photo credit: tombothetominator

Do existing businesses need money? Probably.

Is this a time to start a business? Maybe.

In either case, the business plan you write today will be different than the one you wrote five years ago. Five years ago money was available. It is still there, but it is a lot harder to find, and to tie down. Here are the five keys to getting funding now:

1. Take it as far as you can yourself

Whether your business is is brick and mortar, or online, do as much as you can yourself. Bootstrapping is IN style, if indeed it ever went out of style. Getting funding to “expand” is always easier than getting funding to “start”.

Yes, this means more extensive planning and researching than you may have done previously.

Yes, this means developing prototypes and test marketing before spending millions on a project.

Yes, this means actually beginning the business if you can. Most businesses can start early. Most businesses can begin as an online business, a very inexpensive alternative to a brick and mortar business. A beauty salon would have a hard time, but a professional speaker, credit repair, and dozens of other businesses are naturals for online businesses. Even the beauty salon can begin online if it will have some unique products to sell. One lady I know began her business online, making custom mineral makeup. It was so successful that she never opened the boutique business she had planned. Now she fills orders from around the world every day. She discovered, too, that she didn’t even need a business plan – she had all the money she needed.

2. Be THE pro in the business

Nobody wants to finance your on the job training. Prove up front in your business plan that you’ve got industry experience and management success behind you. The “wanna be’s” are in for a rude awakening over the next few years.

Your business plan needs to tell the tales of your successes. Lists of “accomplishments” can get pretty boring. Translate those into real vignettes and it is a slam dunk. Don’t have the success stories to tell yet? Well, get them. Don’t expect funding until you’ve got the tales to tell.

3. Be The Dreamer

Capture your lender with your enthusiasm and sincerity. Swallow whatever fear and misgiving you may have, and march up to the lender, stick out your hand and say, “I’m Josephine Martinez, the entrepreneur down the street.” It doesn’t matter if that business isn’t open yet, you are still “the entrepreneur down the street”.

There is just something catchy about someone with such unbridled enthusiasm, especially in tough economic times. Your lender will want to capture your energy, and just may want to keep you around.

4. Be The Realist

Recognize that some businesses will be easier to fund than others. Repair businesses, credit businesses, low cost businesses will all be better off than a custom tailoring shop.

Highly capitalized businesses like restaurants, construction and resorts have a tough time presenting successful business plans in tough times. The tougher your business is to fund, the more important it is to do your homework. Don’t wait for your lender to tell you to do it, or even to vaguely ask for it. March in with your stats in your hand. It is the only way.

5. Go For It

This is the most important step. Lots of folks are sitting in the wings, waiting for the economy to change. Well, it is not going to change soon.

The US economy, and the world economy, are in the wringer like they haven’t been for half a century or more. Because of that, everyone assumes there is no money to be had. Well, it just ain’t so. There is money there, but few people know where to put their money so that it is both safe and making money. Your job is to prove that your business is the answer.

And there IS money out there. Lots of it. Honest. Go for it. Now.

MaryAnn Shank, the talented and rough weathered pro at Business Plan Master has helped thousands of businesses navigate tough economic times. Here is where her experience shines.

photo credit: cwbuecheler

Many start-up companies and even savvy business people are not aware of what it takes to find capital to launch their new idea or propel their business forward. There should be no shame in this because if you were an expert on it you would be in business finance and not the industry you are in. You are good at what you do so taking the time away from that can be detrimental to your business. One mistake 95% of business owners make is trying to learn and perform too much themselves, and not rely on outside help.

To structure a financial deal it takes good business planning and good business planning should involve financial planning and structuring. Unless you have a rich aunt or can self fund your project, you are going to have to sell yourself, your team, your idea, your business, etc to someone. Whether it is the manager at the bank, venture capital fund managers or private angel investors you usually only have one chance to make an impression.

In business financing, only 30-40% of deals are looked at seriously if they have collateral behind them and only 5-10% are taken seriously in the angel and venture capital world. The percentage of actual funding is even lower. These statistics are not to discourage you but to help you understand the importance of getting the right assistance. Raising money can become a full time job and if you are running a business you already have enough work to equal a full and part time job, so why add more to your plate than necessary. If you do there is a good chance that you are actually setting yourself and your business up to fail unnecessarily.

So understanding that raising capital is a full time job if done by you, what is the best way to ensure that you get the job done? The answer is hire it out and just oversee it as you would any other segment of your business that you are not an expert at. Take marketing for an example. Companies such as Coca Cola and Nike do not typically create their own commercials, brochures, logos, etc… , they have agencies that do it. You should take the same approach with financing your business.

