Tag: Billion Dollar Ideas

Continuation from yesterday……(How To Raise Money From Angel Investors)

And what does being ready mean?

First, you should already have something built.  While having a finished product is your best bet, a prototype or a beta type of a situation might work as well. Keep the following in mind. Very few angel investors or venture capitalists will invest in an idea.  In fact, I have never seen it happen personally, although I have heard about it.

Second, have a detailed business plan written out. It is a must have to show potential investors. You must illustrate in a very clear fashion that you know what you are talking about, what the market forces are, financial, etc…. Simply put, without a detailed business plan most angle investors will not be capable of properly evaluating the legitimacy of your investment opportunity.

Again, the threshold here is very easy and straight forward. If you cannot put a legitimate business plan together, how are you supposed to run a business?  Chances are, you cannot.  Therefore, if you can’t put it together, you have no business approaching either angel investors or venture capitalists.  Do not waste their time as it is almost a certainty that you will not get anywhere.

Venture Capital

Everything that was mentioned above in regards to angel investors applies towards venture capitalists, but on a bigger scale. That means more expansive capital, higher threshold requirements and for the most part a bigger capital investment.

The keyword for venture capitalists is TRACTION.

If you are starting out with just an idea, at times it wouldn’t even be appropriate to approach venture capitalists.  You are not ready and they are not interested.  In fact, think of venture capital as growth capital. For the most part, venture capitalists are interested in growth concepts that are already getting customer traction.

Still, if you do decide to approach venture capitalists the best way to do so is through your network or their existing portfolio companies.  An introduction is always the best possible way, but it is not an option for many.  Try to avoid a shotgun approach here. Meaning, you would be much better served researching any given venture capitalist for some time and coming up with a unique proposition as to why they should listen to you.  This will guarantee a much better success rate as you unlikely to hear back from anyone if you attempt to contact them in mass. Weather it is through email, mail or in any other fashion.  Finally, finding venture capitalists should be relatively easy as multiple lists are available online.

Personally, I have mixed feelings about venture capitalists. They are wonderful and very smart people. Yet, they are under constant pressure from their own investors to hit that next home run or to earn a significant positive return.  As such, their interests are not necessarily aligned with yours.  It is their job to make as much money as possible and they will do whatever is necessary to get that done.  Sometimes that includes destroying companies they have invested in or replacing top management, including you.  Be aware of it, but don’t blame them. That’s just how the game is played at that level.

To Be Continued Tomorrow…….(Why Am I Seeing This On A Financial Website?)

Venture Capital Google

Continuation from yesterday…..(What About Crowd Funding)

Angel Investors:

If you are unable to raise capital from previous formats, angel investors should become your best friends.  Yet, it comes with a disadvantage.  As we move down this capital raising list, the complexity levels and costs associated with raising capital increase substantially. For instance, while in the majority of cases you would be able to have a brief conversation with your friends and family in order to raise capital (at reasonable costs), such an approach would not work with angel investors or venture capitalists.

Before we get any further, let’s define who angel investors are, how to find them and what they are looking for.

Who Are Angel Investors?

They are defined as affluent individuals who provide capital for business start ups, usually in exchange for convertible debt or ownership equity. They can be anyone, but in the majority of cases they are high net worth individuals who have $1 Million or more in liquid investable assets. Some of these individuals advertise themselves as Angel Investors while others do not.  Technically speaking, if you have a rich uncle with over $1 million in investable assets, he could be classified as an angel investor.

Where Do You Find Them?

There are four primary ways.

