As a startup, it’s a challenge to manage cash — don’t worry, we know.  But one of the things that we’ve learned (through both personal experience and with helping other entrepreneurs) is that there of creative ways to bootstrap/finance your company.  Let me provide a few examples:

1. Leasing computers.  Instead of going to the nearest electronic store and purchasing a new computer, go to one of the large manufactures (Dell, HP, etc.) and see if you can obtain a credit line to finance the computers you need.  We’ve seen that most companies can usually obtain a $25k line of credit pretty quickly.
2. Credit Cards:  If you do your homework, there are quite a few credit cards out there that will allow a company obtain more than the standard $3-$5k limit.
3. Other credit lines:  one of the examples that I like to use is Google.  For those of you that use Google adwords, do what you can to get a hold of an account manager to help you obtain a credit line on your ads.  Instead of maxing out your credit cards every other day paying for your ads, they will often provide a credit line that helps you to manage your cash flow.

Those are just a few quick examples.  Remember, cash is king.  Do all that you can to keep cash in your hands and allow others to finance your business for you!

I spent some time watching/listening to a panel of Silicon Valley Angel investors moderated by Guy Kawasaki.  The panel featured three rock-star bay area angels including:

1.  Andy Bechtolsheim:  Co-Founder and Chief Architect and Sr. VP, Network Systems, Sun Microsystems — Google’s first angel investor
2. Ron Conway:  Independent Angel Investor, former Founder & Managing Partner of Angel Investors LP — probably one of the most active angels I’ve heard of (he has invested in over 120 companies over the past couple years)
3. Dr. Ian Sobieski:  Managing Director, Band of Angels Fund

Here are a few highlights and tips from the video:

• Ron and Andy told the “Google Story” — how & when they first invested in Google.
• Non-intended “plug” for our Speedpitching events from each of the investors:  “within 5 minutes, I can know if I’m interested.”
• Why is an angel preferred to a VC?
• What is the primary motivation of angel investors?  Obviously each angel wants to make money, but beyond that, the angel likes to interact and work with entrepreneurs.  Entrepreneurs are the future.  They also want to be able to give back and be a part of something where they can lend help and expertise.
• Guy does a good job moderating and getting to the meat of the conversation:  how do you find deals?  What should the entrepreneur’s pitch look like?  (Keep it short:  1-4 page executive summary, no more than 20 page PPT, etc.)
• “Planning is essential.  Plans are useless.”  The process of writing a business plan is important for the internal success of the company… but the document that you submit to investors should be a very shortened version focused on management, market/financial opportunity, sustainable competitive advantages, and traction.

Highly recommended.  If you are an entrepreneur trying to raise investment capital, check it out!

I just got off the phone with another one of the entrepreneurs that has successfully raised investment capital through FundingUniverse and, let me tell you, there is nothing better!  It’s so much fun to hear their unique story and hear about their learning experience.

With this company in particular, they participated in one of our SpeedPitching events last summer.  They met a significant group of investors that were interested in their plan, and were even invited to pitch in front of one of the angel groups.  After their pitch (to the angel group), they realized that they were not ready to move forward with an investor and went back to their preparations.  After about 6 months of working on their company, financial projections, and business plan… they are now back on the “fundraising trail.”  They have already raised a significant chunk of their total amount and will be pitching again in front of the same angel group within a month (to finish the round).

Anyway… if you want to make my day, give me a call at FundingUniverse headquarters to tell me your success story!

I was at an event a few weeks ago and one of the entrepreneurs in attendance came bragging, “My business plan is nearly perfect; I have nearly 100 pages on my business plan.”

100 pages in a business plan!?

Wow.  Unless you have created the most technical advancement in aerospace of life sciences, I’m going to tell you to throw that 100 page document in the trash!  Let’s be honest, no investor is going to read a 100 page business plan.  In fact, they probably won’t read it if it is over 10 pages.

If you are going through the rigorous process of creating a business plan, here are a few suggestions (that have been validated by many investors):

1. Keep it short.  Investors see hundreds of business plans and, no matter how great your plan is, they will not spend an hour trying to figure out what you do.  While there are exceptions to this rule, I’d recommend a 3-8 page business plan/executive summary.
2. Don’t spend too much time on the product.  Remember that you are selling your company, not your product.
3. Thing big.  Investors are looking for the next Google.  While $1-2M in revenue might be a large company to you, it’s probably not something that most investors are going to get excited about.
4. Think from an investor’s perspective.  Do the economics make sense?  Make sure to evaluate the risk vs. reward balance.
5. Don’t get too fancy.  Make sure that it is clean and presentable, but don’t try and make it too trendy.
6. Use images and graphs — especially to explain difficult concepts.  They are usually easier to read and understand, which can only help.

We had a fantastic webinar this morning on “Angel Investments and Term Sheets.”  During the presentation, the attorney (Karl Israelsen from Stoel Rives) talked about “traditional” deals and terms that are coming across his desk.  Part of the discussion was about terms that could possibly be included in a debt or convertible debt deal.

One thing that the attorney cautioned entrepreneurs on was taking terms with a personal guarantee.  By definition, the term investor means that you will be taking up some risk.  When an investor includes personal guarantees with other traditional terms (security agreement on company assets, convertible option, higher interest rate, etc.), that investor is then acting more like a bank or a financial institution and not an investor.

This topic usually stirs up quite the discussion — especially with those “investors” that like to include personal guarantees.  What do you think about the subject?  Should investors feel ok about attaching personal guarantees on the deal to reduce their risk?