When hiring a consultant, hire one that you can present your concept, brainstorm with, and have them do the job for you. Business finance consultants are invaluable to help start-up companies as most start-ups have a concept or idea and are overwhelmed with all the things involved to get the idea to market. To create a successful start- up you have to have a plan and a solid one. It does not mean that the plan is set in stone and you have to follow all the things you say to the letter. Good businesses are flexible and use the plan as a road map, in which they may have to take a different route to make it work better. Consultants help you down the road faster and should be honest of how and when you might need to take a detour to be successful.

An example of this would be raising capital. Different investors want to see the same overall structure in a plan but each one could have a different emphasis. One might think the strength of the team is most important, another might fund on the return on investment time frame, and another could have an entirely different focus. Investors will look at things different than lenders and venture capital will look at things different than angel investors. A good business finance consultant will understand this and will also know what road is the best to take. They will also have different sources they can present your completed plan or prospectus to but allow you to seek out your own as well.

An established business will also benefit from a consultant as although you could be in business for years the market is ever changing especially in todays world and what was true yesterday or a few years ago is sure different today and probably will be tomorrow. A good consultant keeps up on what the reality of today is and plans for tomorrow.

No matter what industry you are in these are just a few reasons not to go it alone. Before you head down the wrong path or need some help making a detour, contact a business finance consultant today. Your business will be better off for it.

Want more information about business finance consulting? Venture Works Capital helps many businesses properly prepare for financing fro start to finish. Visit our website for more information. http://www.VentureWorksCapital.com

photo credit: star5112

“Get an introduction to the venture capitalist.” It’s good advice. It just isn’t always possible, or even likely. Many outstanding entrepreneurs with equally outstanding financing proposals simply don’t have The Introduction.

Unsolicited, and un-introduced, financing proposals are typically tossed into the dog pile or slush fund or circular file. In most venture capital firms it is the job of a new member of the firm, typically someone with a freshly scrubbed MBA, to weed through that pile, toss out unlikely candidates and pick out any projects that are worth looking at. So the first barrier is a young, ambitious, very well educated, inexperienced person who wants to make a good impression on the partners in the firm.

Getting out of the Dog Pile

About 90% to 95% of the proposals in the dog pile are tossed. Some of the top reasons for tossing proposals at this stage include:

Sloppy appearance. Loose pages held together with a paper clip, smudges on the pages, yucky colors – these are all quick “toss me” clues. This is typically the very first thing that the reviewer notices, so the appearance has to be commanding.

Too little information. A 1-2 page summary is very nice IF it has been specifically requested by the venture capital firm and IF it really does include the information requested by that venture capital firm. A generic 2-page summary sent to 200 venture firms is pretty much a waste of time. A 50-page dissertation on a new patent is equally ineffective – it just doesn’t provide all the information that a venture capital firm needs. The length of the proposal is considerably less critical than the quality of the information provided. Rarely can sufficient information be provided in less than 20 pages, and rarely is it acceptable to present more than 30 pages. And all of the pages – no matter how many pages there are — must be responsive to the needs of the specific type of venture capital firm.

Too much information. There’s a myth with some truth to it: When confronted with a huge pile of proposals to read, the reader will toss them up in the air, and the heavy ones that fall to the bottom of the heap will be read last. A financing proposal with three binders attached, with everything from incorporation documentation to copies of patents for competing companies, is too much. Like Scheherrazade’s stories, the financing proposal entices the reader to want more. Dumping everything in the venture capitalist’s lap before ever meeting him gives the venture firm no reason whatsoever to ask for more. In fact, presented with such an overwhelming glump of information, most venture firms would be extremely leery about asking for more.

Wrong format. There is a structure to a financing proposal: the beginning (the cover sheet, the Front Page and the Table of Contents), the middle (the guts of the information divided into logical sections), and the end (absolutely essential attachment, such as copy of critical patent). Omitting sections, or writing in the format of a novel, does little but confuse the issue. Leave the creativity to the presentation itself and keep the structure pretty basic.

Information that is too technical. Scientists and engineers waft poetic about inventions that are all but incomprehensible to everyone else. While it is safe to assume that the venture capitalist is intelligent (and he is!), remember that the first line of defense is someone who isn’t terribly experienced. So explanations really help. Pretty basic explanations help even more.

Lack of a concise Summary Page, with specific funding needed specified. The Front Page, or Summary Page, contains very specific information: the industry, the status of the company, the amount of money needed, the type of funding requested, and The Hook. The Hook is a brief note of whatever it is that distinguishes this company/invention/concept from the thousands of others on the market. Lacking ALL of this information on the Front Page, most venture capitalists won’t go further.

Lack of information on the principals. It is axiomatic that venture capitalists invest in people, not in ideas. There are tens of thousands, if not hundreds of thousands, of patents languishing in the Patent and Trademark Office. There are very few unemployed skilled leaders. Make certain the venture capitalist knows how truly talented your management team is.

