SHARED SECRETS: Finding capital to expand a business is never easy. But here are some ways to think about the problem.
Ft. Worth Star Telegram
By Alex Ramsey – 9/10/2001
I’ve got a T-shirt with this slogan: “Happiness is positive cash flow.” Having more money coming in than going out is good. In business, that’s not always possible. If your business is making a nice profit every month, it’s tempting to expand. But, you’ll have to infuse some additional capital. Where does that money come from? Here are some ideas:
The best financing option depends on what your company is about, your history and experience, how much you need, why and how you plan to repay it. In order of difficulty, the typical choices are: Friends and family, banks, angel investors, venture capitalists, institutional investors, and going public. Family and friends who know and trust you are most likely to offer the best terms and the most empathy.
Banks can be frustrating. Banks are more detached and usually require collateral. The SBA can be a good source of information. Angel investors, well-heeled individuals looking for good deals, can be wonderful resources. Smart angels, like good venture capitalists, can add extra value by introducing you to potential customers and important alliances.
Someone who has been successful may also serve as a mentor. Professional venture capitalists only invest in high-potential deals. They’re tough, bottom-line-oriented and uninterested in small business ideas. Like institutional investors and going public, venture money is out of range for most small businesses.
Your own money may be the answer if you don’t need a lot. You won’t have to pay interest or hassle with others. It may be the only way if your idea is risky or your track record is weak. If your last name isn’t Rockefeller, you can plunder your savings and/or retirement accounts. Sell something. Refinance a loan, or charge it.
Those who loan you money want you to be successful. So expect a natural tension until they get their money back. Communicate well with them and regularly.
A business plan is a road map, but it won’t sell your idea to potential investors. You’ll have to do that the old fashioned way – talk to people.
Educate yourself by spending a few days on the Web or at the local bookstore. Once you’ve picked your best option, create a strategy for reaching your prospects.
Put yourself in the investors’ shoes. Why does your idea have value? Practice your story – out loud and well in advance of any meetings.
Raising money takes a stout nervous system, perseverance, unflinching optimism, and persuasive charm. Good luck, and don’t give up!