September 20, 2008

“Fund Yourself”

Virgin Money. . . so suggests Richard Branson, billionaire entrepreneur behind the Virgin brand of companies including the newest FundingUniverse partner, Virgin Money. No hypocrite, Richard practiced what he preaches in the early days of Virgin Records when he took a loan from his Aunt Joyce to keep the then struggling business alive. Virgin Money helps other entrepreneurs do what Richard did by managing and formalizing loans between individuals—typically people who are already closely affiliated like family members or friends.

This isn’t an uncommon practice. Friends, family and fools (FFF) financing, as it’s typically referred to, constitutes the majority of early-stage investments in the United States according to the most recent Global Entrepreneurship Monitor (GEM) report.

FFF is arguably the most flexible and easiest to qualify for type of financing because the terms are very negotiable and the qualification process is personal. And now, with Virgin Money, someone else can handle the awkwardness of collecting payments and the loan can even be recorded on the borrower’s business credit.

Here’s an itemized list of benefits:

  • A legally-binding promissory note
  • Repayment by electronic funds transfer
  • Email statements for both borrower and lender
  • Online accounts for both
  • Year-end reports for both
  • Private loan specialist to help keep your loan convenient and hassle-free
  • Optional security agreement and UCC filing*
  • Optional credit reporting to Dunn & Bradstreet at no additional charge

Our partnership with Virgin Money means you just need to find someone willing to loan you the money and we can help with the rest. Talk to the “Aunt Joyce”‘s in your social circle then give us a call.

For more information, call 877.638.3616 option 1 or click here.

September 17, 2008

Fundamentals of Fundraising

As I stated in my last post, focusing on fundamentals is what will get you funded.  So what are the fundamentals of equity fundraising?

1.  Bring together a proven management team that is deeply commited.

2.  Create a list of milestones for your company to reach in the next 5 years.

3.  Reach as many milestones as you can with your own money, time and resources.

4.  Draw up short, direct, well researched business documents.

5.  Network, Network, Network.

Well, that’s it.  I know this seems oversimplified and in a way it is, but that’s intentional. I know things never seem to go exactly as planned and you run in to road blocks all along the way; however, if you can keep perspective and follow these fundamentals then you can raise money.  The key is to keep your focus on the fundamantals, instead of allowing the day to day distractions of running your business to interfere with reaching your milestones, building your team, focusing on clear concise documents and building a network.  

September 16, 2008

Pre-Revenue Traction

You’ll hear the term traction a lot in the start up world.  It is increasingly becoming a standard peice of industry vocabulary but most VC’s and angels I talk to or whos’ blogs I read use it in a slightly different way than the business world as a whole does.  Typically in other fields you would hear people talking about “traction in the market.”  That is customers, sales, marketshare.

From my experience, when discussing a startup company, traction usually means something like progress.  How far along is the business?  What has been accomplished?  Sales, customers and marketshare are probably about the best progress most of us can hope for but it is not the only traction that has value.  Is the business something that came to you in a dream last night or do you have a completed, patented, tested product that is already generating buzz in the marketplace?

As a consultant for FundingUniverse most of the entrepreneurs I work with have some understanding of traction but often only on a superficial level.  If I were geekier I would say “they don’t grok it” but I think you need to be fluent in at least 3 programming languages to use that word and not sound like a complete dork.  I’ve seen this misunderstanding of traction exhibits itself in two ways:

  • “I have a great soup recipe and for only $10m you can get 10% of my company.”  This is a real example of an entrepreneur that, not having any sales, decided his valuaiton should be based on the next best thing, his pro forma financials.  Of course this example can be used to demonstrate a large number of things but for our purposes, he didn’t have sales so he just ignored the idea of traction.
  • “The Unit Manager I worked with at Haliburton said he wants to buy 4 for $2m each as soon as they are ready and will probably buy more latter.  He’s really excited about the idea.”  This piece of information didn’t make it to the first 4 investors my client had talked to.  It wasn’t a real sale so it wasn’t traction, right?

I could go on and on with valuable progress that entrepreneurs don’t think to mention but I hope you get the point.

Entrepreneurs should know that pre revenue traction can be valuable and while you will always do better with investors having actual sales, if it is significant it should be touted.  FundingUniverse rates business plans for our investors on a scale of 0 to 4 stars.  One star is for traction.  It is one of the largest determinates of the value of your company.  When soliciting funds from equity investors the more traction you have the better.  It will help determine how likely you are to get funded, how long it will take and your valuation.  so it is critical for entrepreneurs to have a clear understanding of what actual progress, traction, their idea has.