Wrong level of investment or wrong industry for venture capital firm. Venture capital firms receive dozens of business plans every day that are simply inappropriate for them. Venture capital firms specialize. Some like small startups; some only invest in mezzanine stage companies. Some prefer investments under $2.5 million; some will only invest over $2.5 million. Some specialize in communications or biotech or energy. Find out what the venture capitalist wants before sending the proposal – you will save yourself a bundle in printing and shipping costs, not to mention the time saved in going after the true targets.

Accentuate the Positive

There are some things you can do that act as a catalyst in getting your proposal noticed (in addition to having a great business plan, which I assume you do have).

First, address the plan to a person, not to the company. In your research, you learned about which partners sat on which boards, which ones gave speeches at which industry event. Use that knowledge now to target the proposal to just the right person.

And, perhaps most importantly, in your cover letter tell why you are sending this business plan to this lender/investor at this point in time. Perhaps it’s because they funded a company that will be a major supplier of yours. Perhaps an associate recommended that firm. Perhaps you heard the principal speak at a convention. The fact that you got his name out of a book doesn’t count. Make the reason real.

Making the Second Cut

Depending on the size and culture of the venture capital firm, the initial reader, a mid level associate or even top partners may make the second cut. Criteria here focus on the specific needs of the venture capital firm, such as:

Emphasize symbiotic relationship with existing portfolio companies. Any company that can demonstrate a strong relationship to a successful existing portfolio company, or provide a means of creating profit in existing portfolio companies, is way ahead of the game. Not only will the venture capital firm be well aware of the industry, but it will welcome the influx of influence on the bottom line of its other companies as well.

Create strong ties where slender threads exist. So an Advisory Board member and the venture capitalist went to the same graduate school. It’s a slender thread of connection. But that graduate school needs to be listed prominently in the bio of that Advisory Board member. (As an aside, contact the department chair or known professors to see if there is a direct introduction available somewhere.) Create a database of all advisory boards, schools, publications, companies and associations that all of your key people, contacts and potential investors have. Cross reference those to everything you can discover about the venture capitalist. There probably are slender threads that can be brought to the forefront.

Demonstrate an in-depth knowledge of the industry and its profit structure. It never ceases to amaze me how many people think they know the retail business without ever having sold so much as a pair of shoes. The same holds true for every industry. Each industry has its quirks and foibles. Each industry has unique profit centers and modes of operation. Each industry has its true leaders and its falsettos, those who talk loud but don’t truly know anything. Nothing can beat actual experience in the industry.

The Final Cut

The top 2-10% of the proposals remain in contention here. About half of the entrepreneurs will be invited to present a dog and pony show. While the early stages of elimination are driven by industry standards, at this level it gets very personal. The selection process here caters to the needs of the specific venture capital firm at that specific point in time, and can change from day to day, or from week to week.

You can do everything absolutely right and be eliminated here. Perhaps the other companies in their portfolio have hit snags that haven’t reached the public yet. Perhaps the venture capital firm is in the midst of over committing to certain industries. Perhaps an IPO that was previously scheduled got pulled back, so the venture capital firm doesn’t have the money it expected to have.

Perhaps there truly is something amiss in your financing proposal that one of the partners picked up on.

The one consolation is that, if you have reached this high, you will likely get a call from someone at the venture capital firm expressing some type of explanation for not proceeding. At the earlier levels of elimination you probably heard nothing at all. Listen carefully to what the venture capitalist has to say, and proceed accordingly. And be encouraged. You ARE in top contention, even if this is not quite the right firm.

Look at your financing proposal again – this time from the perspective a first reader, and then from the perspective of a top partner in a venture capital firm intent on making money. Revise. Target. Send it again.

MaryAnn Shank, a recognized expert in the business plan field, devoted many years to sifting through business plans to find the real gems. She regularly contributes to http://www.businessplanmaster.com with advice to emerging entrepreneurs.

photo credit: oneVillage Initiative

If you are an entrepreneur with a small technology based company looking to take it to the next level, this article should be of particular interest to you. Your natural inclination may be to seek venture capital or private equity to fund your growth. According to Jim Casparie, founder and CEO of the Venture Alliance, the odds of getting Venture funding remain below 3%. Given those odds, the six to nine month process, the heavy, often punishing valuations, the expense of the process, this might not be the best path for you to take. We have created a hybrid M&A model designed to bring the appropriate capital resources to you entrepreneurs. It allows the entrepreneur to bring in smart money and to maintain control. We have taken the experiences of several technology entrepreneurs and combined that with our traditional investment banker Merger and Acquisition approach and crafted a model that both large industry players and the high tech business owners are embracing.

