Thursday, January 25, 2007
If your New Year's resolution is to finally get your brilliant business plan off the ground, now is the time to turn those ideas into dollars - and it may be easier than you think.
Finding financing may seem like a daunting task, but before sending a business plan to a dozen venture capitalist firms, look at what's right in front of you.
Many experts suggest getting your idea off the ground with a little help from your friends and family for starters.
In the first phase of fundraising, angel investors, who invest their own cash, are also generally the way to go, according to David Rose, chairman of New York Angels, a group of accredited angel investors.
Angel investors, which generally fit in after friends and family and before VCs, may invest anywhere from $10,000 to $200,000. Sometimes groups of angel investors will pool their funds and invest up to $750,000.
Alternatively, a venture capitalist firm might be willing to invest a few million, but will require a very well honed financial plan and a significant return on their investment.
Shazi Visram, founder and CEO organic baby food company Happy Baby, admits that raising the first couple of thousand dollars was really difficult. Many venture capitalists "said it was too early," she said.
Visram and her partner, Jessica Rolph, turned to friends, family members and other angel investors to raise the $550,000 they needed to get their baby food business off the ground.
"Angels believe in you - are investing in you," Visram said. In the beginning "we didn't need enough [money] for a VC to get excited about."
But once Visram and Rolph got Happy Baby going, they launched a second round of funding to bring the business from the regional to the national market. At that point they were able to successfully draw on venture capital resources.
A little more than a year later, Happy Baby is carried by national gourmet grocery chains including Whole Foods and Wild Oats.
Go where the money is
Venture capitalists consider many factors in addition to the product, including the team, the marketplace, the business plan and the path to profitability. But investors agree that passion and persistence are also crucial.
Howard Morgan, partner at the New York-based venture capital firm First Round Capital which typically considers investments between $200,000 and $500,000, said entrepreneurs "have to have vision and unshakeable passion," but at the same time, should be realistic about their idea, their goals and their potential to make money.
Rose recommends getting a good understanding of the market, what else is out there and where investors are putting their money before attempting to negotiate a deal. With a little research, you can find a VC firm that's well suited for the concept you are pitching. Also, be realistic about how much money investors may be willing to put behind your idea.
The bottom line is that investors want to make money. In fact, considering the number of businesses that never take off, investors have to make their money back on the ones that do. So they are looking for a "big, big, big return," Rose said. That could mean 10 to 20 times their original investment.
To that end, one way to get the door slammed in your face is to promise a certain return on the investment by a specific date. "Don't say things that aren't true," Morgan advised.
Another sure fire way to get denied, he added, is an executive summary that declares "this is the only." Morgan and Rose agreed that if it is the right time for your idea then there are probably others out there thinking about it too.
Rose, who has been approached by three separate teams in the same week to produce and distribute high-end rum, says "you can never know what the investors have seen before," so "don't be naive to think that you are unique."
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