• Look for angel investor groups in your city. Angel investor groups or organizations should be popular hangouts for angel investors in your city. They tend to pull their resources together in order to look for startup companies that match their requirements. They often have meetings and set up presentations/pitches for entrepreneurs and startups alike. And while some of them make capital allocation decisions based on group vote, others do so on the individual basis.  Either way, there should be at least a few organizations in your city and you are highly encouraged you to look them up. Simply Google “angle investors in your city” to get started.
• Search Online: There are a number of websites out there that cater to bringing angel investors and entrepreneurs together.  com and angel.co  are good places to start, but there are many others.  These sites do their best to connect companies to capital, but it is not as easy as it sounds.  A substantial amount of work on your part is still required.
• Get A High Net Worth Individual List: There are many such lists out there, but I highly recommend going to Infousa.com and using their filters to get the best possible data.  Do a search for people in your area with a net worth of over $1 Million and then contact them on individual basis to see if they would be interested in investing in your venture. Make sure you are following all of the rules and regulations associated with contacting potential investors.
• Ask Around: Ask people within your circle of influence if someone A. Participates in angel investing directly and/or B. Knows someone who does. Ask for an introduction or a connection.

What Are Angel Investors Looking For?

While this might not be the case for all angel investors, many of them are interested in two things.  First, they would like to generate massive ROI while participating in exciting start ups.  Yet, for many it is much more than that.  Many angel investors are also interested in participating and mentoring entrepreneurs. Trying to re-live their glory days through the companies they are investing in. Whatever the case might be, most angel investors approach this in a very serious fashion. Meaning, do not approach angle investors unless and until you are ready.

To Be Continued Tomorrow…...(Why Am I Seeing This On A Financial Website?)

How To Raise Money From Angel Investors Google

Continuation from Friday…..(How To Borrow Money)

• SBA Loans: Too many requirements and an application process that might take a while to complete.  An unfortunate development since you need to start your business NOW and not 2 years from now.  However, it is a good option for many brick and mortar businesses and it is recommended that you look into this if no other options are available at the time.

• Bank Loans: Forget it if you have a startup.  Banks typically require a 3 year operating track record and audited financial statements before they would even consider lending you penny. It is an option for more established businesses seeking growth capital and not for entrepreneurs like you.

• Revenue Financing: Finally, if your business is already generating revenue, yet it is doing so on Net 30-60-90 or more payment terms it might make sense to finance your operations and cash flow through accounts receivable financing. Also known as factoring.  In essence, financial institutions fund your accounts receivables in exchange for interest. And while the rates are not very competitive, it is an option if everything else fails.

Crowd Funding

As described earlier in “Build a Crowdfunding Campaign”, crowd funding is the most recent phenomena that has proven to be a highly successful avenue for various entrepreneurs to raise money.

If you have skipped the earlier section, it works in the following fashion. Let’s assume that you have a great idea for a business, product or even a movie. What you would do is post the details of your project on sites like Kickstarter.com or Indiegogo.com in order to ask people for contributions or donations towards your cause. If people do like what you are trying to do they might contribute somewhere between $5 and $1,000. And if you get enough people to do that, you are talking about real money.

For instance, let’s for a second imagine that 10,000 people contributed an average of $25 towards your business idea. Well, that’s $250,000 you didn’t have before that can now go towards your business. And for most, that should be more than enough to get going.  At the same time, the donations are not really free. Most projects offer either a completed product or some sort of a thing or a perk in return for the monetary contribution.  And while it’s becoming increasingly difficult to post projects due to their oversupply, it is definitely an avenue worth pursuing.

Equity Crowd Funding:  Based on the Jobs Act of 2012.

Only a brief mention here as this particular point will be discussed in greater detail in the Angel Investor section below.  Plus, the water is still a little bit murky on this one as most of the laws governing this type of an equity investment are still being written by the SEC.  In simple terms, this law allows entrepreneurs to market and directly raise capital from High Net Worth individuals. As opposed to the environment prior this law, where entrepreneurs could NOT directly market or solicit investment into their enterprises.

To Be Continued Tomorrow……(Why Am I Seeing This On A Financial Website?)

Google

Continuation from yesterday……..Why You Should Never Ask Your Friends And Family For Money)

Borrowing Money:

There are some important pluses as well some noteworthy minuses associated with borrowing money. First, if your enterprise is a huge success the cost of borrowing money becomes somewhat negligible. The best part is; your equity stake or the only part of the whole thing that will make you truly rich remains intact. As such, borrowing becomes your best bet outside of raising money from friends and family or self financing.  The downside is; if your business fails you would have to pay everything back with interest.  Nevertheless, you have a number of options here.