Our experiences in the technology space led us to the conclusion that new product introductions were most efficiently and cost effectively the purview of the smaller, nimble, low overhead companies and not the technology giants. Most of the recent blockbuster products have been the result of an entrepreneurial effort from an early stage company bootstrapping its growth in a very cost conscious lean environment. The big companies, with all their seeming advantages experienced a high failure rate in new product introductions and the losses resulting from this art of capturing the next hot technology were substantial. Don’t get us wrong. There were hundreds of failures from the start-ups as well. However, the failure for the edgy little start-up resulted in losses in the $1 – $5 million range. The same result from an industry giant was often in the $100 million to $250 million range.

For every Google, Ebay, or Salesforce.com, there are literally hundreds of companies that either flame out or never reach a critical mass beyond a loyal early adapter market. It seems like the mentality of these smaller business owners is, using the example of the popular TV show, Deal or No Deal, to hold out for the $1 million briefcase. What about that logical contestant that objectively weighs the facts and the odds and cashes out for $280,000?

As we discussed the dynamics of this market, we were drawn to a merger and acquisition model commonly used by technology bell weather, Cisco Systems, that we felt could also be applied to a broad cross section of companies in the high tech niche. Cisco Systems is a serial acquirer of companies. They do a tremendous amount of R&D and organic product development. They recognize, however, that they cannot possibly capture all the new developments in this rapidly changing field through internal development alone.

Cisco seeks out investments in promising, small, technology companies and this approach has been a key element in their market dominance. They bring what we refer to as smart money to the high tech entrepreneur. They purchase a minority stake in the early stage company with a call option on acquiring the remainder at a later date with an agreed-upon valuation multiple. This structure is a brilliantly elegant method to dramatically enhance the risk reward profile of new product introduction. Here is why:

For the Entrepreneur: (Just substitute in your technology industry giant’s name that is in your category for Cisco below)

1. The involvement of Cisco – resources, market presence, brand, distribution capability is a self fulfilling prophecy to your product’s success.

2. For the same level of dilution that an entrepreneur would get from a VC, angel investor or private equity group, the entrepreneur gets the performance leverage of “smart money.” See #1.

3. The entrepreneur gets to grow his business with Cisco’s support at a far more rapid pace than he could alone. He is more likely to establish the critical mass needed for market leadership within his industry’s brief window of opportunity.

4. He gets an exit strategy with an established valuation metric while the buyer helps him make his exit much more lucrative.

5. As an old Wharton professor used to ask, “What would you rather have, all of a grape or part of a watermelon?” That sums it up pretty well. The involvement of Cisco gives the product a much better probability of growing significantly. The entrepreneur will own a meaningful portion of a far bigger asset.

For the Large Company Investor:

1. Create access to a large funnel of developing technology and products.

2. Creates a very nimble, market sensitive, product development or R&D arm.

3. Minor resource allocation to the autonomous operator during his “skunk works” market proving development stage.

4. Diversify their product development portfolio – because this approach provides for a relatively small investment in a greater number of opportunities fueled by the entrepreneurial spirit, they greatly improve the probability of creating a winner.

5. By investing early and getting an equity position in a small company and favorable valuation metrics on the call option, they pay a fraction of the market price to what they would have to pay if they acquired the company once the product had proven successful.

Let’s use two hypothetical companies to demonstrate this model, Big Green Technologies, and Mobile CRM Systems. Big Green Technologies utilized this model successfully with their investment in Mobile CRM Systems. Big Green Technologies acquired a 25% equity stake in Mobile CRM Systems in 1999 for $4 million. While allowing this entrepreneurial firm to operate autonomously, they backed them with leverage and a modest level of capital resources. Sales exploded and Big Green Technologies exercised their call option on the remaining 75% equity in Mobile CRM Systems in 2004 for $224 million. Sales for Mobile CRM Systems were projected to hit $420 million in 2005.

Given today’s valuation metrics for a company with Mobile CRM Systems’ growth rate and profitability, their market cap is about $1.26 Billion, or 3 times trailing 12 months revenue. Big Green Technologies invested $5 million initially, gave them access to their leverage, and exercised their call option for $224 million. Their effective acquisition price totaling $229 million represents an 82% discount to Mobile CRM Systems’ 2005 market cap.

Big Green Technologies is reaping additional benefits. This acquisition was the catalyst for several additional investments in the mobile computing and content end of the tech industry. These acquisitions have transformed Big Green Technologies from a low growth legacy provider into a Wall Street standout with a growing stable of high margin, high growth brands.

Big Green Technologies’ profits have tripled in four years and the stock price has doubled since 2000, far outpacing the tech industry average. This success has triggered the aggressive introduction of new products and new markets. Not bad for a $5 million bet on a new product in 1999. Wait, let’s not forget about our entrepreneur. His total proceeds of $229 million are a fantastic 5- year result for a little company with 1999 sales of under $20 million.

MidMarket Capital has borrowed this model combining the Cisco hybrid acquisition experience with our investment banking experience to offer this unique Investment Banking service. MMC can either represent the small entrepreneurial firm looking for the “smart money” investment with the appropriate growth partner or the large industry player looking to enhance their new product strategy with this creative approach. This model has successfully served the technology industry through periods of outstanding growth and market value creation. Many of the same dynamics are present today in the high tech industry and these same transaction strutctures can be similarly employed to create value.

