-
Bootstrap Financing – A Great Way to Become Successful
What is bootstrap financing? Bootstrap financing is a method of making a business out of meager or nothing at all or in other words, with negligible outside capital. Sounds interesting but why should anyone use this?
It has been known that businessmen who make use of bootstrap financing become more successful in their venture. While an entrepreneur is running his business, he may receive different offers from retailers and other service providers who will try to persuade him into having their products as such can improve his business’ profits. A businessman must be careful since if these offers do not provide guarantees, then most probably they are exaggerating or lying. A businessman can improve his sales and profits by maintaining a good eye on his finances.
What are the advantages of bootstrap financing?
It is the cheapest way of raising a capital for a business. Besides that, bootstrap financing sounds good to money lenders when you need to raise some money through lending. This makes your money more valuable since not much money was involved and there is a little need to worry for there is no need to pay for interest simply because the money is produced from your own business and your resources.
What are the basic ideas of bootstrap financing?You must set a goal. How do you want to see your business company after five, ten, or fifteen years from now? Then start with small things and be sure to think before buying. Learn also how to barter. What is most essential is to manage your finances well by buying only the things that are most needed for the business to assist you in reaching your goal. Even if you have just inherited a huge amount of money, you have to bootstrap so long as you can.
What are the types of bootstrap financing?
The following are the different types of bootstrap financing:
1. Leasing is done by getting cash by leasing apparatus rather than purchasing promptly.
2. Real Estate properties can be used by leasing or borrowing money from its equity to obtain capital for a business.
3. Trade Credit. Another form of bootstrap financing wherein you could find a supplier to expand trade credit and let you order goods on a term. In case you were able to sell goods before the term is due, then it means that you have just produced cash flow without using any cash from your business’ pocket.
4. Customers. A business can use a letter of credit from a customer to buy materials.
5. Factoring is using your company’s accounts receivable to make cash flow by selling it to some “factor” in return for cash.
What can you do to save money?
When you need to buy non-commodities, you must consider quality first rather than price. On the other hand, when you need to buy commodities, you can do some things to save like trading your service for other forms of service and products. Get yourself a budget notebook to keep you posted with your finances.
Business Financing FAQ:
Question: How can a firm employ bootstrap financing to stretch its current capital supply?
Answer: The only way I know to increase capital, without a pay raise, is to reduce spending. That is if your income is not going up any time soon. Then you must save. Save. Save. Save. And some things just take time. My husband is a good mechanic, so to supplement our income, to raise capital, he will buy a car needing some work, (people sell them cheaply when they’re broke) fix it, then resell it, and usually for a good profit. Maybe there’s something you are good at that you can do on the side too.
Question: Where can I get financing for my business?
I run a home improvement company out of northeastern PA. It is becoming increasingly harder to make a profit due to the tightening up of GE Money Bank. I cannot get my clients approved for enough money. Does anyone know any other banks offering unsecured/NIV loans?Answer: Maybe your local credit union? Why don’t you offer a discount for cash purchases, and maybe that will bring in cash customers. Advertise your discount.
Question: Suppose a business is considering the purchase of a 3-year license for publishing software. The license costs?
What is the IRR of the investment in this machine? Suppose the business is going to finance the printer with a loan. The interest rate on this loan is 7% annually. Is this a good idea?Answer: First, you usually have to decide between a perpetual or term license. Perpetual licenses have a lot higher upfront costs, but are lower cost over the long-term, usually. Your IRR would not be determined by your costs alone. You would need to determine the benefit (most likely revenue) that is derived from this license. The IRR would be the % return you get from the benefit minus the cost, taking into account the time value of money.
If a business needs to finance the cost of a printer then it probably has some serious cash flow issues.
Question: I want to start my own business, but I have personal bad credit. Any suggestions?
I am 21 year old male looking to start my own business. I have horrible personal credit, but I know I can apply for an LLC and apply for credit and loans through the entities FEIN number, but establishing that new credit could take up to 1-2 years or I even heard just 6 months. I’m really in a bind to get the financing and I honestly don’t have that much time to waste. Is their a faster way to obtain capital?Answer: My personal advice here is to work on learning the skills necessary to run a successful business such as budgeting tips, cash flow management, sales, service, etc. while you’re waiting for your credit to get better
Robert T. Kyiosaki worked as a successful salesperson with xerox before becoming a successful businessman. This will also give you the opportunity to save up some of the capital you need to get started.
The next 6 months to 2 years will fly by while you wait.
Question: Purchasing a truck for a business. How much of the expense can I write off on Taxes?
I would like to purchase a truck for my small business at home. I wanted to know from the insurance, car payment, gas, etc, how much of this can I write off on taxes the following year? And when financing the vehicle initially, am I suppose to add my tax id to the application in order to claim any of the expensesAnswer: Tax write offs vary from country to country. If you are in the US, it depends on how you want to write off expenses. You can simply claim business mileage and operating expenses for the vehicle which is the simplest thing to do. If your business will acquire and own the vehicle, you can also claim depreciation on it, I would think 5-year accelerated would be appropriate.
Question: What is the difference between QuickBooks & Quicken? I need to keep track of finances for a small business.
Answer: Quicken is basically a checkbook ledger replacement. Quickbooks is a full blown accounting package.
Question: Is venture capital usually a good financing source for a small e-business?
Your e-commerce site was successful in its first year of operation; however, you would like additional financing for expansion. You are intrigued by venture capital. Is it usually a good financing source for a small e-business?Answer: Not really. Most venture capitalist are generally looking for companies with market potential in the hundreds of millions. They are looking for BIG business opportunities that create new markets and/or use new business models/products/technologies to substantially expand existing large markets. They were in ebusiness when they were new but now most ecommerce opportunities will be trying to crack into very competitive areas with players like Amazon already dominant.
Question: If I review restaurants for a website (and make money), can I deduct the cost of the meals on my taxes?
I am planning on starting a website that assists people visiting Philadelphia in finding quality cheesesteaks. I plan to offer info on location, price, quality, hours of operation, “how to order,” etc… I often get lots of questions when I travel about steaks and where to go when in Philly. Well, I’d like to formalize my recommendations and offer a website with all the info in one place. I hope to generate income with ads and (some) merchandise, but I’m wondering to what extent I can deduct the price of meals (that I obviously must eat in order to review the steaks). I am a freelance artist and currently handle my small business finances, but I’m currently drawing a business plan for my cheesesteak-internet-hub and I’m trying to project some costs/benefits.Answer: I’m not a CPA, but I’ve been self employed for seven years, and one of the lines on the Schedule C is for deductions of meals and travel, mileage and entertainment, etc. If I were you, I would just keep my receipts, and put down the numbers spent on the form, and you have your proof when you need it with your envelope of neatly stacked receipts, the stubs from restaurants, and don’t forget to keep a record in a mileage book. Good deduction! There is a book called Schedule C from A to Z, written by Bob Hughes, CPA.
-
Finding Investors (For Businesses) – What You Can Do
Funding is the most pressing problem in any kind of business. Business owners always think of ways on how to make their businesses grow and expand. Ideas are easier to arrive at than solutions on where to find the money to fund such venture.
Finding investors is a very hard undertaking. The market is never short of investors but your potential to attract a number of them depends on their chances of getting a return according to their calculations. You have to be able to persuade them that their money has a higher chance of multiplying in your business than anywhere else. You have to provide sound evidence that your business can protect and take care of their investment.
The task of finding investors isn’t so hard when you have a definite business plan to present. It is very crucial for investors to know what your future plans are for the business. You simply cannot approach them empty-handed. You have to design your plan realistically and never make one up when you are confronted with candid inquiries. A sensible business plan should map out well-researched strategies that are relevant to the current flow of the market. It would help you get your message across more clearly if you will indicate how competitors work and your plans to outdo them or make your company’s performance better than the rest of the similar businesses in your industry.
Finding investors will take some time. A bank is a good starting point. Your banker can offer you a substantial loan that will get you started and might also know people who are willing to invest on businesses like yours. If you belong in any business organization, you can use your connection to get inside information and ask people who might know someone interested. When you have found potential investors you’ll be able to convince them more easily if you present them with terms and agreements that they might find reasonable and works for the benefits of all parties involve. Just as important is an even-handed exit strategy for divestment.
