Zero emission buildings and hybrid vehicles, have broad appeal, but any climate change solution must first make economic sense in order to truly be effective venture capitalist Vinod Khosla, MBA 80, told a Business School audience during the Schools 2008 von Gugelberg Memorial Lecture. Recorded: November 14, 2008
A newly launched business might not be earning revenues from the day one itself but still needs to settle its operating expenses on a daily basis. It takes some time for a new venture to break-even and earn revenue. Till then and thereafter, it needs capital to finance its everyday business expenses related to property rent, employee salaries, marketing expenses, inventory, etc. The capital utilized to finance such daily operational costs is referred to as the working capital of the company. An entrepreneur should arrange the working capital only after having a clear understanding of all the funding options available in the market. This will help him/ her to select the funding option that works best for him/ her.
Loans can be arranged from personal resources like friends and family. Though this type of working capital loan is much easier to get, it has its share of drawbacks as well. First, they might be apprehensive about lending a larger sum of money. Then, one or more payment defaults can even put the relationship at risk. The availability of such loans entirely depends on the kind of rapport a person shares and the convincing ability he has to keep the relationship intact during hard times.
Venture capitalists and angel investors are also popular sources of funding. A good management team and a rapid future growth plan are the pre-requisites of obtaining a venture capital. Small companies that do not have plans to go public in the near future might find it hard to get such a loan. Such small companies can opt for a loan from angel investors, provided they have a strong management team and qualify the requirements specified by them.
Maintaining a good credit score opens a lot of funding avenues for a growing concern. Loans are available from trade creditors who lend money on the condition that the borrower purchases bulk goods from them. Applying for a loan at the bank is also a good option. Short-term loans from banks are available to finance the daily operating costs of a small business. Both trade creditors and the banks rely heavily on the business credit score before lending the amount.
A business cash advance is one of the most popular and sought after form of working capital funding. The borrowers neither have to bear the burden of fixed monthly repayments nor is it mandatory to maintain an overall good credit score. The repayments are made through the future credit card sales of the business. As the repayment is dependent on the volume of sales, the borrower does not have to bear the burden of repaying the money on a monthly basis. Acceptance of credit cards as a mode of payment is a prerequisite for a cash advance.
Obtaining capital to finance the working capital needs of a small business is not a difficult proposition. The market offers a lot of funding options to the budding entrepreneurs. However, the decisive factor is the ease of repayment, liability burden and flexibility. A business cash advance scores above the rest in all these parameters.
A parody of the private equity and venture capital world.
OPM or other peoples money is one form of leverage that people use to make money for themselves. Entrepreneurs typically use this type of leverage to create wealth. Private investors are always looking for alternatives to invest their money in. It is not obvious to the ordinary person in the street, just how motivated investors are to look at fresh opportunities that may offer a little higher return than the stock market or a simple term bank deposit.
If you have a good idea, the best way to get the project off the ground is to present it to a group of private investors to secure venture capitol. Many entrepreneurs see the acceptance of a particular idea and project to be the end of their work. In a lot of ways entrepreneurs are idea makers and persuaders.
The way to present an idea to secure venture capitol from the private investment sector is by investing in the actual pitch. The importance of creating a feasibility study and generating the statistical evidence you need to give potential investors their satisfactory due diligence. This evidence and statistical data should be obtained from reputable and credible sources and must also must be easily verified and checked should any of the investors decide to pursue your project further.
The main thing about securing venture capitol is to realize you are persuading people. An idea could be the most brilliant idea the world has ever seen, but without someone there to persuade the decision makers, the idea would never get built. Think of Edison and his light globe. It took him 1000 attempts to make the light bulb work, but it took a million conversations to millions of people to get them to accept the light bulb. A world beating idea will go no where without somebody selling it.
To start off a business what you need is a fantastic business plan. Your chances of success increase greatly with a business plan. Most successful companies have a game plan ready along with the business plan. The game plan keeps them focused on what they must achieve every day.
A business plan basically creates the game for you and a game plan helps you stick on and play the game. Most businesses do not consider preparing any such thing to gauge what they will do once they are on the battle ground, fighting the ups and the downs towards their goal.
If you compare a business plan to a brochure, then the game plan can very well be compared to an instructions manual. Business plans are sent to investors, buyers and banks to tempt and excite them into doing business with you and hence it is more strategy and information oriented.
Whereas a game plan is all about tactics and tricks designed by the players themselves. A game plan does not hide the negatives nor are the positives aren’t highlighted. It even contains crisis management strategies and contains preparations for the worst case.
The game plan is like a written document of the steps you are going to take to achieve your goal and everything in between. It is brash, to the point, not flowery, treats the good and the bad equally and is perhaps the most exciting thing to follow.
The game plan must include creating huge goals which really matter and responsibilities for all the employees regarding the attainment of the goal, a decent budget and bonus and prize or reward system to keep the tempo going and creation of some sort of a unit system or tool to measure the performance of each employee and the quality work they have done.
