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Bill's Thoughts on Raising Capital |
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Raising capital is an art,
not a science. While there are some universal truths (no amount of
spit and polish will make a bad idea into a compelling business
plan), your chances of successfully raising capital largely deal
with your preparation, presentation and seeking the right source of
funding at the right time. In other words, don't take your latest
brainfart to a VC and expect him to fund it. In the spirit
providing a road map, there are essentially seven types of funding:
1) Bootstrap, 2) Friends and Family, 3) Government Grants, 4) Angels
and Angel Groups, 5) Venture Capital Funds, 6) Debt, and 7) Public
Markets
Bootstrapping
Do it
yourself. Finance your company through retained earnings or your
own money If you really believe in the concept, throw your own
money into the deal, take out a second mortgage, hell, you can even
roll the dice and max out your credit cards (note: Billsnow.com, LLC
does not recommend the credit card option). I cannot help you with
this sort of financing. You have to do it yourself. Don't ask me.
Government Grants and Loans
The
government offers numerous programs for entrepreneurs, including
grants. Here's a helpful service if you are interested in investing
possibilities.
Click Here for Government Grants & Loans Info.
Friends and Family
Entrepreneurs should look to friends and family for seed capital
(~$25K to $250K), assuming the bootstrap method isn't available, or
they're too lazy or scared to do it alone. In any event, this is
the reason why you always should be nice to family members...you
might have to hit them up for money. As far as your friends are
concerned, show them you have hip music tastes, see my
CD Carousel page for tips. People like to invest in
entrepreneurs who have cooler musical tastes than their own.
An
entrepreneur has access to this group of people for a simple reason:
they know the entrepreneur. The plus side of this kind of financing
is the ease and simplicity of the deal. The three Fs invest in a
deal mainly because of the entrepreneur: they know the entrepreneur
and they like the entrepreneur (or at least the story of how they're
all about to get rich). The down side to this sort of financing is
facing awkward family gatherings after you squander the investment.
Ruined friendships are often the end result of the three Fs.
Angels and Angel Groups
Once
notable milestones are met, an entrepreneur can probably seek angel
capital (usually $100k to $1 million). "Angels" are wealthy
individuals (e.g., accredited investors) who champion early stage
ventures because, most often they sense the ability to make a ton of
money, and/or they have some sort of personal interest in the
company/entrepreneur.
Angels
are often tough to find, and usually require running in the right
circles (hint: take up golf). Angel groups are usually loose
affiliations of these wealthy individuals. Entrepreneurs have the
ability to present to the groups, but only after the deal has been
"scrubbed," e.g., reviewed, groomed, prodded and poked.
Entrepreneurs often have to pay a submission fee for consideration
and/or presentation. Since the Angel group is not making a direct
investment, the group is not a fund, and usually falls outside of
SEC regulation. However, your dealings with any investor may fall
under the auspices of the SEC. Consult an attorney.
For
your convenience, here is a listing of some angel groups and early
stage funds. I can not offer you assurance you will obtain funding
from any of these sources. |
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ACE-net - the Angel Capital Electronic Network
On line network linking accredited investors and entrepreneurs
Alliance of Angels
Washington State companies only
Angels' Forum
Silicon Valley and San Francisco area companies only
Angel Investors LP
An early stage fund. Please note: fully allocated = no new
investments.
The Angel People
Another on-line network, similar to ACE-net
Ben Franklin Technology Partners
Pennsylvania Companies only
Business Partners
Business Partners is a global Internet based service that connects
Entrepreneurs, Early Stage Companies and Established Corporations
with Angel Investors, Venture Capital, Corporate Investors,
Potential Partners and target data on Mergers and Acquisitions.
Common Angels
Boston area companies only
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ForeFront Capital
Chicago area companies only
Gefinor Ventures
Colorado, Texas, and in certain circumstances, they will consider
deals from California, New York and Washington DC.
Empire Ventures
Early stage fund, Pacific Northwest and Silicon Valley only
National Association of Seed and Venture Funds
Not a fund, but a good resource for early stage capital
New Product Development Consortium
Nation wide investment focus
Northern Illinois Angels
Chicago area and northern Illinois only
Origin Ventures
Chicago only
Sound Point Ventures
Western US and Canada only |
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Venture Capital Funds
Venture
funds are limited partnerships that are set up to invest in
companies, not pure-play start ups (e.g., idea stage companies).
The money comes from wealthy individuals, as well as institutions
such as pension funds, university endowment funds, corporations, and
state and local government agencies. This is why VCs are not
degenerate risk takers! It's not their money. Instead of
replicating existing lists of VC funds, here are a couple of links
to lists and resources:
Yahoo Venture
Capital List
National Venture Capital Association
Canadian Venture Capital Association
Net Profits Venture Capital List
Venture Reporter
Debt
The
SBA is a federal agency that will partially guarantee bank loans to
entrepreneurs, here's the site
Small Business Administration
Public Markets - IPO and
PIPE
With the exception
of 1997 to 2000, the companies that were able to go public via an
initial public offering (IPO), had (at least) $20 to $30 million in
revenues, positive EBITDA, and a couple years of operating history.
In most cases, new shares are issued and sold (as opposed to
existing owners selling their shares), and the proceeds of the IPO
go to the company (minus any investment bank fees, usually 7% to
8%). Once a company is public, the stock trades in a public market
(NYSE,
Nasdaq, et al.), and the company
does not receive proceeds from any subsequent sale of issued stock.
If public companies sell additional shares to the public, that is
called a secondary offering, and the proceeds go to the company
(minus investment banking fees).
In recent years,
numerous publicly traded companies have been unable to conduct
secondary offerings, and have utilized PIPEs to raise capital. A
PIPE (Private Investment in Public Entity) is similar to a venture
capital investment, where the stock is sold via a private placement,
as opposed to a public offering. Some investors like PIPEs because
they are a liquid investment.
Public Markets - Reverse
Merger
A reverse merger is
a method of going public without doing an IPO. An operating
nonpublic company merges into a non-operating public company (called
a shell), and the result is a public company. The transaction does
not actually raise cash, but having a company with publicly traded
stock may make it easier to obtain capital. A public company
will incur costs private companies will not face.
This kind of deal
often has a stigma, so be careful. If you are interested in
exploring options, and perhaps buying a shell, these may be some
good sources:
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I last goofed around with this
site on
Sunday, May 22, 2005 07:28:49 PM
Central Daylight Time
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