Angels – Separating Fact from Fiction
Financing a new business that’s just taking off can seem difficult at best. Loans are often necessary for startup capital, but investors and financial institutions often want to see that a business is profitable before they’ll agree to lend money. Some individuals can tap into their personal saving or retirement funds and use credit cards to get some startup funding, but that often isn’t enough.
Enter angels. An angel is a private investor, generally a successful current or former business owner. Angels have been an important source of startup revenue for many years. Angels often provide much more than simple cash. Their expertise and industry connections can prove quite valuable. They want you to succeed and will work hard to help you do so.
For all their positive attributes, angels should not be seen as smiling benefactors, showering money and advice with no thought of their own needs. Rather, they are shrewd investors who expect a significant return on their investment.
While angels may be good sources of funding for your business, they’re also a cautious bunch to deal with. The dot com boom and bust of the early 90s affected business in a number of ways and many angels suffered the effects of that time. Nowadays, angels are just like other investors, in that they want to see data on paper, which means you’ll need a solid business plan to present them. They’ll also want to see some method of how you plan to repay them for their generosity, so outline a good exit strategy that shows when and how angels will receive their money.
Finding an angel used to be mostly a matter of luck, as they preferred quiet dealings with friends or referrals. They did not advertise their services. This is still the way that a majority of angels prefer to conduct business. However, in recent years angel groups have begun to spring up. It is now estimated that the angel groups handle approximately 15% – 20% of all angel work.
Sometimes you are approached by a possible angel investor. This happens only in rare circumstances, generally when the angel is a friend of a friend. This is often an easier "sell," as the angel’s curiosity has already been piqued.
Most of the time, you will have to approach the angel directly. The angel groups generally have a series of specific steps that new submissions must follow. Most often, you will query the angel with a copy of the Executive Summary from your business plan. If your query is accepted, you may be immediately invited to make a presentation, or there may be additional screening steps.
In either case, if you make it through screening, you will eventually have to make a sales pitch in person. While banks are strictly interested in the numbers, angels usually invest in people rather than figures. This does not, however, mean that you can let the numbers fall aside. A well-written, professional, and, most importantly, accurate business plan will be the basis of your pitch. Angels are interested in maximizing the return on their investment. However, you should also expect to spend some time talking about yourself, selling the angels on not only your business concept, but on you as the best possible person to run it.
Angels can be the most important source of obtaining money to start your new business. Often, angels have been in your shoes, having started off their own businesses with the same difficulties, and can relate to the problems you might be facing. That, in itself, is probably your biggest advantage to convincing angels that they should invest in your business. Sell your products and services with a solid business plan, but sell yourself as well, using both financial figures and personality to secure the deal.
Start Up Capital – You May Need Less Than You Think
So you have a great idea and you’re ready to become a person of business by launching your own company – that’s fantastic! However, you have to spend a buck to make a buck, and every new business needs money to get off the ground. Plenty of required needs for starting a business cost money, such as renting office space, buying equipment, and promoting your company to the public to attract customers. There are ways that you can start a business on a shoestring budget.
If your company will offer a service, such as home repair, it is possible to start on almost no money whatsoever. You can set up a home office using your existing hardware and software. You will need to generate customers; however, joining a lead generation service involves only a nominal charge, as do targeted marketing campaigns such as distributing flyers. Licenses and certificates will likely your biggest expense, totaling no more than a few hundred dollars.
You can then build your inventory of materials and supplies as you go. Simply re-invest all or most of your profits into tools of the trade. This method means that your company may operate at a zero gain for the first several months, but it dramatically lowers your initial costs. It also eliminates guesswork during startup, as a tool you might think is critical may not actually be required for your first six months worth of jobs.
If you plan to open a store, your initial cash requirements will, of course, be much larger. However, even in this case there are ways to significantly lower your initial overhead. Target your customer base. Conduct market research and determine what items they are most likely to actually buy. Maintain a small inventory of popular items, as well as a catalog of items that can be ordered. Many new store owners make the mistake of attempting to be all things to all people, and end up with a lot of merchandise that they simply cannot move. Remember that you can always expand later. It is much more difficult to cut back, and cutting back also sends the message to customers that your business is not successful.
Keep your store hours reasonable. A new store may find that most of its business takes place during a 4 or 6 hour period. Keeping the shop open longer results in significant bills for utilities and possibly payroll, and may not generate enough additional sales to cover those bills. Keeping your hours reasonable also ensures that you can operate with a skeleton staff.
Do not invest in a large storefront. A small shop will make your limited inventory seem bigger, and the bills will be much lower. It may even best to start out at a flea market or other shared space, then make the move to a storefront once your company is profitable.
Opening a new business means that you need to have the proper information about creating a solid foundation and raising the start-up capital necessary to get your business up and running. Many resources for new business owners will help show you how to write a business plan or sell yourself and your ideas to potential investors. Click here to learn more about opening a small business:Home Business
Start Up Capital – What Are Your Options?
A lot of people have great ideas for opening a new business. Those ideas range from a restaurant serving a type of food not offered in other establishments or a company that has services other people need. Maybe the idea is for a great product and the market is ripe. Whatever the business, opening doors needs a few things, and one of those starting considerations is funding to get your company off the ground.
Your first and easiest source of start-up funding may logically be your friends and family. They know you, your dreams, goals and ideas, and they know how motivated you are to carry out the plans that you’ve surely told them about already. However, entering into a business relationship with friends and family isn’t always a good idea. These people won’t be able to be objective about their contribution and may only be providing you money based on personal feelings. Money and emotions should never mix. In addition, finding other sources of investors that are experts in the field may prove to be more useful, as these individuals can provide you with advice and counsel for your business.
Before accepting money, be sure to have a frank discussion on what will happen if the business fails. Be sure that you have a backup plan for repaying loans. Friends often say, "Don’t worry about it; pay me back when you can." In reality, if your company fails, your friendships could be damaged by your inability to pay. Finally, if you do accept loans or donations from friends and relatives, be sure to document them as if they were from strangers. Should you later decide to seek venture capital or bank loans, those officials will want to see a paper trail.
Private investors are another option. Venture capital operations tend to deal with more established companies, but "angels" are often willing to take a chance on a brand new startup. However, an angel is not a smiling benefactor waiting to rain down money as a gift. Angels are shrewd investors who expect a solid return on their investment. A well-crafted business plan and excellent negotiating skills are absolutely required to secure funding from an angel.
Bank loans are another possibility. However, banks absolutely demand a solid paperwork trail. They are generally reluctant to invest in brand new businesses unless they are backed by impeccable personal credit. Even then, you must be prepared to demonstrate hard numbers as opposed to projections. Signed contracts from customers, a lot of collateral, and a willingness to forgo your own salary can all help to convince a bank.
Do not overlook creative means of financing your new venture. In many cases, you can start operations on a shoestring, and gradually build your company by re-investing your profits. This works best for companies that require little or no inventory and are, at least initially, run from a home office rather than a storefront. You may be able to tap into your retirement fund for startup capital. Credit cards are an option, but should be used sparingly. Talk with the Small Business Administration about their financing programs. Matthew Lesko’s "Free Money" books offer a compilation of funding sources ranging from the common to the obscure. With a 90 day money back guarantee, the books are definitely worth a look.
Raising start up capital can be difficult. However, by looking creatively at the problem, writing a sound business plan, and considering every available source of funding, it is possible to find the money for almost any new business venture. Patience and a sense of humor are invaluable.
