The Women Entrepreneurs Blog @ Simon

Finding Investors to Fund Your Startup

by Victoria Reynolds

Raising capital is the most basic of all business activities, but it may not be easy; in fact, it is often a complex and frustrating process. However, if you have studied and planned effectively, raising money for your business will go as smoothly as possible. 

It is important to explore all of your financing options before making a decision; several sources to consider are:

• Personal Savings: The primary source of capital for most new businesses comes from savings and other personal resources. While credit cards are often used to finance business needs, there are usually better options available, even for very small loans.  

• Friends And Relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest-free or at a low interest rate, which can be beneficial when getting started.

• Banks And Credit Unions: The most common sources of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound.

• Angel Investors And Venture Capital firms: These individuals and firms help expanding companies grow in exchange for equity or partial ownership.


Understanding Venture Capital

Venture capital for new and emerging businesses typically comes from high net worth individuals (“angel investors”) and venture capital firms. These investors usually provide capital unsecured by assets to young, private companies with the potential for rapid growth. This type of investing inherently carries a high degree of risk. However, venture capital is long-term, or “patient capital”, allowing companies the time to mature into profitable organizations.



Venture capital is also an active rather than passive form of financing. These investors seek to add value, in addition to capital, to the companies in which they invest to help them grow and achieve a greater return on the investment. This requires active involvement; almost all venture capitalists will, at a minimum, want a seat on the board of directors.



Although investors are committed to a company for the long haul, that does not mean they are committed indefinitely. The primary objective of equity investors is to achieve a superior rate of return through the eventual and timely disposal of investments. A good investor will be considering potential exit strategies from the time the investment is first presented and investigated.



The Venture Capital Process

A small business looking for venture capital typically can expect the following process:

Submit Business Plan. The venture fund reviews an entrepreneur’s business plan and talks to the business if it meets the fund’s investment criteria. Most funds concentrate on an industry, geographic area, and/or stage of development (e.g., Start-up/Seed, Early, Expansion, and Later).

Due Diligence. If the venture fund is interested in the prospective investment, it performs due diligence on the small business. Due Diligence involves a detailed look at company’s management team, market, products and services, operating history, corporate governance documents, and financial statements. This step can include developing a term sheet describing the terms and conditions under which the fund would make an investment.    

Investment. If at the completion of due diligence the venture fund remains interested, an investment is made in the company in exchange for some of its equity and/or debt. The terms of an investment are usually based on company performance, which help provide benefits to the small business while minimizing risks for the venture fund.

Execution with VC Support. Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally do not make their entire investment in a company at once but do so in “rounds.” As the company meets previously-agreed milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.

Exit. While venture funds have longer investment horizons than traditional financing sources, they clearly expect to “exit” the company (on average, four to six years after an initial investment), which is generally how they make the most money. Exits are normally performed via mergers, acquisitions, and IPOs (Initial Public Offerings). In many cases, venture funds will help the company exit through their business networks and experience.

One source of venture capital is the SBA's Small Business Investment Company (SBIC) Program. SBICs, licensed and regulated by the SBA, are privately owned and managed investment firms that use their own capital, plus funds borrowed at favorable rates with an SBA guarantee, to make venture capital investments in small businesses.


When it comes to bringing in investors for your business, always keep in mind two golden rules:  Do your research! Identify the most likely candidates by asking your accountant, banker and lawyer.  And finally, keep an open mind—potential investors may be anywhere.

*SBA's participation in this blog does not constitute an endorsement of the William E. Simon Graduate School of Business Administration or any other person or entity.  SBA's programs and services are provided to the public on a non-discriminatory basis.

Marketing on a Tight Budget

by Lauren Dixon

Marketing on a tight budget can be a challenge for any business. To determine how to make the most of your marketing dollars, a solid and strategic approach to marketing is needed. There are three easy steps to ensure that you maximize your marketing dollars.  

The first step: Plan ahead. Creating an annual marketing plan and a realistic budget provides a foundation for the entire year's marketing effort. Setting budget parameters is an ideal way to ensure that the marketing dollars you DO have are put to the best use possible. It also ensures that your marketing team clearly understands the available funds, and works to keep any of their potential tactics within those budgets.

The second step: Set tangible goals and implement tactics to achieve those goals. By holding your team accountable and setting goals, you will best be able to define and determine success. With tactics in place to meet these goals, your team will be clear how to accomplish what is expected, with the finances available. Is success measured in sales, attendance figures, or traffic to a web site?  By defining success, you will be able to gauge the results of your effort.

And finally, step three: Be prepared to adjust and change course if something isn't working. While this may initially appear to contradict the first step, if a particular approach is clearly not effective, (perhaps there was not a measurable or significant ROI for example,) don't repeat it! If marketing dollars are tight, you will want to be flexible enough to embrace change and adjust.

The best antidote to the challenges of a tight marketing budget – a positive success story to share at the end of the process. There is no better way to justify enhancing a marketing budget for next year than to show that your team can strategically and creatively use their existing budget to maximize results.