• Borrowing From Friends & Family: This is still your best option. Instead of equity financing discussed in the previous section, borrow money from friends and family based on a fixed interest rate and a predetermined payment schedule.  Don’t forget to negotiate with your friends and family in order to get the best interest rate that you can. Sign a contract clearly outlining the loan and terms associated with it. That way there are no questions or fraudulent claims later on.

• Home Equity: If you own a home, this is your next best option to get easy, fast and competitively priced financing. And even though getting a home equity loan is a lot harder now than it was just a few years ago, it is still possible. If you have a good amount of equity in your home, it would be advantageous to take out this loan at today’s low interest rates (2014). Of course, discuss the matter with your significant other prior to taking this step. A fixed rate and a known repayment schedule are a big plus here.

• Collateral Loans: Just as you can get a home equity loan against your home, you can oftentimes get loans against land, insurance policies, stocks, bonds and numerous other assets. Essentially, such assets act as collateral against the possibility of your default. If you have such assets and would like to use them in order to get a loan, approach your primary bank to initiate a conversation. If they won’t be able to underwrite such a loan, ask your bank to point you to the right people or to a bank that can. In most cases they will.

• Credit Cards: Oftentimes, credit card financing is the most talked about option for young inspiring entrepreneurs.  Yet, the option has a number of drawbacks. If you have no other way to finance your business and this money would really help you get going, go for it. At the same time, please understand. The interest rates on credit cards are so high that most of the time it would be very difficult to payback. Especially if your business fails. Meaning, if you are to exercise this option, the probability is fairly high that you will end up defaulting on your credit card loans.  Ruining your credit in the process.

And even though we constantly hear major success stories of an entrepreneur hitting it big after juggling 10 maxed out credit cards, such stories are an exception and not the rule.  In fact, if we are to consider new enterprise 2-3 year failure rate of 70-90% it would be safe to assume that the rest of the Entrepreneurs are not as lucky.  As such, only go with this option if you…..

1. Truly believe in your idea and believe it will make you rich.
2. Have no other option and
3. You are Okay with defaulting and ruining your credit for at least 7 years.

To Be Continued On Monday…...(Why Am I Seeing This On A Financial Website?)

How To Borrow Money Google

Continuation from yesterday…..(How To Raise Money From Your Friends & Family)

In the industry, family money is oftentimes called “Dumb Money”.  It is dumb because the people who are making any said investment decisions are making them based on various emotional factors as opposed to an in depth analysis of your business idea and/or your business deal.

And in most of the cases the conversation goes something like this.  “Hi…. Mom, Dad, Uncle Bob or my best mate Jimmy, I have this wonderful business idea that will make me filthy rich, but I need money to make it happen. Can you give me $10,000 for 5% of my brand new company? When it succeeds over the next 6 months I will be worth billions and you will be worth millions. How about it?” Believe it or not, but in most cases this type of a conversation is good enough to start your capital raising process.

What’s more, everyone has a different type of a relationship with their friends and family. Whatever that situation is for you, these folks are still the easiest group to raise money from.  Remember, they trust you and they trust your judgment.  In fact, chances are, most of them would like to see you succeed.  If they like your idea and have extra money the probability of you getting that money is fairly high.

Now, and this is very important.

Just because it will be easy for you to raise money from this group doesn’t mean that you should nor does it mean that you should take advantage of their trust.  It is highly recommended that you approach your family and friends in a professional businesslike manner.  Just as you would any other investor. That means your “ASK” and the rest of the documentation should be ready to go. Finally, you must keep the following points in mind when trying to raise money from your friends and family.

1. You are likely to lose this money. The failure rate at this stage of the game is very high. If losing your friends or relatives money will have a severely negative impact on your relationship with them, it is better that you reconsider. Better yet, decide what is more valuable. Your relationships with them or the money. If it is your relationships, DO NOT ask them for money.

