Being that this is a post primarily geared towards the new entrepreneur, I thought I’d discuss the elemental question of how to best acquire funds for your start-up capital. From my experience there is no single best answer to this, but, of course, I do have my own slant on what may work best for you. If you are serious about your business to the point that you are willing to do what ever it takes to get this venture off the ground and successful, you’ll need to create a business plan. If you were hoping to skim past this aspect of your business building proposition, think again. A well written business plan not only will give you a much clearer idea of what will be needed to start and run your own business, it will give anyone else who may want to invest in your business the necessary information for them to determine if what you are proposing is a sound and viable use of their money.

Even if your business will not require large amounts of seed capital, you will still want to develop a working business plan. This simply is the most important fist step you an take towards any kind of potential success you may have. The odds are already stacked against you and you may or may not know the exact percentage of failed fist five-year businesses, but let’s leave it to say it’s ominous. I encourage you to not dwell on these stats as much as just spending the time necessary to work all the kinks out on paper, with your business plan. There are many many books on how to write an effective business and marketing plan as well as companies that specialize in writing business plans for you. The latter should only be considered after you have gone through the process yourself, giving you the exposure to what you, as a business owner, will need to know and accomplish in the months and years ahead. But if you are seeking a large sum on cash investment, you may indeed want to talk to a business plan expert for assistance. Go ahead and contact me if you want several resources for this.

Much much more can be said about the writing of an effective business plan and this will be more discussed in detail in future posts. What I’d like to spend a little more time talking about is where you will be getting your investment money from (that is if you need investment money).
We’ll talk about four types of investor: Banks and financial institutions, Friends and family, Angels, and Venture Capital investors. Each of these groups have their own benefits and drawbacks.

If your business is fairly small and the amounts of investment you will need is relatively small you may fist want to utilize friends and family to support your dream. This is my least favorite option and I want to be clear about the repercussions of going this route. I have never (in my own circle of business situations) seen this work out well for the business owner or the friends and family making the investment. You need to ask yourself if this new business venture is worth the relationship. Because when all is said and done, people get very upset when their hard earned investment dollars are lost. I have seen this scenario over and over again and it can have devastating results on families and friends.
Banks and financial institutions may be good for smaller business ventures. You will need to sit down with a loan officer and discuss the terms. A typical drawback to lending institutions is that you usually have to immediately start paying the loan back, along with what may be pretty hefty interest on the loan. Many new businesses do not have income (at least at first) to support making big loan payments. This option is also not common for riskier ventures (banks are fairly conservative).

Angels and Venture Capital investors are similar in the fact that they both will invest money in your business depending on the validity of your business plan, who will be running your business, and what they will be getting back for their investment dollars. Angels are often retired wealthy business people that want to still have business dealings and stay involved in business to a certain level. Typically Angels provide investment in the one million dollars or less arena (but certainly this is not always the case) and Venture Capital (V.C.) investors, who often are a conglomerate of different investors or an organized investment group, really have no upper limit to what the investment amount may be if the business is highly viable and the plan is top-notch. Either investor option will require you as the business owner to consider just how much of your company you are willing to “give up.” From their standpoint, you and your business proposition is just business and over the next few years, they will want to start seeing a return on their investment. A typical arrangement will be for the Angel or VC to acquire substantial shares in your company. And they will be looking at the end game. In five to seven years they will ether want to sell off the company or be bought out for a juicy profit. Depending on your own business experience, investors may even add their own key managers / directors to your business to better ensure success.
Angels and VC’s often invest in as many as 10 unsuccessful businesses before finding a winning “goldmine” business. This is a very high-risk business for them. As a fist time entrepreneur, you may be disheartened by the potential loss of control of your own business. But if you stay involved and learn from the experience, it can be just the ticket to having a successful business.

There are other options for finding investment for you new business venture such as bringing in a partner. Partnerships is a whole different proposition and I’d like to talk more about that in an upcoming post. I’ve barely skimmed the surface with this post I look forward to hearing about your own experiences or questions you may have. I certainly am not the end all authority on business investment but I will be happy to direct you to the right people.

Mark McGinnis, zenposts.com

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