Introducing the Entrepreneur’s Roadmap!

What is the Entrepreneur Roadmap?

• A step-by-step guide that will walk you through the entire fundraising process
• It includes articles, webinars, and podcasts to teach you the secrets funding and building your business
• 13 lessons that you can complete at your own pace

Where do I find the Entrepreneur Roadmap?

We’ve got a new look! Login to your FundingUniverse account and you’ll be excited to see some of the improvements that we have made — including the new Entrepreneur Roadmap tab.

How will the Entrepreneur Roadmap help me?

Most people don’t learn anything about fundraising through high school or college. Unfortunately, it’s just not a part of the curriculum. While the classes aren’t taught at other universities, we know that it is one of the most important aspects of building your business. Here are just a few ways that it will help you in your quest to build a successful business:

• It will save you time and money
• It will save you potential embarrassment in front of an investor or lender
• It will help you focus your efforts on a specific type of capital
• It will teach you how to write a business plan
• It will help you create a financial plan to project future financial performance
• It may help you decide to not raise money and bootstrap instead

As entrepreneurs we are often asked why we are doing things by family, friends, and associates.  Many of them question our sanity.  For me, independence and knowing that what I am working on will directly affect my company gives me all the motivation I need.  However, everyone is different, and everyone has their own reasons for what they do.  As entrepreneurs, what drives you in your business, and what inspirations are behind your work?  Is it money, respect, family?  Who or what has inspired you while you have been working in your various endeavours?

I think asking ourselves these questions occasionally is helpful in making sure we are doing things for the right reasons.  An entrepreneur can quickly become obsessed with making money and forget the real reasons he started the company in the first place.  There are exceptions, but usually the most successful entrepreneurs stay grounded and focused on their goals they originally had for their ideas.  How have you kept your vision and company focused on your vision as you have grown?

I had an early Monday morning meeting today with a member of the FundingUniverse advisory board that stirred up a few thoughts regarding the the type of entrepreneurs that we are attracting as customers.  As I have mentioned several times, FundingUniverse was initially founded with the goal to connect entrepreneurs to angel investors.  While we haven’t lost site of that goal, we have expanded our services to help entrepreneurs connect to other funding sources (including credit cards, lenders, banks, VCs, venture debt, and more).

One of the main reasons that we have done this is because we want to help more entrepreneurs get the funding that they need to grow their business and become successful.  There is a lot of research out there about the entrepreneur/angel market that suggest that only a very small percentage of entrepreneurs are successful raising angel money.  Here are some stats that I have picked up that I find very interesting:

• There are nearly 5.6 million new startups each year in the U.S.
• At any given time, nearly 1/3 of those businesses will be trying to raise money (~1,856,000)
• Here’s the key stat:  it’s believed that  only 50,000 receive angel money (approx. 2.7%)

If those statistics are accurate (or even close to accurate), that means that only 3 out of every 100 entrepreneurs will successfully raise angel money.  Can you believe that?  So… now you can see why we have expanded our network of investors to include lenders, banks, VCs, etc! 

Now… getting back to the title of this entry.  If your business is a lifestyle business (won’t scale to be a very large business — think $30-$100M in revenue annually — with the opportunity for an exit), then you automatically take yourself out of the running to be 1 of the 3 that gets angel funding.

Is that a bad thing?  Not necessarily… it can be a fantastic lifestyle (and you do have other options).  I’m just trying to accurately set expectations.  If you are a lifestyle business, we have options for you too.  They include:

1. Bootstrapping
2. Friends & Family
3. Credit Cards
4. Line of Credit
5. Equipment Leasing
6. Hard Money Loan
7. Commercial Loan
8. SBA Loan
9. Venture Debt

Be honest with yourself and be smart about who you approach for financing.  Good luck!

One of the questions that is asked most often is, “Will you have the investors sign an NDA before looking at my plan?”
(NDA = Non-Disclosure Agreement)

Here are a few responses to that very important question:

1. At some point, we may provide the option to upgrade your service in order to have a “password protected” business plan. That way, if an investor is desirous to look at your plan, they would have to first contact you in order to get a password. That being said, it might defeat the purpose of posting your plan on our site. Most people are here to get their plan in front of investors (exposure). It seems that if you required an investor to request a password, it may reduce the amount of investors that viewed your plan.
2. That being said, we don’t suggest that you shout your “secret recipe” from the roof tops for everyone to hear. My recommendation would be to tell investors that you have a “secret sauce,” but don’t tell them the recipe or ingredients.

I guess that one of the key points is to work with good angels and VCs. For the most part, I have confidence and trust in the angels that I know. However, I did read this article that made me think twice about who I should trust.

Brad Feld — one of the best (entrepreneur-friendly) venture capitalist’s in the nation (in my opinion) wrote a great blog post on Why Most VC’s Don’t Sign NDAs. After you read that article, I believe that most entrepreneurs will be able to understand why investor’s are hesitant. With good angels and VCs, it’s not that they want to take your proprietary information and go create a competitive company… it’s that they don’t want to get into trouble by signing thousands of NDA’s each year.

There are a few common questions that have consistently come up regarding the FundingUniverse Rating System. As a result, we’ve asked resident expert Business Plan Analyst, Tim Zenger, to provide tips and answer some questions via webinar.

Here are some of the things that he covered:

* How the rating process works
* What an investor is looking for
* Tips to getting a 4-star plan
* General tips & suggestions

Take a few minutes and watch the webinar (by clicking here). It’ll be well worth your time!