2. Only raise money if you are 100% confident in your business idea or product. If you are not entirely confident, keep working on it until you are. Never raise money from this group if you are going on a hunch. It is almost certain that you will regret it later on.

3. Only ask those who can afford to lose it. Do not ask your 95 year old aunt Judy for a $5,000 investment into your HotGirWithSmellyArpits.com business idea if she relies on her social security for income and sometimes has to choose between her medication and a good meal. For god’s sake, have some consciousness.

4. Anticipate paying back the money. Before you ask your friends or relatives for money, clearly understand that you will have to pay this money back one way or another. Even if you lose it. It is the only way you will be able to keep your relationship with them intact. That might mean working double shifts until all of your loan or investment accounts are settled (if your business fails).

5. Approach you capital raising process in a legally correct format. Whether you are structuring an equity infusion or debt financing by your relatives, have all legal document properly structured and signed.  Yet, do not go crazy here. A one or a two page simple contract will do at this stage. Plus, you do not need an attorney to get this done as there are a lot of resources online.

This process can be easily done though sites like LegalZoom.com or by writing your own contract.  Remember, it doesn’t have to be complicated. Just an outline and what they should expect out of the deal.  Should anything go wrong, it will protect both them and you from any unintentional developments.

That about covers raising money from your friends and family.  The next best option you have is borrowing that money from various sources.

To Be Continued Tomorrow…..(Why Am I Seeing This On  A Financial Website?)

Why You Should Never Ask Your Friends And Family For Money Google

Continuation from yesterday…..(Beggar Thy Neighbor)

Beggar Thy Neighbor:

Ask your friends and family for help.  Outline what you are trying to do and how you will compensate them once your business is up and running.  In essence, you are opening up credit lines or “favor lines” with the people who can help your business get going.

For example, do you have a relative who rents office space for his or her own business? Great, ask them for a free desk space or a cubicle.

Do you need a small size production run or products to sell? See if you can talk your local supplier or manufacturer into doing it on a 30-60-90 day credit terms in return for payment, interest and future business.

Do you have a friend who is an attorney? Super, ask him or her to help you incorporate or for free legal advice in return for future business and referrals.

You get the idea. Think about. There is no risk for either the manufacturer to manufacture (the order is too small) or for your relative to allocate one cubicle of space for your use. In fact, you would be surprised what some people would be willing to do once you explain your situation honestly.  And that would save you a ton of money and time in the process.  Something that money cannot buy when you are trying to get your business off the ground.

Revenue Financing:  If you have gotten thus far your product validation tests were a success. That means you were able to sell your products or services and generate some sort of revenue. The next best option you have, particularly if you are moving forward with the option of self financing, is reinvesting all of your revenues right back into the business.

Outside of the obvious benefits above, there a few more. Particularly, if you plan ahead and reinvest your revenue/income at the appropriate rate you can achieve maximum growth velocity for your new business venture while getting rid of your tax bill. In short, attempt to get to some sort of a revenue for your business as soon as possible, then use it to grow your business at a fast pace.

While these are your best options for self financing, it is quite likely that not many people will have the access to their own capital or a network of people that can help them.  If such is the case, your next best option is to ask your friends and family.

Friends & Family:

If you do not have access to your own capital the next logical option is to ask your friends and family. If you do everything right, it shouldn’t take you more than 1 week to cover this phase of the capital raising process.

In the industry, family money is oftentimes called “Dumb Money”.  It is dumb because the people who are making the investment or lending decisions are making them based on various emotional factors as opposed to an in depth analysis of your business idea and/or your business deal.

And in most of the cases the conversation goes something like this.  “Hi…. Mom, Dad, Uncle Bob or my best mate Jimmy, I have this wonderful business idea that will make me filthy rich, but I need money to make it happen. Can you give me $10,000 for 5% of my brand new company and when it succeeds over the next 6 months I will be worth billions and you will be worth millions. How about it?”

To Be Continued Tomorrow…….(Why Am I Seeing This On  A Financial Website?)

