photo credit: Ed-meister

A “Money Finder” is an individual or company who, for a fee, finds willing investors interested to invest in growing companies. The Finder formally links the Investors and Entrepreneurs with the purpose of creating a mutually beneficial financial arrangement.

Terms

Some terms used here may be unfamiliar. “Intermediary” and “Money Broker”, as used here, are other terms with the same meaning as “Finder.” “Entrepreneur” is an individual who seeks and assumes the risk of business growth, usually through direct ownership and management. “Angel Investor” is an individual with high net worth willing to take the risk of lending money to an Entrepreneur.

How does a Finder find willing Investors?

Finders spend many years building a reliable network of investors. The network is built through business contacts, successful business deals, and the personal reputation of the Finder. The Finder’s network is the heart and foundation of his own entrepreneurial business.

There are many types of Investors, including Institutional Investors, individual or Angel Investors, Venture Capital firm and Private Equity groups. New Investors are added to the Finder’s network on a regular basis, but not without considerable scrutiny, thought and analysis.

How does a Finder find worthy Entrepreneurs?

Many entrepreneurial businesses are ready and worthy of funding, but not all need the services of a Finder. Usually businesses using a Finder 1) need at least $1 million, 2) have a strong management team, 3) have a proven track record of growth and potential to continue, and 4) has the ability to generate revenue. Therefore, the Finder usually asks potential clients for information and documentation about their businesses. These include biographies and resumes of the management team, business plans, and financial statements. The Finder evaluates and analyzes the information to propose the best solution for the client.

How are Finders paid?

Finder’s fees are based on the amount of capital received. Usually, the fees are paid in cash or company stock or a combination. In general, the Finders fees are 5 – 10 percent of the amount of capital received with the higher percentage paid for smaller amounts raised. The Finder’s fees are often negotiable and always agreed upon before any services are provided.

Does a Finder need to be licensed?

The SEC, which regulates money-raising activities, sees a Finder as someone who’s acting as a promoter of the sale of securities and thus is required to have a Broker Dealer license. Ben Hendricks from Annacore Business Capital, LLC says” If they don’t have the proper license, then (a) they’re acting illegally and (b) any contract they sign with you is unenforceable, and therefore any portion of their fee that’s based on a percentage of the money raised is not collectable”

If you are an Entrepreneur looking for capital, take the time to ask the right questions before you hire any Finder.

Annacore Business Capital is a widely respected funding solutions resource. Our focus is assisting those emerging companies worldwide, which are seeking growth capital between $1 million and $25 million, to achieve their strategic business growth objectives. For more information about all of our funding options, please visit our website at http://www.annacorebusinesscapital.com or contact us toll free at 1- 866-767-9723.

1. A strong return on investment. Ranges from 8% (friendly, debt) to 40%

-Different types of investors investing at various stages of the company’s growth and development will have different expectations. (Notice the emphasis on and repeated use of the word different!) An angel investor who is taking on the most risk by investing when the company is still in its nascent (i.e., very early) stage and has yet to generate much revenue, if any, has no contracts, and has negative cash flow, will want the highest return of 40% or close to it. If the company is successful, due to the early entry stage, one would expect the company to generate at least that. Often, though, the angel investor will sell out during one of the subsequent financing periods. Rarely does an angel investor stay on board until the company reaches maturity.

-Venture capitalists come in later but still before the company is cash flow positive. Therefore, they typically want returns of 30-35%.

-Mezzanine financiers provide a mixture of debt and equity to more stable and established businesses so they expect blended returns of 16-20%.

2. A clear pay-off date (exit strategy) – typically 3 – 7 years

-Very few investors wish to wait indefinitely for their money. They are investing not to make you feel good but because they believe in you and your business and the ability of the business under your management (and sometimes with their additional efforts) to generate enough revenue and cash flow and/or grow large enough in value to return them their investment and their expected return within a specific time frame.

-This varies based on the investor. Angel investors prefer a shorter period of time (3 years). Private equity funds typically expect 4-5 years. Strategic investors derive a number of benefits so their investment timeframe tends to be the longest, with a trend of ~7 years.

3. A strong management team

There are many great ideas out there. It’s not so much the idea that counts (look at all the inventors who never get anywhere) but the ability of the management team to capitalize on that idea and provide the leadership, strategy, sales, marketing, and operational skills and acumen to bring that idea to market. Or to apply those same skills to a purchase of an existing business and continue to generate similar growth if acquiring a high growth business or turn around the enterprise and grow it, if acquiring an underperforming company.

-The management team is the most important component. A great management team can make a good idea or a so-so company into a great company. But a great idea may never make it off the ground with poor management and a great company can go rapidly downhill with mediocre management.

4. A base valuation of the company

You don’t want to approach investors with no idea of what your company is worth. How do you know if the investor is proposing a good price for the portion of their investment? Angel investors sometimes are not highly financial savvy and can’t do their own valuations. So you need to do one or have one done for your company and be able to explain it to the interested investor. You need to show them in these pro-forma financials how their investment will help move your business to the next level. And they need to see in this valuation how the requested investment amount was determined. Venture capital firms will do their own valuation but you should have your own in order to understand the financial impact of your company’s strengths. This will facilitate your negotiations with these firms.

-Since they usually deal with existing stable businesses, mezzanine firms and private equity funds expect you to tell them what your firm is valued at, how you arrived at the numbers, and what amount you expect from them to invest. They will run their own valuation but want something to compare it to. Also, if your firm has $10 – 20 million or more in revenue (typical for companies that attract this type of equity investment), your management team should have someone with financial acumen -a CFO – or have access to someone (a consultant,…) who can do this. Otherwise, your ability to financially manage the company could be called into question.

5. A business plan to accomplish goals

- You need an abbreviated business plan. If you have a full strategic business plan, that’s even better. If you also have an operational business plan, that’s all the more impressive. But you need something that provides an overview of the market, background on the business, industry and competitor assessment, management overview, sales and marketing plan, risks, financial snapshot, goals, and the strategy to accomplish these goals. Most investors only want to see an Executive Summary – 3-5 pages – to determine if they’re interested. Then, once they’ve expressed full interest, they’d like to see the complete business plan.

-Remember, the business plan is an ongoing work in progress. The purpose is not to clearly map out exactly what you’ll do but to chart a course for what you’ll do that enables you to respond to market changes and new information that may differ from the assumptions you made. If you’re not fully aware of your ideas of the market, competitor, and customer behavior, then you don’t know what to do when things don’t go as expected. A business plan gets you to think creatively.

-Review your business plan on a quarterly basis and make changes semi-annually as needed. Remember, the business plan shows an investor that you treat your business seriously and have thought about what it takes to get to where you need their money to help you go. The business plan says to the investor, “Here’s what I’m going to do with your money to make sure you get it back with the return you seek”.

Tiffany Wright is a turnaround consultant and small business advisor who has written several books and ebooks. She is the author of Help! I Need Money for My Business Now!!, an ebook with easy-to-follow examples, case studies, and templates that will lead you step-by-step through the process of raising capital for your business available at http://www.moneytogrowbusiness.com She is also the publisher of Equal Construction Record, a commercial construction newspaper based in Georgia. She has helped companies raise over $31 Million in financing and revamp their operations and financial structure. Also view her blog at http://smallbusinessfinanceforum.blogspot.com