A written agreement realizes a lot of things. It puts across the message that you are taking investors seriously and are prepared to do important deals. An agreement puts investors’ minds at ease because it clearly drafts what they can expect from the deal if they’re willing to make one. It protects your interests as well as your investors’ and the document should be legal and binding.
Another crucial presentation you have to give to your investors is a track record of growth. Finding investors (for business) is an elusive hunt if you won’t be able to provide proof that your business is doing an uphill climb on the chart. Your investors should get the impression that your business is stable and capable of maintaining a constant increasing growth.
It doesn’t have to be a super impressive statistics but it should be enough to persuade investors that a return of their investment is possible. It will also show them that you work hard to set and meet your goals. Financial statements should go with your record. There should be nothing in there that will indicate your company needs financial salvation. Be honest with all of your dealings. Investors aren’t looking for huge numbers in financial statements. A promising investment is all they want. Approach your accountant to help you arrange your financial situation more attractively.
Business Investor FAQ:
Question: What is the best way to find business investor’s funding partners for a business?
I wanna brand off from the company I work for and start my own business. I am 100% sure it will work no doubt in my mind. I want to find an investor to fund the startup. It does take a little to start it up but you’ll get your initial investment back in months and from that point on it will just be profit.Answer: There are two ways of doing this.
1) There is a huge network called Jump Start which has 50 Angel Investors. Their job is to find start up companies like yours and fund it. Last year they invested 18 million dollars in various start up companies.
2) You may want to sign up on GlobalLinker. They have a growing small business network and you should be able to find investors and partners. They offer free business tools and global networking platform.
Question: Business Investor?
Looking for business investor for new fashion line. What channel to go?Answer: You might want to try collecting trade magazines and calling numbers or getting contacts from your friends.
Question: Does anybody know any investor/business partner that would like to invest in my startup Company?
I’m looking for a real investor/business partner that is willing to invest in my company. It was established in 2002. I have great experience with Manufacture in Hong Kong. I Have four years of experience as a graphic designer, I design my own clothes by hand on a sewing machine. Also I have my own business plan ready for review.Answer: It depends on where you live, but most states’ departments of commerce have economic development mandates. To this end, these departments have people who are trained to help develop small businesses.
There are small business development consultants, usually associated with community colleges and the land grant universities, that have classes and all sorts of expertise to help you.
Since you already have your business plan, and a sample product, contact the SBDC in your area. Once you get to the point where investor is your next step, they know who is interested in investing.
One more idea is to check with your county extension agent at the courthouse or government center. They are in the phone book. Extension is a service of the USDA and your state’s land grant university. Textile businesses are one of their specialties.
Question: What would be a good way to go about looking for a small business investor?
Is there a site or forum that is legit for this. I have a great business idea in the medical field.Answer: Medico-business associations, consultants, angel investors, joint ventures are some avenues to try for funding. A lot of scientific associations & government bodies too can help if you can clearly demonstrate commercial viability of your idea.
Question: Is a business investor entitled to part of the business?
If I own a business that I just started and someone invests $3,000 for a profitable return, after I pay them do they have any claim to the business? a verbal agreement was made that they would get 10% of profit atleast until they were paid maybe 2,000 over investment, and after I pay him can he take me to court for more?Answer: Verbal contracts are hard to prove in court. Yours will be particularly difficult because you are using words like “at least” and “maybe.” It sounds as if he was looking to be an investor, and you were only looking for a loan. That is not good, because there was no meeting of the minds about intent.
Question: Can a minor (say 17) enter a legal contract with a business investor?
Say a 17 year old filmmaker is offered money from an investor to finance a film. Would the minor be able to take the money and sign the necessary paperwork and have that hold up in court?Answer: No. Minors can not be bound by contracts as they don’t have the capacity to consent. However, if the minor acts on the contract AFTER his 18th birthday he may be said to have affirmed the agreement and therefore be held to the terms.
Question: I need help finding investor business loans?
I’ve heard of websites that offer business loans to entreprenuers from individual investors.Answer: There are many, though you need to approach them with a business plan, otherwise you are spinning your wheels. Many professional writers exist and are affordable. Try either Masterplans or VanSwiss. Both have good reputations and are affordable.
Question: What percentage of a business do you typically have to give to an investor funding a business idea?
I’m going to be starting a business and I have a person that is willing to handle all of the development costs etc. Since it is an online business, the start up costs are pretty low for a business, under $10,000 definitely, probably under $5,000.Answer: In a TYPICAL venture deal (yours is not, of course, since it’s so small), it would be pretty common to give seed round investors 20-30% of the equity. Another way to look at it is that private equity investors expect to get 15x-20x their investment if the company is very successful. If your company (assuming success) might have a market cap of $1MM, then 20x on a $5M investment would only be 10%. It’s usually a negotiating process in any case.
-
Understanding Private Equity Funds – Everything You Need to Know
Private equity fund is a pooled investment from various private investors. Usually, investors bring along their funds and invest directly on private companies or business ventures or at other times, decide on buyout of public companies to facilitate a removal of a public equity.
The funds pooled together for a private equity fund is commonly secured from retail or institutional investors. The collected funds are then used to fund fresh business ideas, new business or enterprise technologies, expand working capital of an existing company, make further asset acquisitions and the like.
A person investing in a private equity fund is usually someone capable of committing large sums of money for long periods of time. As it is, private equity investments require long holding periods to facilitate a turnaround for a distressed company.
Typically, most private equity funds are structures as limited partnerships. Usually, the setup would require that the partnership be supported by a general partner who raises capital from cash-rich investors like pension plan and insurance companies, colleges and universities, foundations or high net worth individuals. These investors are identified as limited partners in the equity fund.
In this setup, it is normal that various components would first be agreed upon to establish the stake, claim and right of a limited partner. First of all, the term of the partnership is determined. On an average, this usually spans for ten years.
Secondly, management fees are usually settled in the case of a private equity firm’s decision to use the fund as an investment for expansion or further wealth generation. In this case, the management fee is used to pay the fund manager or fund generator.
Thirdly, as a matter of performance incentive (so as to increase the income-generation of the partnership, which is why partners invested in the first place), a carried interest is paid to the private equity fund’s management company. Here, a share of the profits of the fund’s investment is used.
Since it is expected that the private equity fund would later yield into profit, at the onset, it must be settled upon that part of the transfer of an interest must be secured to the fund. Since private equity funds cannot be openly traded, usually, they may be transferred to another investor amongst the involved partners.
It is most crucial during the legal structuring of the partnership, that the chosen fund manager be given enough power and discretion to conduct investments and control the affairs of the pooled fund. In this way, no influence by any limited partner may affect any investment option. Of course the fund manager would always have discussed restrictions, limitations and control which cancel out possibility of mismanagement of funds. In the end, it is important that restrictions on the General Partner be set.
It may be perplexing how some business investors would decide on investing their money on a high-cost, long-bond, long-pay of Return of Investment type of investment. However, since the 1970s, there has been a growing trend in the United States for this kind of setup, as apart from fostering business relations and strengthening existing companies, it has opened opportunities for private investors to obtain rights to huge public companies they cannot acquire individually.
Private Equity FAQ:
Question: How do private equity firms operate?
Answer: They raise money from investors and then buy equity in companies. They are negotiated deals not involving the stock market. Because they are private, there is no regulation. Frequently, they are providing startup capital or are buying a company that is in trouble. They make their money by either growing the startup or fixing the troubled company and then taking it public in about three years (they hope).
Question: What’s the difference between private equity funds and hedge fund?
I read in Business Weekly that pension funds, university endowments, and other big investors invest in hedge funds and private equity funds. An accompanying graph showed that private equity funds had much higher returns than hedge funds in 2006 and 2007, but also greater losses in 2008. What is the difference between the two? Do they invest in different products? If not, on what base would a pension fund choose whether to invest in one or the other?Answer: The two represent different asset classes, with their own returns cycles. The pension funds and other endowments seek exposure to different asset classes to diversify away their risks.
Hedge Funds typically invest in publicly traded securities, currencies, derivatives, etc. and present some interesting strategies. There is a long list of these strategies, with names like portable-alpha, absolute-return, 130-30, long-short, stat-arb, and so on. But these are lightly supervised investment vehicles. Managers are incentivized by participation in profits beyond some hurdle. Their expertise is in markets, modeling, trading.