Dave Kauppi is a Merger and Acquisition Advisor and President of MidMarket Capital, representing owners in the sale of privately held businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.

photo credit: Marcin Wichary

Where, oh where, has that business grant gone? Everyone talks about them. Few seem able to actually find them.

Some, in fact, claim that business grants are everywhere; some claim they are as rare as a trout tooth. The truth, dear Watson, lies somewhere in between.

“Business grants are there for the asking!”

If you have done so much as a single search for “business grants”, you have most certainly discovered those web sites that proclaim, “They’re here — in my directory. Satisfaction guaranteed, m’am.”

Yeesh. I can hear the carnival hawker in the echo.

And it’s not just one site that makes such claims. No, hundreds of sites that make this claim. One gives your money back if you send in a reject letter from an agency you applied to; another says you are buying “soft goods” that can’t be returned. No matter. It’s all the same pitch.

“Good luck, Buddy. Business grants just aren’t there!”

When I found one site that claimed that business grants are a fantasy, it was actually a relief. Wow, an honest person.

Well, this person may have been honest, but she hasn’t done her homework.

“There are business grants to be had.” (This is my voice)

They are not growing on trees, but they are there. Consider, for instance, these scenarios:

Scenario No. 1 — Local Interest Grants

An experienced pre-school teacher sees a tremendous need to provide pre-school care for children in a low income area so their parents can go to work in a new plant being built nearby. Where can she go to get a grant to start her business?

Answer: The U.S. Dept. of Education is a good bet. The local county or state government might have money available, too. Even the new company being built might chip in with space and supplies. (If the pre-school expands, and becomes very successful, and even lucrative, it can still open more branches, franchise, or expand. In short, it, too, can still be profitable.)

Scenario No. 2 — Scientific Grants

A brilliant scientist wants to team up with a university, use their Ph.D. fellows to do research, and pin down the gene for one particular type of cancer. She has good credentials and high hopes. Where can she get a grant to start her company?

Answer: The U.S. National Science Foundation may indeed have something. (If the company proceeds to make this discovery, it is still able to sell stock, take in investors, or sell the patents. In short, it can still be profitable.)

Scenario No. 3 — Emergency Grants

A second generation Indonesian entrepreneur sees the devastation in her homeland caused by a tsunami. With her business contacts and experience, she knows she can help re-build her country. Where does she go for a grant?

Answer: USAID probably has $20 million or so on hand for just such a project. In fact, as I write this, that is exactly the situation. (This is not a “profit making” venture. However, somewhere in the $20 million grant, she will of course pay herself, and will be able to lay a strong foundation for a future business.)

So, Can I Reach Out And Pick One Off A Tree?

Are these three examples just aberrations? Emphatically, NO — there are thousands and thousands more where these came from. It’s all a matter of knowing where to look.

And it is a matter of being creative. Rarely can a person simply raise her hand, say, “Here I am, ready to take your money!” The bigger the grant, the more creative the approach needs to be, and the more experience the businessperson needs to have. But the money is there, waiting for creative, experienced entrepreneurs to claim it.

MaryAnn Shank, the founder of Business Plan Master has helped thousands of entrepreneurs find just the right financing for their businesses, whether from grants, from the SBA, from angel investors or alternative financing. For decades she has been a recognized expert in business plan development. Her knowledge is there for the taking.

photo credit: rachie lea

All businesses start with “the big idea”. The person with the idea often times does not have all of the start up capital that they need to turn this multi-million dollar idea into a reality. The first place that many business owners start to seek funding is from friends and family. This first level of funding is sometimes known as “FFF,” or Friends, Family, and Fools. Jokes aside, there is absolutely nothing wrong with this as a place to start.

Funding that you receive from friends and family does have its drawbacks. If the business should fold and you cannot payback these people back you risk losing those relationships. Also, this type of funding is usually limited. Where do you go next?

Many people might say that the next step is to go to the bank. This is a wise choice, but banks are typically going to want to see two years worth of financial statements at a minimum. This is often difficult for a start-up company to provide; hence the phrase “start-up”. Also, if the owner or owners have less than perfect personal credit, it will make this even more difficult.

So what does that business owner now do? There is no substitute for building the separate credit of the business. You can see results within three to four months. You can build upon those results to seek larger sources of funding. The business owners that I assist have seen great results using this process. They have gone on to acquire large credit lines, equipment leases, and vehicle financing. While a business owner is building the credit of that business, they often require an infusion of capital between the initial family and friends investment and the bank investment. That is where an angel investor would come in.

