Archive for the 'General Finance' Category
How Hot is Your Deal?
August 5th, 2008
By XVulture
Whether you need $50,000 in seed capital or $5,000,000 in bridge financing, raising the temperature of your deal is mission critical. Every entrepreneur is looking for the source, or the sorcerer that can truly connect them to the right accredited private investors-each of which is looking to put money into deals with the right ingredients.
What’s it take to get on the menu?
Keep reading to find out…
REALITY BITES
Why deals get chewed up & spit out
YOU’VE BEEN LIED TO-by your banker, your broker, your bean-counter-a long line of stuffed shirts who like to hear themselves croak about “getting outside of the box,” only to cram you back into one when it’s time to start raising money for your business.
Don’t get me wrong. These aren’t bad people and they may even be wildly successful, they just don’t get where they are by packaging and positioning early-stage opportunity. Unfortunately for you, all that well-meaning advice can cost you time and money-lots of it.
Alright, so you’re here because you want to raise money. If it’s the truth you seek, you’ve come to the right place. The bad news is, if you’re like most people, you will:
- Be underwhelmed by the message here
- Scan the page for what you think is important
- Miss the real point and move on
If you’re still reading, good for you, because what you just read isn’t merely a profile of how most people surf the Net, IT’S HOW INVESTORS LIKE US SURF OPPORTUNITY.
If you’re in the market for private debt or equity capital and that doesn’t scare you, look down-that line you just crossed may well cost you your business. Sure, you may think you’ve got your act together, that you’re ready to talk to serious money players, but you’re not. I see it day in and day out, and it’s because most entrepreneurs don’t understand one thing: THE VALUE OF TIME.
One of the many benefits a surplus of capital affords investors is the freedom to cherry-pick opportunity and draw a distinction between entrepreneurs and misguided dreamers. This is why we prefer deals we can understand quickly, caluculate the upside and effectively assess the risk.
HALF-BAKED
What are you trying to sell us?
All but the most savvy of entrepreneurs fail to recognize the heart of their own deals and kill their fundraising efforts before they even begin. In order to raise the right kind of money, you need to think like an investor. Remember, you’re competing for mindshare here. It doesn’t matter if you’re a concept stage start-up or a growth company looking to take things to the next level, every successful financing effort begins as a bid for an investor’s time, not his money.
Do your materials clearly, concisely and compellingly articulate the market opportunity and the mechanics of your deal? Probably not. Odds are, it’s a room-clearing testament to the reasons most early-stage deals die slow, painful deaths: Emotional founders, plodding, techno-saturated narratives, muddy corporate structures, baseless valuations, bad investment vehicles…the list goes on and on.
Unfortunately, most of the misguided efforts to slim them down yield nothing more than quarter-scale versions of the original 50-page abominations. BEWARE: Just because it’s short, doesn’t mean it’s sweet. The short-form pitch isn’t a short-cut-it’s an art form.
FEAST OR FAMINE
It’s not just what you serve, it’s how you serve it
If you really want to get an investor’s attention, less can be more-provided you’ve got the right ingredients and know how to mix them up. Find a quick way to whet our appetites with something that’s got the right flavor-not too spicy, not too sweet-and you’ll find us more than willing to sit down at the table with you. Who knows? If you’re the real thing, we may even pick up the check…
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Protected: Kluster F@#k
July 16th, 2008
By XVulture
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Preventing Unnecessary Dilution
July 15th, 2008
By The XBanker
One of the biggest mistakes entrepreneurs make is that they give away too much of their business too soon. I’ve spoken with entrepreneurs that own less than 2% of their brainchild after diluting for “friends, family & fools” and for venture capital. You need to properly stage the financing of your business and to do so under the best circumstances possible to prevent unnecessary dilution.
Let’s say you are raising $250k from investors to start your business, if the business is only worth $500k, the investors will own 50% of it; if the business is worth $1m, they’ll only get 25%. The higher the valuation, the greater the percentage of your business that you’ll retain. It can be challenging to justify your valuation without revenue – which is where promising entrepreneurs routinely get taken to the cleaners. This is why I typically recommend convertible debt to raising hard equity, and why I recommend obtaining debt financing in the early stages of your business.