Private Equity funds are more corporate finance/executives kind. They typically try to spot firms whose stocks may have fallen on harder times, or, more generally, whose market value (inclusive of takeover premiums) is way below the business value. They also buyout private companies when there is an opportunity such as cash crunch, business model change, death of a large holder, disputes, etc. They do buyouts, streamline the company, bring in better management, get rid of useless stuff, make it fit and attractive, and then resell to another buyer or re-IPO. They are ops/finance specialists, perhaps with some vertical-specific expertise.
Question: Sometimes Private equity firms sell one of their investments back on the exchange Where can I see this?
In other words where can you go to find a company that has recently come back to the exchange from a private equity firm or from becoming public?Answer: It would initially be listed as an IPO. You can check Yahoo Finance, stocks for the latest listings. If you have a specific company you want to know about check their web site.
Question: Can someone explain the difference between Venture Capitalism and Private Equity?
Answer: Venture capital is an investment meant to help get a promising company off the ground. Once the company has some track record of profitability and goes public, the vc’s make the bulk of their return, though they often chose to retain some ownership interest. VC is not angel investing, and does not usually provide seed capital. VC’s give the company cash to invest in itself, and the founders a bit of a payoff.
Private equity is an investment where an investment firm takes a public company private, where it is solely owned by the fund’s investors. Typically, the goal is to clean up the balance sheet or management, and take the company public again a few years down the line.
Question: What is the difference between a holdings company and a private equity firm?
I mean Blackstone buys over companies and they are considered a private equity firm. But Berkshire Hathaway also buys over companies but they are considered a holdings company.Answer: Very simply put, a holding company owns 51% or more in the equity of another company (called its subsidiary). Holding companies are usually in for the long haul, and can exist for decades (think Coca Cola). Private equity firms invest in non-public companies and typically hold their investments with the intent of realizing a return within 3 to 7 years. Generally, investments are realized through an initial public offering, sale, merger, or recapitalization. Private equity groups tend to focus on more mature businesses, often contributing both equity and debt (or some hybrid) to the transaction. The firms were commonly called leveraged buyout firms (LBO) in the 1980s.
Question: What is the specific differences between a Conglomerate and a Private Equity firm?
What are the specific steps I should take in converting the business model from Conglomerate to a Private Equity firm in terms of organizational structure and primary activities.Answer: Conglomerates focus on operational issues while Private Equity firms focus on investments. Move from performance management towards valuation to be able to make the shift in business model. Finance skills should dominate over Operational skills.
Question: If a company is purchased by a private equity firm what happens with the stocks?
Answer: In general when a publicly traded company is purchased, the terms for existing shareholders are included in the deal. This usually means that shareholders will be paid a set amount of cash or shares in a related company.
Question: How can a private equity fund introduce fresh capital in a Company it has acquired?
If a private equity fund acquires 100% stake in a company with a deffered payment of final 25%, how can it introduce more capital in the company? What could be the threat with the resulting action for the fund and the old owners?Answer: Private equity fund had acquired this as for investment and not controlling stake as owners. As such they are not entitled directly infuse fresh capital of there own however they can ask management to pass resolution for fresh capital and then invest over there.
-
Business Expansion Financing – Your Ultimate Guide
If you’re a small-scale entrepreneur who has set up your business and got it off the ground, you have more than your lucky stars to thank. Thank your creditors, and yourself, of course, because all your hard work has paid off.
Now you are ready to go to the next level – opening a new branch in some other strategic location. After careful assessment, the circumstances point to an important need – fresh capital. For a typical small business expansion, financing may be sourced through family members and friends willing & able to lend some funds to let your business soar.
The good thing about this is the funds (in most cases) can be handed to you immediately and you can return the loan to kin or friends without interest. Or it may be through cash advances from your credit cards. You may also take out unsecured loans from a bank. A multi-purpose loan granted by a bank is generally structured to allow easy repayment terms. Try not to be late in settling the monthly loan amortizations so as not to accumulate late penalty charges and interests.
There are also other small business loan lenders who may grant you your business expansion financing after examining your credit history and business plan. Business expansion financing by a lending institution or government agency may be easy to get, especially if they can see how your initial foray in the business arena has succeeded.
During these tough economic times characterized by tough credit, it is good to note the symbiotic relationship between certain banks (which encourage borrowers to utilize their funds as efficiently as possible and to take into consideration long-range needs) and small entrepreneurs.
It may be worthwhile to take out new business loans to pay off numerous debts, cover business essentials like an accounting software package to help manage & record expenditures & other financial records, and invest on a vehicle as well as equipment that will be used for business may be worthwhile.
The main thing to keep in mind is not to overspend, and end up feeling the pinch soon enough. The fact is, many small firms fell by the wayside after only two years of operations because of an overambitious expansion strategy. The stumbling block: accumulated debt and cash flow problems. Retire costly sources of debt (such as bank loans upon maturity) and be open to other good business financing options.
The alternative business expansion financing is to exchange a certain amount of capital for a piece or share of the business.
Fast forward several years and additional branches later. If your well-known flourishing chain of branches requires new funding facility to support yet another expansion program and/or buyout decision, you can opt to go public and issue stock. Time this well.
See if market conditions are ideal at the time of an offering and be sure that your company can measure up to the expectations and close scrutiny of analysts and investors. Experts advise not abandoning core competencies as diversification/expansion plans are actualized.
Business Financing FAQ:
Question: Financing the expansion of a insurance agency. I own the equipment and book of business valued at 1.3 million?
I need to borrow 150,000 for a 10 yr period.Answer: If a local bank won’t finance this for you, then either your valuation of the agency isn’t accurate, or your credit is too rotten.
You could sell half interest in the company to another agent who wants to get into agency ownership to raise the funds.
Question: Is there anyway that I can get Business Financing to Start my Business?
I am 14 years old and looking to open my paintballing Business in northern Idaho next year. I have my business plan and Budget setup but the amount of money I need is a bit more than I have (I need about $22,000). Is there anyway I can get Financing or anything? I have decided to have it as a LLC.Answer: Wow, what a smart and industrious kid! You should be proud of yourself. I think you have a problem though. You will need to have an adult make all the contracts, as minors cannot sign binding contracts. This goes for loans/financing as well as everything else. So your first step is to find an adult who will act as your agent in this and other business matters.
Question: Where is the best place to get small business financing?
I just started a landscaping business about a year ago. I ran into very hard times in the fall and got behind on my payments which really screwed up my credit. Now I am full with jobs for almost this whole summer but I need a loan to combined all my loans into one to make it easier to make the payments but I can’t get a loan with my bad credit.Answer: SBA – The SBA provides short- and long-term loans to eligible, credit-worthy start-ups and existing small businesses that cannot obtain financing on reasonable terms through normal lending channels.
Note, however, that SBA does not provide direct loans. Rather, the agency provides guarantees to loans availed through SBA’s partner lending institutions, which includes many community banks. The applicant must satisfy the lender’s requirements before he or she can ask for a guaranty from the SBA, unless the borrower is deemed prequalified based on the person’s character, credit, reliability and experience (prequalification is for loans $250,000 or less).
Question: I have bad credit and need financing for my business to expand? Does anyone have any ideas on how to do this?
I have a small residential and commercial cleaning business that I am looking to expand. I have been shopping around for financing through traditional lenders, but due to my 518 FICO score and millions of charge-offs, I can’t get financing.Answer: I think Prosper.com may be your last best chance. Maybe you need to change your writeup. Potential lenders want to know about your past but, most of all, they want to hear your honest description of why and how you think you’ll be successful this time. Potential lenders like to invest in people, not in businesses.
Just be careful that any solution you decide on is not taken in desperation and quick judgment. The results could make your situation worse than it already is.
I’m sure you realize it now, but others should learn from your experience that poor financial responsibility has very serious long-term effects that are extremely difficult to overcome.
Question: What is the best way of financing for a new business when you have no credit and cannot borrow from bank?
I am just curious as I am trying to find ways of getting my business start it, but so far I am having problems with the financing.Answer: You need to save the money or borrow from family or take partners. Financing is the hardest part of most businesses. Unless you have a very simple service business you will have cost. The simple service business is what they call low barrier to entry like cleaning houses, mowing lawns, babysitting, many people can do the labor and the equipment is cheap so most have almost everything they need.
Question: Starting a small business. How do I get financing? Does anyone know of a good resource for good information?