An angel investor is a person who invests in start up businesses. They are taking on a very high risk investment; most new businesses fail within two years. As a result, the investor is looking for an ownership percentage in exchange for the money invested. This is not to say that this investor will always have some ownership interest in the business. Approximately 90% of time, once the loan is paid back, the ownership interest is returned to the owner. While temporarily sacrificing a percentage of ownership may not appeal to some, it may be the road to success.

When a business owner decides to seek an investment from angel investor they must prepare a business plan. The plan presents the potential angel investor with something that outlines several different facets of the business with everything from financial projections to management profiles. A business plan is something that any business will need in order to seek substantial funding. An angel investor will invest anywhere from $25,000 to $3,000,000. As you can see, there is a very wide spectrum. There many factor which will influence the investment amount.

I titled this article by asking whether an angel investor is a savior or a sinner. Ultimately they can be both: They are asking for a stake in your business; however they are offering a way for your business to succeed. The most important thing to remember is that an angel investor can be the solution to the problem of intermediate funding allowing for the dream to become a reality.

Hazen Martin
hazen@fasttrackcredit.com

http://www.fasttrackcredit.com

photo credit: Jazz Defo

Many would-be entrepreneurs who are long on vision but short on capital think that “angel” investors are the way to go for start-up capital, and they very well may be. Before approaching them, here are 10.5 things you should know:

* 1) Angel investors generally participate in the early stages of a company’s growth; they will plan an exit strategy to recoup the capital they have invested within 3-5 years. At that point they expect their companies to have enough of a track record to be able to attract capital from sources that can invest a greater amount but are more risk-averse; for example, though a sale of the company. This may be through a public offering of shares (an Initial Public Offering, or IPO). Angel investors will typically sell their shares in your company at that point.
* 2) They want to make money and will cull over many proposals to find companies that they feel will be successful. Even so, they are realistic enough to know that not all of their angel investments will succeed. The success rate is typically around 30-50%. Therefore, they try to balance long shot investments with those that are more likely to succeed.
* 3) Unlike venture capitalists, they are often motivated not only by the prospect of making money but also by the desire to be involved in the operations of their companies as advisors or mentors. Often angel investors are people with management expertise themselves; they may want to nurture the growth of their companies by participating in such management activities as strategic planning or marketing.
* 4) They will want to know a lot of things about you and your proposed venture, foremost among them whether you have put your own money into it: have you, or are you willing to, take out a second mortgage on your house to fund it? Have your friends and family invested in it? In the language of angel investors, this is known as “having skin in the game.” If you can’t answer yes to these questions, they will probably conclude that you don’t have enough confidence that your idea will succeed in the marketplace to put yourself on the line. Why, then, should they have enough confidence to invest in your venture?
* 5) To a certain extent, they will expect you to understand the limits of their knowledge: what they know and don’t know, and to present your proposal accordingly. One of the things they will probably not know is the extent to which your idea is unique and protectable – particularly if it involves intellectual property, as many new companies do today. Speak to these issues without prompting.
* 6) They look for certain personal characteristics. Have you shown that you have integrity? Do you communicate clearly? Listening, which is perhaps better called “hearing,” is both a necessary and rare skill. And express yourself in a lucid fashion; this includes speaking English to them rather than the language or jargon of your field or its technical details.
* 7) Demonstrate both flexibility and agility. You may have the world’s best idea and the world’s best business plan – today. Conditions change rapidly, and you may have to be quite nimble in order to keep up with tomorrow’s market.
* Know that everything is negotiable, and be prepared to negotiate with them and everyone else. The skills noted above are key to win-win negotiation. Aim to create win-win situations.
* 9) In the end, as with most other decisions, gut feel is often the determining factor in angel investors’ decisions. In the end, their decisions are based on emotion, as most decisions are. But they need facts to justify their instincts.
* 10) They tend to run in packs – not herds, but packs. That is, individual angel investors may form groups interested in businesses in the same general area such as technology or biotechnology or in the amount of risk that they are prepared to assume. It is perfectly acceptable for you to ask, if you are turned down by one or a group of investors, if they know anyone else who might be interested. They often know each other and will happily recommend other people for you to contact – provided that they feel good about you and your idea.

10.5 They will not descend from the heavens on gossamer wings carrying bags of money. If by some chance they do, they’re not just simply going to hand those bags over to you.

In short, there is nothing supernatural about angel investors. If your first attempts don’t pan out, persevere; if your strategy is good, change your tactics. Keep on keeping on. Above all, stay out of your own way. The tips above should help you to do that. Eventually you will either find an investor or decide to give up. But don’t give up too fast.

Jeanette T. Wallace, Ph.D.
jeanette@leadership-works.com

http://www.leadership-works.com

314.772.7727

Jeanette Wallace, Ph.D., the president of Leadership Works LLC, is an organizational psychologist based in St. Louis, Missouri. Briefly stated, her firm’s mission is to help people and organizations get out of their own way as they move towards achieving goals. She has both individual and/or corporate coaching practices, all aimed at getting improved results both personally and organizationally.