First of all, most business won’t raise a dime in outside capital. Investment networks are flooded with hopefuls that burn time and money trying to raise money – not recognizing the complete tooling they will receive in the event that someone actually believes their concept has merit and wants to invest. It is a lot easier to attract capital, and to do so on your terms, if you have successfully proven the concept and have some traction.
Unless you’re building airplanes, you can probably get things moving with less than $100k. This is why the XBanker is an important asset in the Shared Success family – we are here to help entrepreneurs establish a strong foundation, nailing the fundamentals and obtaining “seed credit” so they can get things moving. So if you are still slumming on the investment networks and forking over gobs of money for a business plan that no one will read (and if they read it – they sure won’t believe it!) – stop. Let us help you get your first $200k, so you can bring on investors under the right conditions.
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What’s Your Hurdle Rate?
July 9th, 2008
By The XBanker
My mother always taught me that “beggars can’t be choosers” and my father preferred the “don’t be penny-wise, but pound foolish” – either expression is fitting for this topic. In the last week, I’ve had three experiences that made me think about being wise when you need money for your business and understanding the concept of a hurdle rate.
My first experience was a discussion with a consultant to a portfolio of companies in various stages of their business – all with immediate capital needs. We were exploring potential solutions for these people. Most simply needed $50-100k to purchase inventory or to invest in new opportunities – getting the money is critical to their success. Yet, as I started asking questions, I was being shot down with every possible financing option. It was apparent that these business owners were looking for $100k for 2-3 years at less than 5% interest with no colateral and no personal guarantee and they wanted it now, despite their less than stellar credit.
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Fast Cash For Your Business!
June 10th, 2008
By The XBanker
Do you need fast cash for your business? Want a small business loan with no personal guarantee? Are you looking for immediate business financing? Chances are that you answered “yes” to all three of those questions. We all want cash for our business and we want it as soon as possible. Unfortunately, the financing world doesn’t always tell us what we want to hear. If you are properly prepared and have a proven track record (as demonstrated by your revenues and your credit) you can probably get more money – and faster than you think. If you are not prepared … well, you reap what you sow.
Most people don’t start looking for capital for their business until it is too late. “Too late” can mean a lot of things: damaged credit, out-of-line ratios, too short of a time frame, etc. These oversights, plus the procrastinator’s itch for a quick fix, are two of the most common ailments we deal with. I wish every entrepreneur understood this truth: accessing capital is a process.
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What Business Credit Card Is Right For You?
June 9th, 2008
By The XBanker
Gerri, our resident business credit eXpert, was quoted today in the Wall Street Journal in a small business financing article: Pick The Right Credit Card For Your Business. Of course I’m biased, but I think Gerri’s insight was the most important in the entire article:
“Business owners should use credit cards that report to business credit agencies, such as Dun & Bradstreet or Experian’s business bureau, instead of the personal-credit bureaus. Reason being, you don’t want the business’s financial woes or big expenses to ding your personal credit rating.”
Rewards are great (personally, I’m a total points addict); however, the most important part of a business credit card is the ghost guarantee that they provide you as a business owner – which can serve to protect your personal credit from being dragged down by your business activities. I gave my two cents on the subject in a previous post regarding the importance of business credit cards.
Every day we help clients find the right business credit card; preferably one that reports to the bureaus and we help them prepare to qualify. The worst mistake you can make is to aimlessly apply to credit cards when you don’t know in advance that you have a strong chance of being approved.
Thanks for a great contribution on the topic, Gerri.
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7 Reasons to Open a Business Checking Account
May 26th, 2008
By The XBanker
- Suppliers. Some local suppliers require a voided business check before extending lines of credit.
- Relationships. Having opened over a dozen business checking accounts, I have found that the process is easier if I open a second or third account with the same bank. It has been my experience that setting up the first bank account with an institution takes ten times as long as successive accounts with that bank. I recommend that you open at least one account with 3-5 major banks. You never know when these relationships will come in handy.