I’m looking into starting a small business but apparently banks don’t loan to startups and there aren’t gov’t grants available for startups either. How do i go about getting the financing together? Are there any good resources? I am writing the business plan now.Answer: Banks Do lend money to start ups, but it is harder now than normal and you are likely to have to shop banks to get a loan and get decent terms. Try to find on with a designated Small Business Banker. They will likely be able to help you better and have more experience than most branch managers. If you can not get bank financing there are a couple of options: Find outside investors, Home equity loan, Find a partner, start small and work your way up.
Question: Does anyone know how to get 100% financing to start a business?
I would like to open a franchise but I have no money down and not really any assets. I am looking for someone who finances 100% to startup a business.Answer: Doesn’t exist. What you can do is approach an existing owner that may be getting tired of running the store, growing old, moving, etc… and see if they will let you take over on a lease with option of the existing business. However, 100% financing to start your own business, be it franchise/whatever, just doesn’t exist
Question: Can One really do business without serious financing?
Answer: Depends on what you mean by “serious.” Many small businesses have grown without incurring debt.
-
What is an Angel Investor? Find Out Today
Yes, “angel investors” are literally agents of blessing – affluent people who invest on start-up business owners. What is an angel investor, one may ask. To some people, they are known as a business angel or informal investor. One thing is certain first of all, they exist in the business world.
There are a number of websites or business directories which grant a small entrepreneur some ideas of possible financiers for his business. It should be noted though that financial funding provided by “angel investors” is neither pure donation nor charity. The amount invested by these angel investors are expected to be profited from at a later time through debt payment or ownership equity.
Given such set-up, it must be important for a start-up retailer to ensure that his small business has the makings of a seriously potential success story, as the amount of investment of an angel investor, is dependent on this factor. Compared to venture capitalists that pool together money from various investors, an angel investor, typically invests his own funds.
The amount given by investors, called the angel capital, is usually used as seed funding for the business to sustain the start-up financial costs of running the business. Usually, angel investors are family and friends of the entrepreneur. Should this not be the case, one thing remains consistent, trust and faith in the entrepreneur is a strong factor prior to the surrendering of the angel capital to the aspiring businessman.
There is no specific and standard amount prescribed as angel capital. They can range from a few thousand, to a few million. Given such, it is usually expected by angel investors that their “loaned” amount would not yield immediate return of investment compared to most investments.
Hence, most investors invest their sum of money to “semi-charitable” causes to sort of justify the leeway given to the expenditure. Most companies in the United States do secure angel funding. These companies range from software industries, health care services, medical services and equipment providing companies.
Since investors enter into a high-risk situation by choosing to fund start-up businesses, they usually require a very high return on investment – typically an amount 10 or more times higher than their original invested amount. Typically, they expect this return in a period of five to seven years. Since they are aware of the potential loss as well, given the “unstable venture,” angel investors require a defined exit strategy from the entrepreneur which includes possibility of public offering or acquisition.
There is no sure formula in meeting angel investors to invest in one’s business. Oftentimes though, one may expect very wealthy retired entrepreneurs or company executives, to be interested in angel investing for reasons beyond monetary benefits. Commonly, there are types of angel investors who keep themselves linked to an industry they have worked for, as such remains close to their hearts.
This is their way of maintaining relations and updating themselves of current developments in a specific business arena. Otherwise, their “angel investing,” is something they consider as a form of mentoring another generation of entrepreneurs. After all, should they provide the seed capital, they will inevitably get involved in the project; thereby allowing that they get to use their experience and networks, which somehow yields personal satisfaction and reward.
Angel Investor FAQ:
Question: Where can I find a Angel Investor to help fund my expanding business?
I’m expanding due to a very large increase in sales and orders. Where can I find an investor that wants to gain a large return from investing with my expanding company? I’m currently earning revenue on the daily bases but, 1,500.-5,000. thousand dollar deals are pending and some have to go else wear because I have some but not all the equipment I need. So any leads on investors that might be interested?Answer: Good question. Be careful about Angel Investors, you want their money but make sure they don’t get control of your business. You will find out what I am referring to when you start interviewing them. In any event I have two websites for you to check out (inc.com and entrepreneur.com) both have invaluable information for you and will get you started on the right path. Good luck to you. Entrepreneurs will lead us out of the current recession and I hope you are successful in your venture.
Question: How can I find a startup partner, a business mentor or an angel investor for my startup website?
I live in hangzhou, China. I have developed a novel website. The website is under internal testing. Now I am preparing for the next stage of my startup website. I need to promote it and run it. I want to find a co-founder (or a startup partner), a business mentor or an angel investor. Any of them is ok. The problem is, how can I find such a person?Answer: Well raising capital can be one of the critical issues in running a business. The first stage is to create a details business plan, including costs and projected revenue. Now if you are doing business in China then you will have to find a chinese business partner, this could just be a person in name only, or a real business partner. Otherwise everything from that point will be the same.
Make a list of potential investors.
1. Venture capital companies
2. Possible client companies, ie, companies that would benefit from your business. Eg, an airline would benefit from a business that promotes Hangzhou tourism.
3. Companion businesses, companies that do something similar but not the same. Something that will mean you business enhances theirs.
4. Friends and family.
5. Private investors. Hire a conference room, put adverts in the business press. You do a presentation and so on.Question: NORMAL ANGEL INVESTOR CUT?
What is the normal percentage given to an angel investor on an investment under 100,000? How much and over what time span?Answer: Typically too small of an investment for an angel. Normally they get 1/2 or more of the company.
Question: How do I find angel investors to start a rec center/gym in my city?
It would be a great investment and a great opportunity. Its just I’m a 19 year old broke kid and wouldn’t look for any profit just a free membership.Answer: From my point of view, your chances of getting an angel investor to invest in your business is probably from 1% to 0 even if you have an excellent network You need to prove yourself first. Build up an excellent resume and get some experience to show those angels that you can manage a property without driving it downhill. Remember, it’s also their money. Try putting yourself in the point of view of an investor, would you be willing to lend your money to fund a business for a 19 year old kid whose already broke before he even got started and whose not looking to make a profit from the business?
Angel investors have very strict requirements. You have to prove yourself beyond doubt that you can give them their money back with an excellent return of investment before they’ll lend you money.
Question: What is an angel investor?
How does this scenario work? What do they get in return? How do I find one to help me? Are they allowed to help with a franchise startup?Answer: An angel investor is usually a wealthy individual who invests in promising businesses while they are in their “start up” phase. In return for their investment, they are usually given a pretty big equity stake (ownership) in the business, and can potentially make a bundle if they sell their shares or if the company eventually goes public. If you want to find one, it may help to get in touch with high-technology business groups. Where I live, the Chamber of Commerce has events where people starting businesses get an opportunity to pitch potential angel investors.
They are allowed to help with a franchise startup, but most will probably pass. Franchising will often have restrictive rules on how to properly conduct business. Most angel investors don’t like to be told how they should run a business, because they’re often successful entrepreneurs themselves, and they don’t take kindly to another agency telling them what they can or can’t do.
Question: Can someone explain the process of finding an angel investor? Is it easier to get funds from the stock market?
Is it easier to just put out the business in the stock market?Answer: Getting investment money to help start a new venture is far from easy. Getting it from an angel investor is extremely difficult (fewer than 4% of all companies that seek it manage to get it); getting it from a venture capital fund is nearly impossible (fewer than 0.4% of all companies that seek it manage to get it); and getting it from “the stock market” is completely out of the question (the requirements to be listed on NASDAQ, for example, are that you already have millions of dollars in revenue and hundreds of existing investors.)
By far the best way to find an angel investor is by talking to everyone you know, especially your lawyer, accountant or banker. They may be able to introduce you to people who they know make these kinds of investments. There are about a dozen books on angel fundraising for entrepreneurs, of highly varying quality, and many of them are out of date. The best one is “The Definitive Guide to Raising Money from Angels” by Bill Payne, and is available as a download from his website for $37. That’s probably a great place to start, to at least give you an overview of the process.
Question: Question Regarding Angel Investor yearly returns?
I live in Canada and I’m wondering what the type of yearly return the average angel investor would require in investing in such things such an apartment complex with greater than 40- units. My second question is, if I was looking for a loan around greater then 1.5 million from an angel investor for an apartment complex, how much interest would they charge me considering I have no assets?Answer: I’m afraid that (a) the average angel investor doesn’t invest in real estate at all; (b) the average angel investor invests only $25,000 in a given opportunity; (c) the average angel investor looks for an average of 10 to 30 TIMES return on the amount of money invested (that is; if they were to invest $100,000, they would seek to get back up to $3 million in five to seven years); and (d) the average angel investor wouldn’t consider investing in a deal in which the entrepreneur or promoter does not already have a significant amount of his or her own money already invested.
