Business
Plan Financing
So You want to Raise Money?
Most people write a business plan
for the sole purpose of raising capital. You may be thinking that with the
6,000+ sources of venture funding that exist today, and the $200 Billion
that those sources manage, it should be relatively easy to get your plan financed.
Our answer to that is Yes and No.
First, every funding
source available today wants to see a business plan. Second, while there
may be a lot of capital available, no one gives money away for free. Third,
the most important thing is that your business plan be easy to understand,
concise and to the point, and be backed up with a strong management team.
The Importance of a Management Team
Investors don't invest in ideas. Investors invest in people. This is the
number one mistake that people make in starting new businesses. You could
have the best idea in the world and be in a position to completely corner
the market - nevertheless, you won't raise a dime if you don't have a
strong management team. The number one reason why business plans are turned
down is because they lack a management team that has done it before.
But No One Has Ever Done What I
Intend To Do
Just because the idea is yours and you own the company, does not mean
that you have the skills necessary to run the company. If you can grasp
the importance of this statement, and you are willing to stand behind it,
you are well on your road to building a successful management team and
raising your capital.
It is not necessary for
you to be the President of your own company. It is much more in your
interests to find someone who has already been the President of a company,
has built that company to a respectable size, and has a good reputation in
achieving business goals. Find this person, hire them, and offer them a
compensation package that includes incremental equity in your company for
achieving specific goals that you lay out for them. As primary stockholder,
you will have ultimate control strategically while allowing this person
(and the management team that this person builds) to run the company
tactically on a day-to-day basis.
The first thing that
investors look at when evaluating your business plan is the reputation of
the management team in accomplishing similar results for other companies in
the past. If your management team looks positive and presents a well
thought through business plan, you have a very good shot at raising your
capital.
You've Got Everything in Place,
What's Next?
So now you've got your management team in place and they bring a tremendous
capability and reputation to your company. You've got a sensational
business plan that has no holes. What's next? Deciding what kind of money
you want to raise.
Basically there are three
types of funding that you can pursue:
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Early
Stage Financing ($25,000 to $250,000).
Early Stage financing consists of money that is required to get an idea
off the ground. Sometimes referred to as Seed Capital or Angel Capital,
it represents financing which is typically used for product development,
market research, business plan re-writing, etc. The result of early stage
financing is a real product, fully developed service, etc., ready to
begin sales. Early stage financing usually comes from friends, family, or
private investors.
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2.
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Expansion
Financing ($250,000 to $5,000,000). Expansion Financing is used to take a developed
product or service and begin marketing and sales efforts, typically on a
limited scale. Expansion Financing is often divided into four stages. The
First Stage are funds for full scale manufacturing, development, and/or
implementation. The Second Stage are funds for growing sales and sales
revenue even though the company may not yet be profitable. The Third
Stage, which is sometimes referred to as Mezzanine Financing are funds
used for major expansion, new product development, or major advertising
and marketing efforts. The Fourth Stage, commonly known as Bridge
Financing, are funds for a company that is expected to go public within a
six month period. Typically, bridge financing is used to re-restructure
previous equity positions, and is usually repaid with the proceeds from
the IPO.
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3.
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Acquisition/Buyout
Financing ($5,000,000+).
Acquisition/Buyout Financing provides funds to finance the acquisition of
another company. Some types of financing used for this purpose are high
interest 'Junk Bonds' or substantial bank debt.
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Finding An Investor
Now comes the difficult part. You've identified the type and amount of
funding you need and now you have to actually find the investor. Most
people initially starting a company will be looking for Early Stage
Financing. Expansion and Acquisition/Buyout Financing is usually easier to
raise because the business has typically been operating for some time, and
a history can be shown. The riskier investment is the new business that
hasn't started up yet or that is in very early stages of startup and needs
the initial funding to get off the ground.
Some of the questions you
may have include:
Who typically invests in
these deals? · What amounts of money are possible? · How will investors
normally participate? · What do investors bring to your project besides
money? · What type of returns will investors require and over what period
of time? · Where can you meet or be introduced to the right people? · How
do you avoid the scams that waste your time? · How do you check out the
money sources? Are they clean and are they legitimate? · What criteria will
an investor use to evaluate your deal? · How and when do you approach seed
or venture capital funds, and how will they evaluate your project? · Should
you contact a venture firm directly or should you get an introduction? ·
How do you get an introduction to a venture firm? · What are the deal
criteria for venture capital funds? · How do venture capital funds operate,
and what do they expect from their portfolio companies?
You are in the minority if
you can answer these questions and feel confident enough to present
yourself to the financial community. The problem that arises in pursuing
this route is that if you make a mistake with a funding source, chances are
that source will not meet with you again. Is that a chance you are willing
to take?
At BizplanSource, we
specialize in working with you to develop a financing strategy that will
work, specifically for you. We have successfully worked with many companies
to help them raise financing. We can not guarantee that we can find
financing for you. Instead, we offer you our expertise and experience in
helping you to put together:
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A winning business plan
which addresses all the issues that funding sources want to see;
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A successful management
team;
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The strategic
relationships necessary to effectively implement your idea;
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The processes and
procedures necessary for you to effectively manage and build your
business; and
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The strategic and
tactical plans necessary for you to raise your financing.
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At BizplanSource we have
experts in business plan financing who will work with you to make certain
that there are no holes in your approach, ideas, or documentation.
Contact Us for more information.