She takes a process approach in her work and appreciates the strengths that clients can leverage in turning potential into performance and helps clients recognize and use them. She offers processes specifically focused on leadership, strategic planning, customer loyalty and both individual and organizational assessments.

Jeanette is an expert facilitator. She has practiced organization development for 25 years as both an internal and an external consultant to executives and managers of companies in a variety of industries. Clients in transition find her services particularly valuable.

photo credit: Mdrewe

Nowadays entrepreneurial ventures are constantly making headlines and featuring on television shows both in the US and abroad, which is pushing more and more people to make that change and start their own business. Some use their previous experience to provide a refined version of an existing business model that they believe can be improved, while some people lean towards the innovative side with a new idea or concept they’ve come up with.

While their ideas may cover a vast range of areas, there tends to be one thing that they all have in common: the entrepreneur is ready, but all he/she needs is capital (whether it is thousands or hundreds of thousands) in order to get their new idea off the ground. The next obstacle is being discovered in the first place, and this is where the concept of “angel investment” comes into play.

With little or no capital, let alone an established brand name, most entrepreneurs cannot get their company approved for loans, as they have no credit record or financial history. In this case, the most common sources of funding are individual investors, known as “business angels” or “angel investors”. They are high-net-worth individuals, who will invest seed capital in your company in exchange for equity in the company and a percentage of the company’s profit.

It is up to you the entrepreneur to decide whether he/she wants them to act as a silent partner or play an active role in the running of the company. Most will offer the investor an active role, as one of the additional advantages of obtaining funding via angel investors is that they bring their experience and know-how to the partnership as well as their money.

Many of the biggest start-ups in the online world (such as Amazon and Google) started up from angel investment, but even offline companies, such as the Body Shop and Starbucks were all started thanks to the help of angel investors.

Nowadays, thanks to technology, you don’t even have to live in one of the major cities in order to generate interest from potential investors. Communities such as the Midwest Investment Network provide a platform for entrepreneurs to find capital and for investors to find investment opportunities. This particular network operates in the Midwest US states (Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin) but is also part of a national and international network. Most of the communication is done online which gives investors the chance to invest in US or foreign businesses and allows entrepreneurs to raise funding not just in the US but internationally.

Mike Lebus works with entrepreneurs seeking investments, via the Angel Investment Network, which has since expanded into a worldwide network of websites that help angel investors connect to business entrepreneurs around the world.

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It’s not new news any more, but China is on track to become a major economical superpower. Many people see it as an “upcoming” market, and often group it with the BRIC (Brazil, Russia, India, China) theme, but the growth in China is so fast, it actually poses a risk to the economy there.

Foreign companies and investors have jumped onboard in the last few years, even with the risks associated with the red tape that seems a bit more complex in China’s market than elsewhere. Foreign investment in China rose almost 50 percent for the first half of 2008 in comparison to the same period in 2007 (up to $52.4 billion), which was beyond all expectations and projections.

Over 14,000 businesses in China were financed by foreign investors in the first half of 2008, and this includes an increasing number of start-ups and small businesses. Many angel investors and entrepreneurs alike have been looking at making that step into the Chinese market. Factors such as the sheer size of the consumer market in China and the fact that Chinese residents’ disposable income is expected to rise make this a potentially lucrative investment opportunity.

The market in China is still in its early stages, and that is perhaps the most intimidating part. Unlike Hong Kong and Singapore, foreign investment has only been allowed in recent years. Only recently has China allowed foreign investors to form companies owned by foreign capital. These new changes have helped increase business flow within the country, and more tax friendly incentives for start-up businesses have been formed via Special Economic Zones and Development Zones, but there still is a long way to go.

With a strong economic surplus forming, China is not just becoming a place where foreign companies and investors look, but where a new wave of angel investors are emerging. By the end of 2007, more than 5,000 domestic Chinese enterprises had established direct investments in 172 countries and regions around the world. However, statistics show that Hong Kong is still the top foreign investing country in this part of the world. Critics do say that part of this is via Chinese companies looking for a tax break.

Foreign investment has been a factor in the markets of Hong Kong and Singapore for slightly longer. For instance, US companies are the top foreign investors in Singapore, followed by Japan, but Angel Investment is still relatively new in these locations.

Having angel investors in these markets is not a far fetched idea though. Several angel investor groups such as the Angel Investment Network have noticed this and have formed branches in China, Hong Kong and Singapore. The markets are still developing but show a lot of untapped potential and the Angel Investment Network’s portals should help bridge the gap between entrepreneur and investor.

Mike Lebus works with entrepreneurs seeking investments, via the Angel Investment Network websites of Angel Investors China, Hong Kong Investment Network and Singapore Angel Investment.