- History. A few months ago, a conversation with a banker at a national bank included the topic of new guidelines his bank was implementing. I took special note of a two-year active checking account history requirement before a line of credit or loan would be issued to a business. It’s never too soon to open an account.
- Merchant Accounts. If you have a merchant account you will want those funds to be deposited into a business account, not your personal account.
- Forms of Payments. In addition to accepting cash and credit cards as forms of payment from your customers, you may decide to accept checks. If your customers have to write checks to you personally, you will lose credibility very quickly.
- Making Payments. In addition to accepting payments, making payments to your vendors with personal checks also looks unprofessional and diminishes your standing.
- Separation of Funds. One of the fundamental principles of business compliance is separating your personal money from your business money. Following this one principle can help you strengthen your corporate veil. The liability protection offered by a corporation is only valid if that corporation is treated like a true business. The complete separation of your business and personal funds is a crucial early step.
Accounts Receivable Financing
May 13th, 2008
By The XBanker
Accounts Receivable (“AR”) Financing is often confused with Accounts Receivable Factoring. Contrary to what some are professing on the web, these are two very different financing options. If you need a review of Factoring, read my post: How Factoring Can Benefit Your Business.
Accounts Receivable Financing consists of only 2 parties: the business owner and the lender (remember: AR Factoring involves 3). An “accounts receivable” is money that is owed to the business. Most businesses will have multiple accounts that are being paid on at any given time. An invoice is the usual method provided to advise customers of the amount they owe a company. All such AR invoices issued to customers are shown as an asset on the business balance sheet. The more assets you have, the less risky you are in the eyes of lenders: Banks love assets.
Not all assets are created equally though. Some assets depreciate (decrease in value) and some appreciate (increase in value). Some can be converted into cash rather quickly and others take a long time to become liquid. Accounts Receivables are usually viewed as good assets because most translate into cash relatively fast; typically in 90 days or less.
When a bank issues a loan to your company, secured by your AR, they don’t pick a certain number of your invoices and stake their claim on those specific ones. They are interested in the performance of your entire portfolio, the change in volume over the past few months and your collections history. If you can document, using your financial statements, that you have $XX,XXX as AR and your customers typically pay on time, you might be able to secure a bank loan or line of credit for 50% to 80% of “X.”
Again, this is different than factoring because you are still responsible for collecting on the invoices. It’s business as usual for you; now you just have a little working capital to go with it.
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Looters, Moochers and Titans
January 29th, 2008
By XVulture
Ayn Rand’s, Atlas Shrugged, paints an eerily familiar state of affairs, related to man, society, and the sad but true nature of the “collective whole.” Although written more than fifty years ago, her philosophy related to capitalism and the perils of compromising the “free-market” and “free-thinking,” clearly ring true today.
Particularly interesting (to me at least) is her labeling of two distinct parasites of society, Looters and Moochers. As defined in Wikipedia:
“The looters are those who confiscate others’ earnings “at the point of a gun” (figuratively speaking) —often because they are government officials, and thus their demands are backed by the threat of force. Some looters are following the policies of the government, such as the officials who confiscate one state’s seed grain to feed the starving citizens of another state; others are exploiting those policies, such as the railroad regulator who illegally sells the railroad’s supplies on the side. The common factor is that both use force to take property from the people who produced or earned it, and both are ultimately destructive.”
“The moochers are those who demand others’ earnings because they claim to be needy and unable to earn themselves. Even as they beg for their help, however, they curse the people who make that help possible, because they hate the talented for having the talent they don’t possess. Although the moochers seem benign at first glance, they are portrayed as more destructive than the looters-they destroy the productive through guilt and often motivate the “lawful” looting performed by governments.”
Looters, as much I detest the breed, are par for the course – assuming you’re talking about some corrupt government official (which they all are), that at 9am, signs a bill to fleece the high achievers or “Titans,” and at 9pm, signs a check to his prostitute (which will bounce, and be paid for by those he just fleeced). Moochers however, are the Antichrist of free thinkers and Titans, where the very nature of their existence seems evil. Rand holds that “evil is a parasite on the good and can only exist if the good tolerates it.
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