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Financing Your Business

Bootstrapping 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.

Friends, Family, Founder

6

Grants are not:

Free Money Money to live on while you figure out

what to do Reserves in case things don’t work

out.

Grants

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Grants are:

Grants are funds from public sources (government) designed to provide a good or service that is needed by the community but not economically feasible for the private sector to provide without subsidy. Typically grants flow from government agencies to non-profit firms to provide a specific public service.

Grants

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If you are a for-profit entity you probably won't 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 don't 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.

How to Work Grants

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Angel investors are high net worthindividuals who are interested in investing inemerging businesses.

Two Types of Angel Investors

Professional Strategic

Angel Investors

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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.

Professional Investors

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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)

Strategic Investors

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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.

Key Points About Investors

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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.

Institutional Venture Capital

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Investors invest in people and teams that can execute.

“A” teams with “B” markets will generally beat “B” teams with “A” markets.

Investors’ Interest

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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”.

Investor Business Plan Summary

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Question: How can you tell if an entrepreneur is pitching their business?

Answer: Their lips are moving.

Pitching Investors

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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.

Tips For Pitching

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Title 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. 

Presentation Slides

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Competition: 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. Don't 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).

Presentation Slides

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How are you going to make money?

How are you going to generate my return?

Are you capable of “executing”?

Investor’s Interest

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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.

“Don’t” When Pitching Investors

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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

“Don’t” When Pitching Investors

To make money not to make loans.

Lending is a tool to making money.

Why are banks in business?

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.

Commercial Banks

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

Small Business Administration

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.

What do banks look for?

Short-term money to operate thebusiness.

Typically financed by a Line ofCredit.

Working Capital

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.

Getting the bank to say YES!

Everything is always impossiblebefore it works.

That is what entrepreneurs are allabout – doing what people have toldthem is impossible.

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