more than ever before for various purposes. There are lenders willing to loan small businesses venture capital and startup funding for example. The private market is also lending in a variety of forms that include business loans, equity partners and angel investors.

Making Sense of Funding

If there is so much money available for business funding then why aren’t more small enterprises taking advantage of this capital availability? There are several reasons.

·    Don’t know how to find investors
·    Don’t know how to complete a lender worthy business plan
·    Don’t understand the variety of capital available in the private market
·    Entrepreneurs get discouraged after getting turned down in the traditional lending marketplace
·    Don’t want to pay expensive originating fees for business loans

It can be disconcerting to consider approaching equity partners or searching for venture capital without help. It can be just as intimidating to consider presenting a new idea that needs startup funding.  It can certainly be frustrating going from bank to bank feeling like a beggar.

Using a central point for finding private business funding makes sense. It is efficient because you don’t have to go from lender to lender, and it is cost effective. Most of all, it offers funding solutions for the very businesses and entrepreneurs that keep the economy growing.

Want more info? Check out http://www.funded.com.

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Plenty of Options for Those Who Persevere

Many entrepreneurs exhaust all of their own money before they even start looking for outside investors for start up business funding. If you were lucky enough to convince some of your family and friends to invest in your new business, there is still a good chance it was not enough money. That means you have to find other sources of funding in order to take the business to the next level which may include buying inventory, purchasing equipment, or making the next 6 months of payroll. The thought of your business never getting off the ground or coming to a screeching halt is distressing to say the least.

Fortunately, you have plenty of options when it comes to funding sources. Given the complexity of convincing financial institutions or private investors to invest in a tight credit market and limping economy, it is always best to get professional assistance. Gaining access to a network of funders is critical, and like any “private” club you need an introduction.

What are these sources of funding?

  • Angel investors and angel organizations – Earthly angel investors are really private investors willing to invest their own funds in fledgling businesses. The often invest in the form of equity or convertible debt. They truly seem like angels when you need funding, but these angels are investing because they believe they can get a higher rate of return by investing in your company as opposed to investing in traditional financial tools. Many angel investors are also interested in promoting businesses in which they have personal experience or a special interest.
  • Business Loans – These are loans from financial institutions like banks. Despite what you read, the banks are lending to businesses. But since credit is still tight due to the recession, you improve your chances of success by accessing those banks with a record of lending through the recession. That is where a professional can be of invaluable assistance in locating funds domestically or globally.
  • Venture Capital – Venture capital is money that is loaned by a venture capital firm or individual. Larger amounts usually come from firms. These firms are often looking for start-up businesses that have high potential for fast growth and early returns. They take an equity position in your business meaning the venture capitalists take part ownership. But there are innumerable ways to structure the financing and equity arrangements so don’t rule out this type of  funding as a possibility.
  • Equity Partners – This is start up business funding in which private individuals invest in your firm in exchange for part ownership.  Ownership can take the form of stock ownership, but in some cases the investor may want to be involved in a way similar to a partner.
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Start Up Business Funding – Don’t Take No for an Answer

Your cousin Lou has told you that he wishes he could help out but start up business funding is out of the question. There’s the mortgage to pay and gas prices are rising and the kids need braces and on and on the excuses go. You received the same answer from Aunt Sally, your best friend Dave and even your own father. You have a great idea for a new business but can’t seem to convince anyone to help you get it off the ground.

Many entrepreneurs are rich in great ideas and have plenty of enthusiasm and a willingness to do what it takes to succeed. But desire and excitement are not dollars, and that is what is needed to get any business off the ground. Finding startup funding can be one of the most difficult challenges faced.  You haven’t proven yourself to potential investors, but you can’t prove yourself unless they give you business funding. It’s the proverbial catch-22. It reminds you of the time you were looking for your first job and the employers told you that you had to have experience first!