How I Ensure Marketing is Still Valued in Barbados

By Marita Greenidge

The last four weeks have been an absolute whirlwind. Thank goodness I landed quite safely. It began with the first major request from my client, Barbados Business Enterprise Limited (formerly referred to as CBET (Barbados)) – they needed a marketing plan.

I should mention that Barbados Business Enterprise Limited (BBEL) is the latest addition to the venture capital scene in Barbados. The company manages both a seed fund and venture capital fund, which is an essential component of the CBET shepherding model™. The other two components are an entrepreneur with an idea that has global potential and a shepherd (mentor), complemented by a team of business advisers, who help the entrepreneur design and implement strategies for successful business development. You can read a bit more about BBEL here.

I designed a very targeted marketing plan to capture key customer segments. Built into the strategy were core messages for each segment and cost efficient ways to effectively push these messages to the various customer groups. What does each group need to hear to convert them into our “customers”?

The Simon MBA thinking also kicked in so included in the plan are ways to measure each proposed strategy to determine what’s working and what’s not. I am very big on delivering results for marketing dollars hence I included these metrics to assess the value of each strategy. A review then tells you what’s working and what’s not and if there’s a need to make amendments. This helps to reduce wastage of marketing dollars.

The board of BBEL, which is made up of prominent Barbadian business people, was quite pleased. And after the meeting I felt like blowing a kiss to the Simon school for shaping the way I think about marketing because my focus is always on creating value. Strategies are chosen in line with company objectives and to ensure the organization gets bottom line results. If I can’t deliver such then I’m not bringing true value to the table. And who doesn’t like to bring value?

If you didn’t click on the BBEL link I posted above, I’d encourage you to do so. Working with a web developer I put that site up in less than 4 weeks because I wanted it to be ready for the official launch of our venture capital fund (which occurred on Friday November 13, but that’s a story for another time). I wrote all the content except for a few bios and the testimonials. Your thoughts and suggestions are certainly welcomed as we’re still expanding the website. It‘s designed with our marketing strategies in mind since I view it as a very powerful marketing tool.

Bootstrapping Builds a Strong Financial Culture

by Suzanne Clarridge

It has been nine years since I sat down at my computer to create the business plan that has ultimately become My Brands. I started working on it July 1, 2000. At that time, the world of e-commerce business was in its honeymoon, and the initial boom of the e-commerce was still hot. Everyday there were stories in the news of new e-business companies obtaining funding through Angel Investors and Venture Capitalists. I just knew that with my fabulous idea I would successfully be able to raise the money to start My Brands. 

The first step in the process was to write the business plan and the Private Placement Memorandum (PPM). (A PPM is the legal document required by law to raise private capital). I spent about 6 months writing and preparing my business plan, and I finally published my PPM in December of 2000.  

I built a model that would be up and running on $1 million dollars. As luck would have it, my timing couldn’t have been worse because by December 2000 we were in the midst the e-commerce crash. The bottom had arrived and there wasn’t a nickel of VC money out there for any e-commerce start-up. In fact, potential investors to whom I pitched actually left my presentations -- laughing! After several discouraging months of failed attempts to raise money, I was faced with a decision: Did I believe in my vision enough to try to make a go of it by bootstrapping the operation? 

I went back to my computer and began reworking my plan so that I could launch the company on a fraction of the cost of initial model. Armed with this revised model, I teamed up with two other women who were willing to join my start-up and work for a few months with no pay in exchange for a minority equity stake in the company.

Next, I set out to sell the business concept to prospective customers and found two Packaged Goods companies to contract with. We had two customers before we even had a building or any systems in place!

 I signed a short-term lease for 600 square feet of what seemed to be the roughest warehouse and office space anywhere. Let me tell you, this was rudimentary space. It adjoined a fruit & vegetable distributing facility, and in the summer, it always smelled of rotting produce. Our warehouse was on the second floor, and delivery trucks came to the bottom floor. We unloaded the trucks by hand and carried the inventory to the second floor. It was a workplace and gym in one!

Finally, on June 1, 2001 we shipped our first case of Hefty Baggies out the door. I personally financed everything from software and telephone systems to post-it notes and packing tape. By this time, it had been over a year since I had any personal income, and my bank balance was getting pretty low! I arranged a small line of credit from M&T Bank (with my personal guarantee), and Monroe County loaned us some money for equipment. I also managed to persuade some family and friends to invest in My Brands. All of this gave us a little more cash, but I still had no income of my own. As it turned out, I didn’t receive one cent of personal income until the fall of 2005! (My Brands wouldn’t exist today if I hadn’t married my understanding and supportive husband, Tom, in April 2001.) I still don’t earn anywhere near as much as I did in my last job.

Looking back, I would tell you that bootstrapping My Brands was one of the toughest challenges that I have ever handled. It was and remains stressful and scary, but it was the only way this company could have came to be at that point in history.