You may wish to read more at: Easy Business Strategies and Free Business Plan Templates.
The world of treasure hunting and gold can posses people. It has me and many other people. But the fact remains that treasure hunting can be funded and successful if they step back from the enthusiasm of the project, and operate on a rational level.
Treasure Hunting is a business as well as a passion. If you can be grounded on the numbers and the research, your enthusiasm will sell the project.
Anyway this guy and another guy were trying to raise money in $20-$100 per person. I simply could not understand why the were trying to raise such a small amount of money from like 500 people. It just seemed like a waist of time when they could have asked for $2-$5,000 from each person. I would not have invested and money with these 2 people because they are lost in a dream and not organized.
They had no plans and there research was weak. They also had no idea on how much is needed for treasure recovery or even how much money they needed at all. They had no planning so there is little to no chance of them being successful.
Just because you think you know where a treasure is does not mean you have any idea on how to pinpoint and recover it. That takes money…Lots of it.
For an underwater pin pointing and recovery takes time and money. The fact is they were looking for about $6,000 total from 500 people. There is no way this is enough money for their projects. Also getting 20 bucks from 500 people is going to be a huge problem.
It would be so much easier to find 5 people who want to invest $2,000. They would have fewer people to deal with and $10,000, that is 4 thousand dollars more than they would have got at $20 from 500 people.
They are disorganized and trying to get money from the wrong people. There are people who have thousands of dollars lying around just looking for the right way to invest it. They can be sold the dream if your numbers and organization is sound.
I just do not understand some people.
http://roguetreasurehunter.blogspot.com/
Besides having a coffee shop business plan, you need to have your funding source(s) defined when starting a coffee shop. There are many options available for you, but we will talk about the most common.
SBA – So many sources push SBA loans, SBA LOANS, SBA LOANS! Let me first say, the Small Business Administration loan program is awesome, if you can get approved. Although they have loosened up some of the requirements lately, it is still somewhat tough to get approved.
First of all, the government does not loan the money. The standard program is a bank loan though there are some micro loan programs available that use funds from capital groups. Most of these loans are normally collateral loans, and they are backed by the US government similar to HUD and FHA home loans. What that means is that if you should happen to default on the loan, the government will reimburse the bank for certain percentage of the loan amount. That is good for the bank, and good for you if you can qualify for one of these loans. They are tough to get I’ll say again, and there is a lot of paperwork to fill out and file. You also have to have good credit, very good assets, low debt to income ratio, and unencumbered collateral.
Some SBA loans can take some time to get approved and then funded, but if you are approved, they usually have up to a 7 year repayment period and a favorable interest rate. It’s best to talk to an approved SBA lender for particular details, as the bank calls the shots, the SBA only backs the loan. You can work with a local SBA office as well for details or go to http://www.sba.gov
Personal – This is the easiest form of financing, but less likely for most people. Try to put all you can into this venture from your own pocket without ruining your marriage, family or jeopardizing your home. If you do get financing, you will be required to pitch in at least 25% of the total you need to start your coffee shop anyway. The more you have in, the more the bank knows how serious you are and more likely they are to fund you. They also know the more you have in personally, the less likely you are to run when the times get tough.
Cash is king. Liquid assets are a great source of funding. Liquid assets are assets that can be converted to cash quickly like stock, bonds, or a 401(k). I only recommend any retirement plan as funding as a last resort. This is what I did when I ran into capital problems and could not get a loan because I was maxed out. It’s best though to leave this money alone and search out other options.
Real estate equity – This is a good source of funding if you have enough equity in your home or another piece of real estate. The interest rates are usually favorable as well.
Friends and family – if you cannot put in as much as you need to, friends and family are a good way to raise additional capital. Just be sure it’s clear how you structure the money deal: are they investors, partners, both? Are you issuing them stock in your corporation? Whatever the deal, get a contract attorney to draft the paperwork to make it legal. It will cost you about $500-1000 or so for this service and when it’s done, you will be glad you did it. Spell out all details.
I once saw a guy invest in a restaurant and the owner wanted a loan only, so they had a repayment plan but not any written contract stating what was what. The investor assumed he was now a ‘partner’, as in part owner and started showing up daily, scheduling meetings, wanting to rearrange the store and making menu change suggestions. That was not a pretty situation!
Investors – most high dollar investors want to see success before they pony up cash to someone they do not know. However, it can happen at the beginning though. You need to surround yourself with PWM: People with Money. This can also be the friends and family route. Ads online and in the paper are ok, but will most likely bring you more weirdoes than real investors.
Join local business organizations, talk with the Economic Development Corporations and chambers of commerce in the areas you are looking to open and ask them for investor referrals. A lot of investors shy away from seeding food and beverage related businesses unless it is a liquor establishment but they are out there.