So, for all these reasons, it is highly, highly unlikely that you will be able to finance your apartment complex through angel investments. I’m afraid that’s not what you wanted to hear, but that is the truth.
The Canadian national association for angel investors is the National Angel Capital Organization. A quick overview about angel investing is available on Wikipedia. The official database of angel investment groups in Canada is Angelsoft.
Question: Does anyone knows where I can find Angel Investors that would invest in mobile telecom service?
Value Added Service to provide mobile Subscribers with Mobile Content, Interactive Services by SMS, etc.Answer: Google “Angel Investor”. There are hundreds of investment clubs and organizations that fund startups. Visit your local chapter of SCORE. Their members frequently have contacts to put you in touch with the right people. Other than network with others who are seeking startup funds. There are literally thousands of high net worth individuals who dabble in startups, but you have to know someone to find them.
-
Mezzanine Debt Financing – Your Ultimate Guide
Have a thriving business, with a competent staff you can deploy, and poised to expand to new emerging markets & strike while the iron is hot? Or looking to undertake a large-scale corporate restructuring, or maybe acquire or buy out a business which can evolve to something big, but lacking hard assets? For the determined entrepreneur whose bank may not quite look at things in the same perspective, this is but a temporary setback.
If your bank disapproves your request for loan that may allow you to carry out your business expansion plans or to fund an attractively priced acquisition target, the alternative is to opt for mezzanine debt financing.
Yes, companies with strong cash flow but which traditional banking institutions do not consider bankable even if their businesses are picking up (and despite the fact that they are owned & run by go-getting, relentless entrepreneurs who are prepared to think and expand globally) can turn to mezzanine debt financing to obtain additional capital.
In essence, mezzanine debt financing has become a workable way for buyout firms to raise capital. Reports show that more companies opted for this type of financing last year or the previous year. An investment bank can offer the most cost-efficient access to such type of funds.
Companies – like franchise firms that have gone through the birth pains, established strong footing in the marketplace, and show much promise of catapulting their business to greater success – are among those best suited to avail of such capital infusion. Well-established, lucrative businesses belonging to diverse industries ranging from communications to specialty retailing to business services and many others, including mid-range firms with huge potential to flourish, are targeted by mezzanine lenders.
Mezzanine debt financing lies in the category between a regular bank loan (it actually begins that way, but at higher interest rates) and a private equity investment. Lenders of this type of loans tend to look into the future to ascertain things like whether companies will be going public or issuing equity. Mezzanine lenders shoulder higher risks by funding and facilitating business propositions but eye higher returns.
Since there is not much due diligence on its part (and requires no collateral from the borrower), the mezzanine lender may eye a high rate of return of about 20 to 30 percent. Unlike traditional banks whose main focus is to get back in timely fashion (or earn interests for those who are remiss in loan payments) loans plus interests that accrue, mezzanine lenders offer more complex terms.
Besides provisions for interest payments, origination fee and the amortization rates, there are warrants structured into the loan so that in the event that the debt is not paid as required, the loan can shift to an equity loan (a piece of ownership in the business in lieu of capital). The portion of principal rights or stock in the business gained by the mezzanine lender in case of default of loan payment can be bought back at a predetermined price by the borrower.
Mezzanine debt is usually structured to mature in five to seven years. The interest rate is about 12 percent per year, usually with no principal payments for the first three years.. Lenders may opt to take a small equity warrant in the business ranging from 5 to 20 percent. Such long-term funds can be provide immense help in funding deals that can jump start or propel a company to greater success.
Mezzanine Financing FAQ:
Question: In commercial real estate, difference between permanent, interim, bridge & mezzanine debt/financing?
Answer: Permanent, is the loan on the building, like a home loan. Interim/construction financing is usually for 2-3 year terms and can be incremental for the construction of building. Bridge/Mezzanine financing is the extra amount of funds needed to get the building financed. Usually at a different rate, it is the extra funds because the original permanent loan usually will only go to 80-85% of loan to value on the building.
Question: What is mezzanine financing as it relates to commercial lending?
Answer: This is a loan that gives the lender the right to convert to an ownership or equity interest if the loan is not repaid in full as agreed.
Question: Does anyone know any firms that are actively providing Mezzanine Financing in China ?
Would be nice to know who is active in Asia/China.Answer: No, I never needed unsecured loans. I’m sure it happens, the problem I could see is that if you pick the wrong company there you could be jumping into bed with the devil, corruption and links to certain groups would certainly be part of the package once you go outside all but the major players. Most unsecured loans in China that I have come across seem to be through trusted business colleagues or family as is the way of guanxi over there.
Question: How Does Mezzanine Finance Work?
Answer: Mezzanine financing meets the needs of a new but profitable company prior to a bank being willing to offer lines of credit. It generally includes subordinated convertible debt and yield based preferred shares, often structured with warrants or options.
Examples of mezzanine transactions:
Management/leverage buyouts
Expansion financings (internal growth and/or acquisitions)
Recapitalizations and divestituresAn ideal candidate profile:
Post-”second round” and pre-IPO company, operated by experienced management.Investment interest:
Typically, this will always be a minority interest that has no voting control.The Bottom Line:
Where you see mezzanine, think “interim”. It’s almost always short-term, high risk and therefore high yield financing.Question: What is mezzanine financing?
Answer: Mezzanine financing is a hybrid of debt and equity financing. It is generally used to finance the expansion of existing companies. Basically, it is debt capital, with current repayment requirements, but with rights to convert to an ownership or equity interest in a company. It is generally subordinated to debt provided by senior lenders (such as a bank) and is referred to as subordinated debt. Mezzanine financing is advantageous in that, on the balance sheet of a company, it is treated like equity and may make it easier to obtain standard bank financing.
Mezzanine financing, being a hybrid of debt and equity financing, is generally not collateralized. Often, there is a repayment obligation with mezzanine financing. It may also be riskier than debt financing and therefore is not generally available with standard commercial lenders. Mezzanine financing is typically found with venture capital companies and/or alternative lending institutions seeking a higher rate of return. Most companies providing mezzanine financing are looking for returns of 20% or higher.
-
Guaranteed Venture Capital and Private Investor Funding Solutions
Think back to just a few short years ago, banks were on a lending spree, corporate lines of credit were being issued in record volume and companies were able to raise equity and debt capital with reasonable ease; then came the banking crash which unfortunately brought on an entirely new group of scams preyed on the innocent and naive small business owner which damaged the economy that much more.
Scams such as platform based funding, banking instrument collateralized lending, shelf corporation scams and on and on. Fortunately there is a light at the end of the tunnel thanks to some of the venture capital and private equity industry’s talented global finance executives who have decided enough is enough.
Now entrepreneurs are seeing professional collective funding efforts put forth by these seasoned finance gurus in the form of online membership databases which possess some of the best kept secrets in the global funding markets. Many of these databases include finance companies and methods that have never been available to the public and were used for decades by VC professionals who were able to pull off funding miracles on behalf of clients and in return made hefty commissions.
Now, with these unique contacts being placed in database form they are now available to everyone and anyone who needs capital. Imaging going to one website, joining for a modest fee and getting access to thousands upon thousands of private investors, angel investors, venture capital firms, hard money lenders, private equity firms, aggressive hedge fund lenders, Asian and European finance, factoring and other wonderful and easily comprehensible options to acquire capital.
A few of these membership databases have even taken the next step to give the business owners the elements to promote their business in a way that will help them pass due diligence with ease. Some venture capital executives got so fed up with having a client with a great business model, solid infrastructure, exceptional board of directors and even money in the bank but the deal would die when the company went into the due diligence and offer phase that they actually paid programmers to design a down-loadable application that offers the entrepreneur easy yet extremely powerful publicity with the strength of an actual high end PR firm all at the click of a button, it’s truly amazing.
The economy may not be what it used to be but it has forced the evolution of certain aspects of the financial industry to be more small business and entrepreneur friendly. There is massive funding out there for your company if you take the time to look.
Check out Angel Funding Project at http://www.angelfundingproject.com this is a massive online database put together and managed by some of the industry’s top venture capital executives. You can even download a free massive publicity application that will give you 1,000’s of free promotional links to drive traffic and pass due diligence by investors.
