One of the leading career choices of college seniors in the past and still is today, to become an entrepreneur. Surveys continue to show that one out of three working Americans want to be their own boss. What’s stopping them? Lack of capital. Capital is the fuel that energizes the business.
Money is not difficult to find. Available cash always exists in great abundance, but you’ve got to know where to look for it and the proper way to get it. Most start-up entrepreneurs look to family, friends, or banks to get money for their businesses, but one the best yet often overlooked sources of working capital is venture capitalists.
Venture capitalists are essentially risk-takers, whose strategy is to grow their assets through judicious investment in promising new enterprises. Such firms have the ability to offer attractive alternatives to traditional lending sources such as banks, whose conditions for repayment may prove exceedingly burdensome for start-up businesses.
A venture capitalist firm is interested in future returns on investments and will invest heavily in a promising new company, even though short-term profits may be less than stellar. The risk inherent in such future-oriented investment is countered by financial expectations that may far exceed those of more traditional or conservative investments.
In some cases, the returns may prove life-changing, not only in personal fortune, but in the impact on society as a whole. A good example of this point is the story of Apple Computer. It took only a few thousand dollars for Steve Jobs and Steve Wozniak and their friends in the Homebrew Computer Club to produce their first several dozen personal computers.
It wasn’t until they received the backing from such individuals as Mike Markkula, an engineering and marketing expert who invested $250,000 and venture capitalist Arthur Rock who invested 1.5 million that Apple was able to embark on its historic journey to success. Once the company established an early track record of success it attracted even more money, such as the 7.2 million invested by the L.R. Rothschild Company.
Unlike family and friends venture capitalists won’t invest in a business simply because they like the people involved, but because they have confidence in the product and the management team’s skills, strategy, and experience. Still the right mix of personal chemistry is obviously an important part of that confidence, even in the most businesslike of relations.
An important rule to remember when you’re looking for financial capital is that it’s far more important whose money you get than how much you get or how much you pay for it. The right backers can indeed make all the difference, because experienced investors are often able to provide strategic insight and industry-specific savvy as they mentor their partners toward entrepreneurial success.
Most aspiring entrepreneurs who need working capital to start their business raise money through family, friends, or personal connections. For small family businesses or sole proprietorships, this is the common route toward covering initial start-up costs. However, it is important to always remember that loans motivated more by personal loyalty than confidence in the business plan can often turn a good relationship into a conflict and possibly ruin it altogether.
Family and close associates can often be the worst sources of investment capital, especially when a new business is not performing as well as planned. Relationships can be strained, even to the breaking point. Demands are often made that suddenly turn your lifetime dream of building a business and your friendships into a nightmare.
It is true that many businesses would never get off the ground without the support of family and friends, but you need to proceed cautiously and make sure that your family or friends who invest in the business are fully aware of the inherent risks.
Before you start a business you must prepare a detailed business plan. There is no standard format for a business plan, but if you’re going to use it to obtain financing it must be professional and persuasive.
One of the most common reasons why businesses fail is because the owner did not develop or follow a business plan. For a business to be successful the owner must update the business plan yearly with new monthly goals. A good business plan not only serves a valuable monitoring tool for all areas of the business, but is a must for any potential investors.
Here is a brief overview of what a business plan and financing proposal should include:
• Products, services, and goals.
• Legal structure and ownership.
• Marketing and sales strategy.
• Equipment, facilities, technology, and assets.
• Management and employee resources.
• Projected financial statements for a proscribed period.
• The purpose of the loan.
Your business plan and financing proposal needs to have a brief 3 to 5 page summary of your situation and needs. This summary will provide potential investors with quick overview and can be sent as part of an initial query.
Keep the entire business plan and financing proposal brief, no more than 50 pages. Make sure it is easy to read, realistic, factual, and contains the information that is required by any potential investor.
When you’re trying to get working capital from potential investors you should always be prepared for rejection. When it happens, don’t take it personally. Lenders and investors have their own agendas. To be successful you must be willing to persevere, because there are three common characteristics that all successful entrepreneurs have; they all have persistence, they all have a willingness to do what others won’t, and they all have a desire for financial independence.
Writer and speaker, Earl Nightingale said, “Success is the progressive realization of a worth ideal.” In business worthy ideals are ultimately about introducing practical ways to live better. With the Internet and the technological explosion of the 21st century the promise and possibility of tomorrow is bound only by the limits of human imagination and courage.
The future will certainly belong to those who best embrace this phrase by Goethe, “Whatever you dream you can, begin it, boldness has genius, power, and magic in it.”
Copyright©2006 by Joe Love and JLM & Associates, Inc. All rights reserved worldwide.
Joe Love draws on his 25 years of experience helping both individuals and companies build their businesses, increase profits, and achieve total success. He is the founder and CEO of JLM & Associates, a consulting and training organization, specializing in personal and business development. Through his seminars and lectures, Joe Love addresses thousands of men and women each year, including the executives and staffs of many businesses around the world, on the subjects of leadership, achievement, goals, strategic business planning, and marketing.