Non-traditional lenders – aka private equity firms, capital groups fall into this category. Their guidelines are less stringent but again, most want existing businesses looking to expand. They also are not normally looking for food industry investments because the risk is too high and search out tech type companies that have a higher return. However, this is again certainly not the law.
Banks – traditional lenders, they are tough ones to get on your side if you have NO money to kick in or marginal to bad credit, and no collateral. Sometimes just a lot of work, a lot of talking and an awesome coffee shop business plan may just be the thing you need to get them to help you. A banker on your side that believes in you, and you have established a relationship with could be what stands between you and a funded loan. Treat them like gold.
Credit Unions – usually most do not do much in the way of business financing, but for those that do, their guidelines are slightly more relaxed than a traditional bank, like those for personal financing but you will still have to qualify.
Credit Cards – I am not recommending this option! If you do use them, be sure they are a very low interest rate, even 0% with some of the introductory rates some banks give. You may want to have back up cash in case you run into problems with one.
Be careful, however because after the intro period is over, the rate may go higher than you think if you are still carrying a balance. Also, if you are late one time, you run the risk of getting rate-jacked. That is when the credit card company jacks the interest rate to the default rate, as high as 29%! Yes it should be illegal but unfortunately for us, it is not. They can also raise the rate whenever they want regardless if you are in default or not. It’s in your agreement with them; i.e. the fine print. Once the rate is up there, it is very difficult to get it lowered again. Chase is the most famous for this. Just be careful!
Credit cards are good for purchasing however, if you get the rewards points or airline miles programs. I have several I use for purchasing and have gotten several airline tickets and thousands of dollars in gift cards for using the cards and getting points. Besides that, you can effectively buy more time for your accounts payable if you plan the billing dates correctly.
So whatever source(s) of funding you choose for starting a coffee shop, be sure you know what you are up against. Do your research and talk to the people that can help you. Stay focused, and well informed regarding your planning stages. Be sure your prospective lender gets a copy of your coffee shop business plan. All lenders will want to be sure you know what you are up against! Good luck.
Interested in early-stage company investment? Duke alumni Mitch Mumma ‘81 of Intersouth Partners speaks about the basics of venture capital. A former chairman of the Council for Entrepreneurial Development and current technology general partner at Intersouth, Mitch has had full-cycle venture investment experience. He has held management positions with various companies throughout his career, including three start-up companies, all of which subsequently went public. Part of the Duke Entrepreneurship Education Series. Visit www.dukedees.com for more information.
Venture Capital and Angel Financing Workshop With the cash crunch and downturn, only top-flight firms can get funding. Venture veterans brief entrepreneurs on the state of private equity and how to raise the next round. Moderator: Sam Angus, Partner, Fenwick & West Mark Stevens, Partner, Fenwick & West Tom Patterson, CEO, Wize Bob Greene, Partner, Contour Venture Partners David Pakman, Partner, Venrock
Venture Capitalists are wealthy private investors who can help finance your business either it being a business in trouble financially or a new business venture.
There is usually a five year lock up on Venture Capital investments, this means the Venture Capitalist or the business they are helping to fund cannot get out of the deal until the five years is up, sometimes this may be longer depending on the agreed business plan. They also charge management fees and incentive fees as well as taking a good sized share of your business. Unlike Business Angels, Venture Capitalists like to have a director or management role within the company to discuss the running of the business as well as keeping a close eye on their investment making sure the business succeeds. But there are a few Venture Capitalists who like to give the company the finance they require then take a back seat and let the company who know the trade etc. and let them run the business on a day to day basis.
Finding the right investor for you may be a scary prospect but there many Venture Capitalist firms now available which have investors waiting to invest in a new and upcoming business with good prospects. Making a proposition to an investor can be a scary thought, you need to remember they will want to know exactly what your plans are for coming years, the market you will be promoting your product, service in as well who your target audience are for this as well as how much it will cost to make if necessary and the cost you will sell it for, showing the profit you will make on each product, item or service. One thing to remember is that investors don’t care about the dreams you have about this venture, all they want is a good return on their investment in your business.
Before going to see a possible Investor the best thing to do is to get advice from other business people in the same area you want to go into to get their advice on your product and or service and their honest opinion of the idea.
You will need a well detailed business plan when you meet up with the Venture Capitalist and if you are turned away by them don’t give up keep trying, if show people you’re serious about your venture and wont fall at the first hurdle your more likely to win people over with their own weaknesses.
Some points to consider are:
o Put all your thoughts on your new venture on paper, brainstorm everything
o Research your proposed market or industry
o Get someone to argue against you to see if you have a water tight solution
o If you have little knowledge on a certain area ask for help from people who know
o Create a budget, showing every detail you can think of
o Read thoroughly your business plan to ensure there’s no errors
o Know who your competitors are
o Present yourself well – the more presentable you are the more likely you are to be respected by the Venture Capitalist make a good impression
o Make sure you know your speech, your business plan back to front so you come across confident as you only have one chance