Venture Capital FAQ:
Question: What is the risk involved in finance situations, dealing with selling bonds, issuing stocks, venture capital, debt and equity financing?
Answer: If you are the issuer, the risks are that you end up having to give all the money back or end up in jail for securities fraud. All issuances of securities require registration or an exemption from registration. These are typically done via an exemption from registration, but it easy to blow an exemption. If you blow an exemption, you could end up having to give the money back to the investors. In connection with the offering, if you make a material misstatement or if you fail to make a statement which would make other material disclosures not misleading, you could be liable for securities fraud. That is not what you want. If you are doing such an offering, you should obtain competent securities counsel.
Question: What are the methods of financing your own business? I was thinking VC’s but I need details.
Also why do VC’s provide financing at all? I mean say you need money for your business and I give it and I want a 51% stake in the company as the venture capital firm but I am PAYING FOR THE WHOLE THING how does this help me?Answer: I’ve always financed things with the local small bank as they give the best terms. There are now some finance companies backed with wall street money but their terms will be in between bank and VC firms.
The answer to your second question is purely R.O.I. or RETURN ON INVESTMENT. If a VC firm lends $50,000 that returns $25,000 a year to them, why wouldn’t they do it? They realize there are plenty of entrepreneurs out there with great ideas and they want to piggy back on your success. These people have money, but they need your ideas, and you’ll also be doing the work. They are just lending money, and they can’t make much lending it out in the traditional fashion like banks. If you start the next Yahoo or Google they don’t care how much money you make as long as they make it right along with you.
Question: I have a sound business start up plan. But I don’t have fundings. How to arrange venture capitals funding?
I am not eligible for bank finance, because I don’t have margin money or property for mortgage.Answer: If you are in the US you can start the business now and build its credit before you do anything else. Then you will have funds available. Outside the US I would recommend finding a partner or silent partner to help fund the business.
Question: I am a business student and I need to understand the difference between Venture Capital Firms and Finance Companies.
And I can’t seem to find a simple worded explanation of the difference between them.Answer: Venture capital firms – loan you money but take a position of ownership in your company and the money they loan is senior debt. Finance company is just a provider of funds, there is no ownership interest.
Question: What can an MBA do for me?
I am doing Masters in Industrial and Management Systems Engineering. Interested in Finance and venture capital stuff.Answer: An MBA can get you in the door — you have to make the rest work. The one interesting statistic is that the greater majority of individuals that earn an MBA never work for themselves.
Question: Best way to borrow money – venture capitalism?
I have a small business that would do a lot better if there was some capital. The problem is credit. I own all of my equipment and my building as well as an accounts receivable but banks do not care. So, the question is – how to find a reliable venture capitalist. Also, what is the best agreements for venture capitalism investments? All I know is that I am a GREAT chiropractor as well as have a drug testing business that has the potential to go National but no financing.Answer: You have what you need. I am not sure why you want a venture capitalist. You said the problem is credit. If you own the building, and need credit, take out a equity line of credit on it.
Question: Where can one raise international finance to build a manufacturing factory in Africa?
Sourcing venture capital for start-ups is a tough one in Africa. Bankers offer short term credits at high interest rates and fully colaterized. This limits budding business people with excellent ideas.Answer: Speak to your country’s Executive Director at the World Bank, International Monetary Fund, or African Development Bank. There might be a Policy Framework or an Initiative that could help you start-up.
Question: Where to get venture capital funding for my website? What do I need to prepare?
Imagine you have 2 partners, and all you got now is a domain, and a potential website with good content and functionality. Now, you need funding, financing. You don’t even have a company at this point. None of your partners has finance background. We know nobody who works at a VC. What are the procedure in order to get VC funding? Would you open a company with your 2 partners first? Where to find the VC? What do they need to see? Will they invest into our company?Answer: It really depends on how much capital you need. My personal opinion, is that when starting a company you need a finance guy to sort the financial options. You could also use somebody with a law background to help you through the process of becoming a business.
Venture capitalists will never consider small investment opportunities. They usually go big with people who have a solid plan. It seems as if you just need an angel. A angel is a wealthy person who can provide you the money to start up your business. However, angels can be difficult to find, especially if you don’t know anybody that has extra cash to risk.
The best method if you can’t find an angel is going through small business loans. Check with your local chamber of commerce to find out about small business development in your area.
I would definitely recommend you write up a business plan. Nobody will take you seriously if you show up and are all talk.
-
How to Find All the Angel Investors and Venture Capital Financing You’ll Ever Need!
The once definitive line that would separate hard money and private/angel financing has merged into a hybrid of sorts in the past few years. As the economy has taken a dive and structured private lending firms have felt the crunch we are finding many of these lending solutions closing its doors and re-opening as privately owned and managed funding options with an interest in both lending and seed investment.
Approval decisions that were once made by a group are not being made by an individual or duo with an eye toward optimal capitalization with both short term and long term agendas. As investors are, now more than ever, trying to get as much bang out of their buck, entrepreneurs are in the precarious position of accepting funding from virtually any and every enterprise that is making an offering. That said, it is more important now than ever to swing open your mind to the possibilities of mass exposure of your opportunity to the investment world.
The best way to do this is to simply put your business in constant and automated ‘introduction’ mode so that you can be found by the money-men. The best way to do this is to heavily investigate the venture capital industry for executives who have created offshoot programs that have deviated their process from the traditional path of simply approving or declining a transaction.
There are many VC professionals who want to capitalize off of the projects that their firm cannot accept due to underwriting criteria and industrial genre specialization so they are starting these small but well managed financial source databases where members can place their transaction directly in front of thousands upon thousands of angel investors, private investors, hard money lenders, venture capital firms, private equity firms and other alternative finance solutions.
These websites are now the hottest thing in the capital markets and will continue to grow because of the high success rate of individual executives and entrepreneurs who are able to find multiple streams of financing options with the click of a button.
If you are seeking Angel Investors, Private Investors, Institutional Investment Capital, Private Equity or any type of financing for your company check out Angel Funding Project at http://www.angelfundingproject.com they have great funding options, it’s run by people in the venture capital industry and there are tons of free downloads
Venture Capital Financing FAQ:
Question: Venture Capital?
I run a consulting firm specializing in helping large US and International contractors and construction owners in the construction industry in the areas of pre-construction and project management. The business is generating income but I want to expand the model and develop a utility management tool (software) that reflects my business philosophy and approach. In order to do this I need financing, but I don’t want to take a loan, I prefer equity based financing. Any ideas where to start and how to approach this?Answer: Unless you deal with “angel investors” (rich folks who like to invest in speculative deals and, as a rule, are passive investors), you will not likely get straight equity financing from anyone for an early-stage venture.
Most VCs, if they’re interested, will want to invest via secured debt, which is then convertible into preferred stock. Also attached to the money will be budgets, board seats, and oftentimes management control. Expect VCs to be actively involved in your business, from both a strategic and an operational viewpoint.
The days of straight equity financing for startups is – as a general rule – long gone, so I suggest you tweak your realistic expectations slightly if you are going to deal with professional VCs.
Question: Capital Venture Financing?
I would really appreciate a good response to this question. What are the current prospects of Venture Capital Financing?Answer: There are a lot of startups getting funded. One good resource is a web site called Discoverion. I think it is relatively new, but seem to capture a lot of useful venture information.
Question: How is venture capital financing accounted for in balance sheet?
I imagine if the financing is structured as a convertible loan, then the money is added as a liability. But if the investment is in return for common shares, how is the transaction recorded?Answer: DR – Cash; CR – Capital stock (at the par value); CR – Additional paid-in capital (at any excess to par value)
Question: Do you think I could get an entry level job with a Venture Capital Firm?
I plan to go to UVA and get a degree. What degree should I get for venture capital? (economics, undergrad business, or finance?) I think one of my strongest suits is my international capability. I know English, French, and Chinese fluently, and have passable Spanish, Arabic, and Hindi. Where could I get an entry level job, how much will it pay, how fast does it promote, and what is the possibility I could actually get one?Answer: Yes, absolutely. Finance, economics, and accounting will all work. Depending upon your interest and abilities, other majors may have appeal. An MBA is a must though.
Keep in mind that connections and networking matter as much as or more than the degree and GPA. Use your time wisely at UVA. You have excellent opportunities to connect with and impress (1) alumnae, (2) professors, (3) administrative personnel, and (4) other students. Seek everything that interests you while in college and when something strikes you that (1) you like and (2) you are good at, milk the connections. The best opportunities (and jobs) will always come from your network — the better the network.