How To Raise Money From Your Friends & Family  Google

Continuation from yesterday…...(Why Russian Billionaires Beg On The Streets Of Moscow)

Finally and before we look at all of the above, it goes without saying that you need to be at the top of your game when it comes to raising capital. That means that your pitch and your documentation should be polished to perfection before approaching a single investor. Well, assuming that you would like to be successful in your capital raising attempt.  For instance, as an investor I require as much information as possible to make an informed decision about an underlying deal. I am interested in seeing if the overall business makes sense, what kind of a traction is there, the numbers, if the business fits my investment profile/style, etc….  If someone cannot offer me at least that much information, they don’t deserve my time nor my money.

In other words, if you cannot put a pitch together highlighting your business idea while asking for capital, how can you run a company?  You cannot.  As such, if you are to remember anything out of this capital raising section, remember this. If you are to approach your capital raising process in an unprofessional or unprepared matter, you are about as good as dead in the water.  I guarantee you one thing, your efforts will fail and you will not be able to raise any money.  As a result, you should spend a considerable amount of time on getting your “ASK” ready before approaching a single potential investor.

Now and without further delay, let’s jump in and explore some of the ways of raising capital for your new venture.

Self Financing:

This is by far one of my favorite options. And it should be yours as well for the following reasons…

1. You don’t have to beg anyone for money. This is self explanatory. If you put your own money in, you avoid the pain, suffering and embarrassment associated with asking people for money.
2. Most importantly, you retain the most valuable thing you have going for you. The only thing that will make you obscenely rich if you are to succeed. EQUITY. The formula is very simple. The longer you can stay away from raising outside capital the richer you will be.
3. You retain full control of the decision making process and the direction of your enterprise.
4. It shows future investors that you have skin in the game.
5. It makes you work harder and smarter.

Overall, this is the best option you have available and I highly recommend it if you have access to your own capital or savings. Not to mention, it will allow you to get going much faster as a typical money raising process can take quite a while to materialize. Three to six months, sometimes even longer. So, if you do have a great idea, an infusion of your own capital might be all you need to get things moving in the right direction.

There are also two subsets to Self Financing that you should be aware of.  Do not discount them. They can be extremely powerful tools in helping you get your business off the ground.  And while there are many names, I tend to call them “Beggar Thy Neighbor” and “Revenue Financing”.

To Be Continued Tomorrow…...(Why Am I Seeing This On A Financial Website?)

Beggar Thy Neighbor Google

Continuation from Friday…..(How To Beg People For Money)

At the same, time understand something very important.  Raising capital is not only hard for you. It is a hard and a humiliating process for 99% of people seeking capital. Here is what you have to do. Accept the fact that, “Yes, I am a beggar now, but this begging will lead to the promise land of wealth and freedom”.  If you can accept this and say “The hell with it” you are already 50% further down the road than most of your competitors.  And if you are still having a difficult time with the process, please try the following approaches.  When applied properly, they should work wonders.

Imagine for a second that you are a scientist. Approach the process of raising capital as a scientific experiment as opposed to a part of your daily business routine. All you are trying to do is determine how many people will say YES and how many people will say NO.  When you do this, you become completely independent of the outcome.  That protects your fragile ego and allows you to become an unstoppable fund raising machine.  Basically, you no longer really care about the outcome of any one conversation or capital raising attempt. It becomes a numbers game, which is exactly the way that it should be viewed.

Another way to avoid all of the negative connotations associated with the process is to create a game around it. For instance, there is a service in Russia that offers Russian Billionaires unique experiences. One of such experiences is dressing up Russian Millionaires and Billionaires as homeless people and taking them to the streets of Moscow so that they can beg people for money.  And apparently, it is a popular package. You can approach your capital raising efforts in a similar fashion. You can easily do so by assuming that you are already wealthy, do not need the money and simply doing it as a part of a game.

