Is There Funding For New Ideas and Companies?

As a business consultant, I see more entrepreneurs not able to obtain funding than I see entrepreneurs obtaining the necessary money to see their ideas transformed into a viable business. This difference is very large. It maybe one idea is funded for every 10 that go unfunded but it may be as high as 1 is funded with 100 never obtaining a nickel. This kind of difference and the struggles of the entrepreneur who is frustrated by not ever seeing his idea transformed into reality and making him rich, prompts the question; is there enough funding for new ideas and companies? How one market’s the idea can sometimes be more important than the idea when it comes to obtaining venture capital.

The entrepreneur would quickly and resoundingly answer the question with a “no”! Many entrepreneurs have a hard time or are unsuccessful in getting money. Their idea is not the problem; it is that there is not enough funding available. The reality is that making additional money available to this group of entrepreneurs who have been unable to secure funding, will not create more companies and in turn more jobs. How can this be?

These ideas, that are not funded, whether for a service or a product, are really not “better mouse traps” or the entrepreneur is seen by potential investors as unable to successfully implement or allow the things required to be delegated to achieve a successful venture.

Most people do not appreciate how hard it is to provide a service or make a product, inform their target market about the product, get the product or service to the person who wants to use or buy this service or product and finally make a reasonable profit while doing and paying for all the previous mentioned tasks. Some entrepreneurs fail to factor in what capacity and talent would be needed to accomplish the launch of their idea.

Entrepreneurs become passionate about their idea, as they should, but they also need to be realistic. Just because you can produce a fuel for the combustion engine that is made from a renewable source, and will not cause pollution why would people pay $10 a gallon for it when they can get a petroleum based fuel for under $3 a gallon?

Would you invest your money into a company the produces a product that the consumer is willing only to pay $15 for and it costs the company $30 to make?

What about the entrepreneur who has a unique product everyone wants but the entrepreneur does not know how to delegate? He is brilliant and can do everything better than anyone else. No one else can do a task well enough to satisfy this entrepreneur! This entrepreneur needs to make the sales call, make the product, ship the product, and do all the administrative tasks. The company can make, sell, invoice or collect enough to make the company viable. This is an example of a great idea headed nowhere.

The entrepreneur’s … Read More

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When Funding Becomes Necessary

There may have been times when as an early stage entrepreneur or someone who wanted to start a business, but hadn’t, you’ve felt the need for some capital to help you get going. It may surprise you to learn this, but you’re in good company. Many people in various stages of their businesses have felt this way.

There are five standard ways in which businesses obtain the funding they need. In the recommended order, they are 1) Family, 2) Friends; 3) Banks; 4) Business Angels; and 5) Venture Capitalists. All of them share certain characteristics to a greater or lesser extent.

First, they’ll want to understand your business plan. That is, they’ll want you to convince them that if they invest with you, their money will be spent carefully and only on necessities; not frivolities such as new equipment or cars that could all be obtained second hand. Some will even object to funding your salary!

Families and friends probably won’t need a plan that’s as detailed as that which a bank or venture capitalist might want.

Second, they’ll want to minimize their risk, sometimes referred to as exposure. Some won’t expect anything from you except your promise that you’ll do everything thing you can to preserve what they’ve given you. Others will expect you to mortgage yourself to the hilt so that you will think twice about pulling out if things don’t work out as you had planned.

Third, they’ll want a return on their investment. The word Invest implies that the amount you’ve been loaned will grow beyond its current size. Friends and family will probably accept less over a longer period of time than the others. Venture capitalists can expect a fifty percent or more return on top of the loan within a few years. That’s one reason why investments by them aren’t made nearly as often as the other four.

Fourth, they’ll want an attractive exit strategy. That means that they’ll want to limit the time during which you will have their money. They’ll want you to pay back the loan with the extra they have earned in a reasonable amount of time. Some will be satisfied with that; others will want a seat on the board or even a share of the business. In that case, they’ll want to receive a percentage of the profits over and above their investment for a certain period after the investment has been made. The length of time they decide to retain their share will vary from investor to investor.… Read More

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