Question: I have a biz idea. Where do I get venture capital or an “angel” to finance it?
Please, don’t tell me to go to a bank, or a friend or a family member. What I need is an actual investor that likes the idea and wants to get it off the ground.Answer: The best route is to locate and research what Angel or VC funds are in your area. Further you need to determine what area your company falls under. You need the VC as much as they need you. So find a group that has resources and experience within your field. This is a mutually beneficial relationship. So during the pitch process you should not be the only side of the table selling themselves. Most VC firms are specialized, there are very few firms that are generalized, however the big names like KPBC or Warburg Pincus are so large they have their fingers in everything. You will need to write a business plan and determine how much money it will take to get you off the ground. If it will take less than 1 million then an Angel fund is the best route. More than one million then VC might take a look at you. Most VCs are looking for businesses that are in place and have some history of operation. The VC/PE world has changed drastically over the past years. Much tougher to get investments especially in the seed round.
Question: How to finance working capital for a service based start up company without going to venture funding?
Answer: Start-up funding is tough. Without sales and/or significant assets, banks are generally not interested. You might check with a local economic development agency to see if they have start-up loans. Otherwise, you are probably left to your resources through your own contacts (otherwise known as friends and family).
Question: How was venture capital created?
Answer: It was begun by people desiring to take a “risk” in a particular business with the idea of a high return of their investment money. If the business does well, they get a better return than “normal” markets and much better than savings instruments.
They are necessary for many small business to get up and running. If the business fails they get nothing back. But if it succeeds like Microsoft for example, when they sell their interest in the company, the sell it for many times what they invested.
Question: Strength and weakness of venture capital?
I’m doing a project on capital financing. Would like to know of the ways a firm can raise capital and the strength and weakness of each ways.Answer: 3 ways to raise capital:
1) Loans
2) Bootstrapping (self-financing strategy which is usually a combination of penny-pinching, pulling in friends & family to help etc. )
3) Venture capitalVenture Capital’s Weakness:
a) It’s an option limited to only businesses that VC firms find attractive. That cute boutique or auto-repair shop idea – won’t cut it. Only high-growth, high profit businesses need apply.
b) You could lose control of your enterprise – literally! (See C)
c) Goals for VC may be totally different than your goals (eg: going public vs staying private)Bootstrapping: My personal favorite but mainly limited it IP (Intellectual Property) or other talents the entrepreneur possesses.
Weakness: Most folks can’t afford a manufacturing run or any major capital expense with their spare nickels.Loans: Good because someone else is giving you the funds to launch something you could never afford.
Weaknesses: You have to a) get approved, b) pay them back and c) if you fail you still have to pay them back or go bankrupt. -
Small Business Finance – Finding the Right Mix of Debt and Equity
Financing a small business can be most time consuming activity for a business owner. It can be the most important part of growing a business, but one must be careful not to allow it to consume the business. Finance is the relationship between cash, risk and value. Manage each well and you will have healthy finance mix for your business.
Develop a business plan and loan package that has a well developed strategic plan, which in turn relates to realistic and believable financials. Before you can finance a business, a project, an expansion or an acquisition, you must develop precisely what your finance needs are.
Finance your business from a position of strength. As a business owner you show your confidence in the business by investing up to ten percent of your finance needs from your own coffers. The remaining twenty to thirty percent of your cash needs can come from private investors or venture capital. Remember, sweat equity is expected, but it is not a replacement for cash.
Depending on the valuation of your business and the risk involved, the private equity component will want on average a thirty to forty percent equity stake in your company for three to five years. Giving up this equity position in your company, yet maintaining clear majority ownership, will give you leverage in the remaining sixty percent of your finance needs.
The remaining finance can come in the form of long term debt, short term working capital, equipment finance and inventory finance. By having a strong cash position in your company, a variety of lenders will be available to you. It is advisable to hire an experienced commercial loan broker to do the finance “shopping” for you and present you with a variety of options. It is important at this juncture that you obtain finance that fits your business needs and structures, instead of trying to force your structure into a financial instrument not ideally suited for your operations.
Having a strong cash position in your company, the additional debt financing will not put an undue strain on your cash flow. Sixty percent debt is a healthy. Debt finance can come in the form of unsecured finance, such as short-term debt, line of credit financing and long term debt. Unsecured debt is typically called cash flow finance and requires credit worthiness. Debt finance can also come in the form of secured or asset based finance, which can include accounts receivable, inventory, equipment, real estate, personal assets, letter of credit, and government guaranteed finance. A customized mix of unsecured and secured debt, designed specifically around your company’s financial needs, is the advantage of having a strong cash position.
The cash flow statement is an important financial in tracking the effects of certain types of finance. It is critical to have a firm handle on your monthly cash flow, along with the control and planning structure of a financial budget, to successfully plan and monitor your company’s finance.
Your finance plan is a result and part of your strategic planning process. You need to be careful in matching your cash needs with your cash goals. Using short term capital for long term growth and vice versa is a no-no. Violating the matching rule can bring about high risk levels in the interest rate, re-finance possibilities and operational independence. Some deviation from this age old rule is permissible. For instance, if you have a long term need for working capital, then a permanent capital need may be warranted. Another good finance strategy is having contingency capital on hand for freeing up your working capital needs and providing maximum flexibility. For example, you can use a line of credit to get into an opportunity that quickly arises and then arrange for cheaper, better suited, long term finance subsequently, planning all of this upfront with a lender.
Unfortunately finance is not typically addressed until a company is in crisis. Plan ahead with an effective business plan and loan package. Equity finance does not stress cash flow as debt can and gives lenders confidence to do business with your company. Good financial structuring reduces the costs of capital and the finance risks. Consider using a business consultant, finance professional or loan broker to help you with your finance plan.
Frank Goley works for ABC Business Consulting as a business success consultant. He has extensive experience in business finance and has over twenty years experience as an expert business planner.
Small Business Finance FAQ:
Question: How do I get money to finance my small business with bad credit?
My credit is bad from my younger years and I have been working like hell to repair it. No matter how many bills I pay off of my credit report rating stays low. How do I get a small business loan or financing in this situation?Answer: Get a partner. You will have to repair you credit first and to do that you should buy a book or two on it. There are lots of good ideas out there on how to do it.
Question: What are creative ways to finance a small business?
Other than venture capitalists and banks, (and cash of course), what are some creative ways to finance a small business?Answer: Become public and get people to invest.
Question: Can you use a credit card to finance your small business?
Answer: In theory yes you can, however it might not be the most cost effective way to do it. To one degree or another, almost ALL businesses do it.
Question: Is there any free online accounting program for small businesses (not personal finance)?
I have a small home-based business and do not have money to spend on expensive software or monthly subscriptions. I would prefer to use something online that doesn’t require me to download anything so I can access it from any computer and my phone. Are there any truly free programs like this?Answer: Probably not. If it is a small home-based business, then just use microsoft excel or word. I’ve used excel and word for my accounting homework and it wasn’t really hard to use. And if you can’t afford excel, then go to open office and download their free version of excel. If you want something online try using Google Docs. This way you can access your information from any computer that has internet access.
Question: How do I get a small business loan if I don’t have good credit?
I would like to open a small tax prep company and a finance company. So how do I get a loan if I don’t have good credit?Answer: For small business you have to personally secure any loans, so they are made on your personal credit rating. If your credit is bad, then you will not be able to get a small business loan. Work on improving your credit position so lenders will see you can be responsible with financial obligations.
Question: What software should I get for my small business?
I plan on purchasing Quickbooks for my accounting purposes, since I’ve learned that this is the #1 accounting software for small businesses in the USA. But what other software would you recommend? I see a number of businesses use Quicken, but is it necessary? Does it help with organizing finances? If I had Quickbooks, would Quicken just be an added benefit?Answer: Quicken is a personal accounting system by microsoft. It is for individuals budgeting & managing their own financials. It is not a “business” tool.
Quickbooks is a professional business tool and can be used for small to medium sized business. Most of it will be overkill but for the $300 it costs every 3-5 years, I say it is worth it. There are other similar packages available like PeachTree. They are all more or less the same. Quickbooks is good because as you say, it the most popular, and it’s easier to find people who know it to help you.
Question: How much it costs to start a brick manufacturing business?