Now, back to raising capital. There are also a few illegitimate ways of getting it and it is the purpose of this book to caution you against it. They include stealing money, winning money and/or marrying into money.  The outcomes associated with each one are fairly simple. Steal the money in question and you will end up looking over your shoulder for the rest of your life.  In the best case scenario it will come back to bite you. In the worst case? You will probably get whacked Sopranos style just as you business begins to legitimately take off. Maybe you are, but I am not smart or lucky enough to win any money. Finally, marrying into money is never free. One way or another you will end up paying for it.

Plus, there are a few other ways that we cannot control. They include inheriting money, receiving it as a gift or having a trust fund.  If that happens to you, you are one lucky SOB. Count your lucky stars and give a lot thanks to the people who have set you up.  Of course and this goes without saying, but I hope you didn’t have to kill anyone in order to get your inheritance.

When it comes to legitimately getting money for your new business venture, there are only a few ways. They include…..

• Self Financing
• Borrowing It
• Friends & Family
• Crowd Funding
• Angel Investors
• Venture Capitalist

To Be Continued Tomorrow….(Why Am I Seeing This On A Financial Website?)

Why Russian Billionaires Beg On The Streets Of Moscow  Google

Continuation from yesterday…..When It’s Time To Dump Your Business Idea

Back in 2003 I was at the most nerve wrecking meeting of my career up to that point. I was sitting across the table from a Billionaire. This guy was a founder of a fast food empire that he sold for a large amount of money in the late 1990s. By my estimate he was worth somewhere in the neighborhood of $1-2 Billion.

I was nervous. I have never met or talked to a Billionaire before.  After all, this guy can put my investment business on the map by writing me a $10 Million check today. For him that was nothing….. or so I thought.  After having a nice lunch at Rancho Sana Fe Inn he told me, in no uncertain terms, that I must have at least a 10 year track record before he would even consider investing with me (at that time I only had 1.5 years).

My response was simple, “Listen, just let me prove myself to you.  Let’s start with $10,000 so I can show you that I am for real and if you like what you see after that you can increase your investment to whatever it is that you want”.  I was desperate to get any kind of money into my fund.  He looked at me and said “No way, give me a call after 10 years, but not before that”.  For whatever reason he didn’t like me. Maybe it was due to the fact that I looked like a 15 year old high school dropout in a cheap suit, asking him to write me a $10 Million check.

When it comes to raising money, there are two general truths. First, if you are not well connected into the right network or come from a wealthy family/neighborhood, raising money is incredibly difficult. Essentially, it is equivalent to being a beggar and standing on the street corner asking people for money.  And you shouldn’t have any illusions to the contrary. It is degrading and no matter how you twist it, no one likes to do it. Mostly because of the constant rejection and humiliation one has to face.

Personally, I hate asking people for money.  Even if it is an investment into a business or the stock market that could generate significant returns for such investors.  Yet, if you want to be successful in business and build a large fortune, you have to start somewhere. You can’t start at ZERO and expect to make millions in a few years. While it works sometimes and under certain circumstances, it is an exception to the rule as opposed to being the norm.

Second, the proverbial truth that it takes money to make money is absolutely correct.  While it is possible to start a successful business on a shoe string budget, the amount of time it will take you to grow it into a substantial business will be significant. Assuming a 20% annual business growth rate (which is exceptional) it would take you 13 years to grow your business from a $100,000 a year business to a $1 Million a year business. Yet, it would take you the same amount of time to grow a $1 Million a year business to a $10 Million a year business.

The question is, which business would you rather run? While a personal choice, my advice is always simple.  Grow your business as fast as you possibly can without jeopardizing your financial stability and/or overextending/over expanding. As the number one cause of business failure is financial mismanagement. In other words, if you are going to do it full time, go BIG or go home. It is always easier and more profitable to sell a $10 Million business than it is to sell a $1 Million business.

As a result, you have to beg, earn or steal that start up or growth capital.  Just accept the fact that it will be a difficult and a degrading thing to do, then move on with the task.

To Be Continued On Monday……..(Why Am I Seeing This On A Financial Website?)

How To Beg People For Money Google