Friends, Family, FounderBootstrapping is building the business from internally generated funds.• You need to establish a foundation for your business. Build “equity”• Build credibility and show that your business has customers and a product that people want to buy.• Focus on customers and cash flow.• Work hard and be creative in seeking ways to drive revenue while holding expenses down.
GrantsGrants are not: Free Money Money to live on while you figure out what to do Reserves in case things don’t work out. 6
GrantsGrants are:Grants are funds from public sources(government) designed to provide agood or service that is needed by thecommunity but not economically feasiblefor the private sector to provide withoutsubsidy.Typically grants flow from governmentagencies to non-profit firms to provide aspecific public service. 7
How to Work Grants If you are a for-profit entity you probably wont qualify for grants. There are exceptions particularly for science and research activity. If there are people that will pay for your product and service and you can build a profitable business from this activity you probably dont qualify for a grant. A nice strategy for a for-profit is to partner or be a vendor to a non-profit that is getting grants. They get the money from the government, you do the work and get paid. 8
Angel InvestorsAngel investors are high net worthindividuals who are interested in investing inemerging businesses. Two Types of Angel Investors Professional Strategic 9
Professional Investors The underlying reason that they will invest is return on their investment. They invest in spaces they know. They invest with people they know They invest based on referrals from people they know. Invest based on due diligence. Will require professional terms. Looking for a big payout based on a liquidity event. 10
Strategic Investors More interested in the product than the business. Invest based on gut reaction. May take common stock May not look for a liquidity event. May be the friends in FFF (or referred by FFF) 11
Key Points About Investors If you take someone else’s money you have a partner. They will want to have some influence on the company to protect their investment. You will probably have to relinquish some level of control over the company. If you are unwilling to share leadership of the company, investors are not the option for you. 12
Institutional Venture Capital The only reason that they will invest is return on their investment. They only invest in spaces they know. They only invest with people they know They only invest based on referrals from people they know. Invest only based on due diligence. Will only require professional terms. They are only looking for a big payout based on a liquidity event. 13
Investors’ Interest Investors invest in people and teams that can execute.“A” teams with “B” markets will generally beat “B” teams with “A” markets. 14
Investor Business Plan Summary Summary should be “concise” Summary should provide a clear description of the problem you solve. How you solve it. Your business model. The underlying magic of your product. Defensibility of your product. Summary should be no more than “four- pages”. 15
Pitching InvestorsQuestion: How can you tell if an entrepreneur is pitching their business?Answer: Their lips are moving. 16
Tips For Pitching Explain what you do in the first minute. “Clearly” explain what you do in the first minute. Articulate the problem in the market and what you do to solve it. Purpose of a pitch is to “stimulate interest” not to close the deal. Keep it tight. 10 slides, 20 minutes, 30 point font. Speak to the audience’s interest. 17
Presentation SlidesTitle Slide: This is where you tell what you do and give a simple to understand example.Problem: Describe the pain you are alleviating for your customers.Solution: Show how you solve the pain.Business model: Explain how you make money.The advantage you have: Why are you different than everyone else?Marketing and Sales: "Clearly" tell what your sales strategy is. Do not forget to discuss your pricing. 18
Presentation SlidesCompetition: Show there is enough of a market available to buy your product even with the competition.Management Team: You need to convince the investor that you have the team that can execute and will succeed.Financial Projections: You need a simplified, clear slide here. You need to justify your numbers.Current Status/Future Status: Show your use of funds and how that will drive the growth of the company. You do need to discuss exit options. Who are buyers and when. Dont hem-haw around. show the investor that they can not only expect the company to succeed (which is about you) but also that they can expect a return in a certain time frame (which is about them). 19
Investor’s Interest How are you going to make money? How are you going to generate my return? Are you capable of “executing”? 20
“Don’t” When Pitching Investors Don’t try to BS the investor because they see through it. Get your value proposition across early in case you don’t get to the end of the presentation. Don’t get bogged down on the mechanics of the product. Early on the investor will assume it works as you say it will. 21
“Don’t” When Pitching Investors Don’t ask for an NDA at initial meetings!!! Real investors are not in the business of stealing ideas and trying to develop them. You control what is in the summary and initial pitch. You don’t need to disclose the “secret sauce” at this point. Investors will sign an NDA prior to due diligence. Get over it…You’re not that special 22
Why are banks in business?To make money not to make loans.Lending is a tool to making money.
Commercial Banks Banks typically lend for “stuff”. Banks are a great option if you have history and are looking to expand. However, for an early stage company with limited history and minimal collateral, getting a loan could prove difficult.
Commercial Banks When the company is new the entrepreneur should establish a banking relationship and utilize this as far as it will go. The relationship with a bank will be very helpful in the future as the business becomes established. There is no 100% financing from a typical commercial bank.
Small Business Administration SBA is not in the business of making bad loans. Once the bank has agreed that the loan is good but in some way outside their guidelines they will seek an SBA guarantee. The SBA is there to help you with your cash flow. Longer term Lower down payment
What do banks look for?Credit History and Score Credit Score ~ Strive to get/keep your personal credit score over 740 Guard Your Credit Score www.AnnualCreditReport.com
What do banks look for?Business Plan The business plan tells the bank how you are planning to repay the loan.
What do banks look for?Collateral There is no 100% financing To a bank collateral is real estate or equipment.
Working CapitalShort-term money to operate thebusiness.Typically financed by a Line ofCredit.
Getting the bank to say YES! Know your credit score going in. Establish a banking relationship Keep you plan tight, clear and easy to understand. Use common format, don’t be creative. Help the banker say yes. Put yourself in the banker’s shoes. Structure your ask. Separate working capital, equipment and real estate.
Everything is always impossiblebefore it works.That is what entrepreneurs are allabout – doing what people have toldthem is impossible.
For Information on SBDC Activities The Ohio SBDC at Columbus State p. 614-287-5294 www.SBDCcolumbus.com