I am considering my options to start a small scale business in Tripura, NE India. Can you please provide me with the details/refer me to a place to find out all the details about brick manufacturing, starting with the kind of finance I need?Answer: It is very expensive because you will need the machines. Probably 7 to 10 lakhs on a small scale to start with.
Question: What are the chances of opening a subway store?
I just purchased a house at 100% ltv (all finance), so the property does not have equity. However I want to get a small business loan (200k loan) putting the property as collateral = money for opening the store. My income is around $1,400 a month, 23 yr old guy. So do you think the bank will loan the money?Answer: NO. Not a chance.
1. You can’t put something as collateral when you don’t have any equity in it. And even if you owned it outright, doesn’t sound like it’s worth $200K.
2. How do you plan to pay back a $200K loan?
3. $200K would not likely be enough anyway to open a Subway store.
-
Lessons Learned From Private Equity – Enhancing Performance
As private equity firms become more successful, many public firms are learning how to implement these companies’ winning strategies. According to McKinsey research, about 75% of private equity firms do not experience better success than the stock market. However, the remaining 25% of these firms consistently achieve results that outperform the stock market.
This high performing group has mastered several components to enhancing performance. For example, deals in the private sector that are worth over $100 million, did not evolve because private firms paid less then market value. Instead, these private equity firms are using calculated strategies to determine which companies to purchase.
Researching Deals
Public firms can enhance success during acquisitions by investing in a strategic assessment of potential deals. This assessment is typically taken during the first few months of a deal, and accomplishes several goals:
- Determining which costs to cut
- If there are new markets to pursue
- Potential portfolio changes
Once these components have been evaluated, a value creation plan can be implemented. In this plan, managers will determine the possible risks and value from acquisition activities.
Compensation Strategies
Private equity firms are highly committed to overseeing investments once the deal is closed. A method used to enhance performance is using compensation strategies to align high level managers with strategic objectives. This entices managers to invest more of their time in collaborating with the board and completing research to help set the direction of the company. According to McKinsey research, private equity partners using this strategy invested about 50% of their time three months after the deal closed. While, less successful private equity firms devoted only 15% of their time.
Successful partners also spent more time working with management to determine if staffing changes needed to be made after the deal closed. Active partners also used operation indicators to measure performance instead of standard financial measures.
Realigning Governing Structures
Although many companies use financial engineering or price arbitrage to measure performance, private equity firms are finding these tools to be less effective in current market conditions. The highest performing equity firms are adapting governance arbitrage, which involves realigning governing structures that are not aligned well.
Public Firm Challenges
Many public companies are focused on compliance instead of enhancing the effectiveness of governance. This is partially because of the growing number of regulations and codes that are evolving.
In addition, those who are not at the executive level do not always experience financial gains when the company is performing well. However, if the company experiences hardship, these individuals are affected. Since these individuals are often recruited from professional management positions, they are usually more emphatic with managers than shareholders.
Spending more time on strategy and developing talented managers can help board members have a better understanding of the company’s initiatives and objectives. Currently, most executives feel that the board has limited understanding of goals and corporate strategy.
Sharing Information
Public companies can implement strategies used by private equity firms such as creating a free flow of information between managers and non-executives. This includes sharing information that is not financial in nature – like strategies and initiatives. Although public companies do not have incentives, implementing these strategies can help boost performance.
External Benchmarking
There are also external benchmarks that can be used to determine performances initiatives. For example, these benchmarks may include overhead costs, cost per unit production, manufacturing processes and purchasing. Benchmarking these areas can give a company a competitive edge.
The benchmarking process should also provide independent verification that the benchmarks are being achieved. Companies also need to evaluate how often benchmarks are created. Since this process can be time consuming and expensive, companies can reevaluate these areas every few years.
Performance Challenges
Unlike pubic firms, private equity firms can offer managers equity stakes, investment opportunities, and bonuses for meeting objectives. In fact, top managers in equity firms own up to 19% of the equity. This creates personal motives for outperforming the competition.
When a private equity firm is having difficult times, management is quick to act swiftly – spending more time with management, minimizing underperforming areas, and hiring consultants to improve performance.
Because incentives are structured differently with public firms, the strategies and actions are often less aggressive. This is an area of opportunity for public companies. Taking aggressive steps to improve performance will ensure that actions are better linked to value creation objectives.
Searching for Talent
Finding a management group that is ready for extreme change can be challenging. If executives are not completely behind the changes, they will not be effective. These leaders must also have a high level of understanding of each team’s strengths and identify weak players.
Although public companies may face challenges, learning a few lessons from private equity firms can enhance performance. Revamping the governance structure will allow public firms to compete more effectively with leading private equity firms.
Resource:
Andreas Beroutsos, Andrew Freeman and Conor F. Kehoe. “What Public Companies Can Learn from Private Equity.” McKinsey on Finance, Winter 2007.Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” Mark also has a monthly column in btobmagazine.com. For more information, visit http://www.vercoradvisor.com
Private Equity FAQ:
Question: Can you give me definitions of hedge funds, private equity funds and equity market?
Answer: Hedge Fund = mutual fund for rich people with very few limits set by the government.
private equity funds = a pool of money used to invest in non-public corporations or securities…often with the intention of running or reorganizing the companies after purchase.
equity market = the public exchange of ownership rights for legally recognized and structured businesses.
Question: What are the management fees for in Private Equity?
Answer: Management Fees are fees charged by a fund, partnership or other entity and will vary in percentage amounts and for different things, and thus are not equal or standardized as each entity is different and have various cost structures. All fees are required to be disclosed in the Private Placement Memorandum (PPM).
Question: To start a business, which is better private loans or investors?
To have an investors has a lot of benefits. They provide capital for the business to start in return for equity. But the problem is that shareholders can ruin the company or change the direction of the company and make it commercial. Shareholders can cause problems for the owner and loans are harder to get but you have full control of the company. To start a company, which better private loans with an interest rate or investors who takes shares of the company?Answer: I would have to go with investors on this one because if the company does not succeed then you will not have a debt to the government, if it does on the other hand all is well your investors get a cut if it weren’t for them the business would of never gotten off the ground. Take this and build a solid partnership over the long term and you are golden its all about who you know in this world. Karma is a real thing.
Question: How does private equity work, and how do you become a private equity investor?
I am 18 years old and I have an interest in the idea of becoming a private equity investor if I manage to accumulate enough starting capital. How does one go about becoming a private equity investor and becoming a multibillionaire like roman abramovich of millhouse capital, or prince alwaleed bin talal of the kingdom holding company? Please could somebody help explain.Answer: Private equity consists of investors and funds that make investments DIRECTLY into private companies, instead of trading through the stock market. Usually they include institutional investors (banks, hedge funds…) and rich individual investors. I think you might be interested in becoming a venture capitalist, which means you find starting businesses and invest money for a share of the business (a type of private equity investment). But before all this, you need the money, and this takes a lot of time and effort.
Otherwise, you could get an education (degree to start with) and get employed by a large financial institution (maybe even AlWaleed’s), become a senior analyst and make decisions in investing the institution’s private equity…maybe even a takeover!
Question: Will the private equity industry still be here in America in 20 years?
Will it still be as large as it was? I just wanted to know because I plan on getting into this industry after college.Answer: PE is one of the hardest areas of finance to get into. PE is surely here to stay for 20 years, and may be even longer! The reason being that PE firms rely primarily on the markets, both capital and debt markets, to source business. As both the aforementioned entities are in no hurry to disappear, it is a hard to imagine the non-existence of PE.
Question: What is the difference between Venture Capital and Private Equity?
Answer: Venture Capital is actually a type of Private Equity.
Private Equity means shares that are not traded openly in the public. Venture Capital is given to start-ups or entrepreneurs as an exchange for some % of share in the new company.
Question: Who can I hire to sell my private equity placement with out violating reg D laws?
I’d like to know how hard money lenders use the private placement offering. I understand you can raise money but I am unsure if they are hiring brokerage firms and if they are, who are they?Answer: Generally they hire an investment banking firm and a law firm. It is very expensive. If you have to ask, you can’t afford it. You would have to be talking about a placement of millions of dollars in equity to make it worthwhile to properly prepare the paperwork for a private placement.
Question: What is Private Equity?
And is it hard to get a career in it because I heard people who work in it make boatloads of money?Answer: You could become either a broker, trader, analyst, etc. If you are fiercely competitive and sharp you could make plenty.