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Tradable tax credits have historically been part of state and federal programs aimed primary for real estate development, including historic structures rehabilitation, energy, and other activities that stimulate economic growth.

With film projects, Production companies earn a transferable tax credit on the total eligible production costs, and wage expenses. That can translate to 20% – 30 % of the total production cost for a film, in the form of a tax credit issued directly to the production company. It can be used to offset state tax liability, or sold to another taxpayer.

In Illinois, a 20% tax credit based on “Illinois Production Spending” plus an additional 15% tax credit based on Illinois labor expenditures generated by the employment of residents of geographic areas of high poverty or high unemployment is available. New Jersey offers filmmakers a 20% tax credit for productions that film at least 60% in the state, as well as a 30% loan guarantee from the New Jersey Economic Development Authority.

In Connecticut, film makers can earn a tax credit worth 30% of their eligible Connecticut production costs, and in Massachusetts, productions with a minimum expenditure of $250,000 earn 20% and 25% for production expenses and labor expenses, respectively, when at least 50% is shot within the Commonwealth. Note: in MA, pending regulations propose a flat 25% combined tax credit, a minimum spend of $50,000, and removal of per-project cap.

In CT., the 4 new bills are being debated in the legislature, and the expected result in June will be a combination bill. Rhode Island offers a 25% tax credit to productions with a minimum eligible expenditure of $350,000, when 51% of the total budget is spent within the State. For more information about qualifying for each states’ tax credit, contact Tax Credits, LLC.In Pueto Rico, A tax credit is granted to the investors in a Film Project equivalent to 40% of budget items paid to Puerto Rico residents, up to 50% of the cash invested as equity in the project. 50% of the tax credit granted to the investor may be made available to the investor upon investment if a completion bond or a letter of credit is obtained, including the Puerto Rico Secretary of the Treasury as one of the beneficiaries.

Tradable tax credits allow production companies earning credits to sell their credits to companies and/or high net worth investors who have a tax liability within the state, where the credit was earned. The tax credits are sold at a discount for cash, garnering the seller cash to lower their net production expense.

Any company may take advantage of these “Financial Assistance Programs” to reduce their state tax liability. Purchased credits can typically be used for any year in which a tax return has not been filed. In general, credits may be used to offset any, or all, of the following: Individual Income Tax, Corporate Business Tax, Franchise Tax, Premium Tax, and Utility Tax (qualified taxes allowed for offset vary by State).

Large corporations and high net worth investors with a significant state tax liability can benefit from the purchase of film production tax credits, as they are able to purchase a dollar’s worth of tax credit at a discount.

NJ, RI, CT and MA film credits provide the buyer with the right to carry the tax credits forward for at least 3 years, which protects the buyer from investing significant dollars in tax credits that they cannot immediately use. In Illinois, tax credits can be carried forward for 5 years. The tradable, and thus marketable aspect of these state-issued tax credits means that tax credit investors can also retain an equity position in a film or a slate of films.

For example, lets say that a tax credit investor has $3,000,000 in tax credits he needs to purchase. While normally the final tax credit amount is calculated after a film’s production, he decides to benefit from the upside in potential profits and receive his tax credits.

So if a film has a budget of $6,000,000, 50% of the budget is equity ($3,000,000) and 25% is tax credits, an investor/tax credit buyer will receive benefits of $1,500,000 and 50% equity in the total international film profits and revenues.

But what happens to the other $1,500,000 he still needs to receive as tax credits?

Well if his or a company’s film investment was part of a film package, that amount is rolled over to another film that can be shot in a state or province where there may actually be a higher tax credit incentive which would be transferable back to him and any other investors on a pari pasu basis. For multinational firms and investors, this can also be leveraged and cross-collateralized to a multple country and territory transaction where there is a significant tax credit incentives such as Manitoba, Saskatchewan, Spain, Hungary, UK, South Africa, Australia, New Zealand, and others.

Another option would be to leverage the initial tax credit investment with a direct equity co-investment and set up several additional tranches of debt for a larger film fund.

To find out how a tax credit investment can also turn into a film investment that would hedge the risk and revenues across multiple films, please contact yuri@noci.com

Yuri Rutman is a visionary entrepreneur who has seen his lifelong passion to make movies and break into Hollywood slowly manifest itself into a reality. From his childhood days as an immigrant, he believed in the American dream through perseverance, certainty, focus, and overcoming any obstacles. After spending more than ten years cultivating industry relationships, Yuri Rutman raised money online from an Angel Investor in San Francisco whom he never physically met until after “Mr. Id was produced. On the strength of the initial business plan, the Investor wired money to finance the project a few weeks later. He currently has an innovative principal protected film fund and tax credit investment fund for accredited investors, institutions, etc. He is skilled in investor risk minimization, private equity, exit strategies, global film finance, and creative endeavors. Please visit http://www.noci.com