For all of the pain, there are endless benefits that have come to our organization as a result. For example, we have a culture that reflects the experience of bootstrapping. Our employees are grateful to be part of our company and are serious about conserving cash. Each person takes ownership in and feels the ups and downs of our daily business. New employees who join us either adopt the culture or are never accepted by the team. Everyone is conscious of the struggle it has been for us to get to where we are today.

In the current economic downturn, many businesses have taken big hits, but our company has remained lean and focused. We couldn’t have been better equipped to handle softness in demand. 

It would be fun and certainly less draining to start a company with capital provided. However, with that financial breathing room, it may be near impossible to build a financial culture as resilient and tough as that of My Brands’.

Tip of the Week: Finding the Information Resources You Need

by Elisabeth Hager, MD

Being an entrepreneur means finding and managing resources: both those you pay for and those you don’t.

One resource that is essential is information. Luckily there are many places to find the support and information you need to move your company along.

A few of these resources include:

• Angel Capital Association
• Center for Women's Business Research
• Kauffman Foundation
• Invent Your Future
• MIT Enterprise Forum
• National Venture Capital Association
• OPEN: The Small Business Network from American Express
• PWC Entrepreneurial Resource Center
• Women's Business Enterprises National Council
• Women Presidents' Organization
• Government Resources: SBA's Online Women's Business Center
• Small Business Innovation Research Program (SBIR) and Small Business Technology Transfer (STTR) Programs
• SCORE
• Small Business Investment Companies
• WomenBiz.gov

And the blogs:

• Ask the VC Blog
• Boot Strap Me
• Both Sides of the Table

The web is a wonderful resource. Make use of it!

Tip of the Week: Take Advantage of County's Resources

by Judy Seil

"Oh, I didn't know I could qualify for that program,” is a remark I often hear from business owners.

In the world of economic development, our responsibility in Monroe County’s Planning and Development Department is to assist companies who are growing and creating jobs. Many are under the impression that the government gets in the way and the paperwork is too cumbersome. It is our job to figure out which program works for your business and to assist you in completing the necessary paperwork.  

One of the programs we offer is as easy as filling out a single piece of paper in exchange for a $1000 check. 

While it is our mission to help, we are quick to note when we are unable to provide assistance. You will never know unless you ask. Rely heavily on your banker, accountant and attorney to keep you in tune with programs; consider reaching out to us as well. A simple phone call to 585-753-2000 may mean the difference in saving thousands of dollars!  

Spotlight on Entrepreneurs: Kristine Iannazzi

by Alyssa Gruber

Want to know the secret to start-up success?

We all do, which is why the Women Entrepreneurs Blog is launching a series of video casts that provide exclusive information, tips, and stories about everything entrepreneurial!

Each episode will feature a different female business owner in the Rochester area, so be sure to check the site often for new footage and material.

In the first on-site interview, Kristine Iannazzi, founder and CEO of Embrasse-Moi, gives juicy details about the benefits, challenges, and work associated with starting and owning a business.

Kristine describes Embrasse-Moi as an “all inclusive lingerie experience,” with customer service at the forefront of her business strategy for sales and growth.

“We wanted to have the customer service aspect with the personalized bra fittings, the personal shopping, and then also offer that really nice atmosphere so that a woman feels really special and important when she walks in,” Iannazzi explains about her company's competitive positioning. 

An FIT grad and fashion designer at heart, Kristine reveals that an underlying goal of opening the store stems from a desire to launch her unique lingerie line. Her innate sense of entrepreneurship is apparent, for her business angle focuses on tapping into an unfilled market of women with fuller cup sizes.

Kristine's advice on undertaking a venture? Create a business plan! She structured her proposal by preparing, researching, and becoming totally informed about every aspect of the lingerie industry.

"That really helped me to feel confident when I opened my doors," confesses Iannazzi. "I had a game plan of what was going to be going on."

And it looks like her hard work and planning is paying off! Halfway through its first year of operation, Embrasse-Moi is on track to significantly exceed predicted sales.

Congrats, Kristine, and best of luck with your future endeavors! You are truly an inspiration to me and other entrepreneurs, near and far. Thanks so much for sharing your story!

What You Should Know Before Applying for a Loan

by Victoria Reynolds

Borrowing money is one of the most common sources of funding for a small business, but obtaining a loan isn't always easy. Before you approach your banker for a loan, it is a good idea to understand as much as you can about the factors the bank will evaluate when they consider your request.

Show me the money… Ability to Repay/Capacity

The ability to repay must be justified in your loan package. Banks want to see two sources of repayment -- cash flow from the business, plus a secondary source such as collateral. In order to analyze the cash flow of the business, the lender will review the business's past financial statements. Generally, banks feel most comfortable dealing with a business that has been in existence for a number of years because they have a financial track record. If the business has consistently made a profit and that profit can cover the payment of additional debt, then it is likely that the loan will be approved. If however, the business has been operating marginally and now has a new opportunity to grow or if that business is a start-up, then it is necessary to prepare a thorough loan package with detailed explanation addressing how the business will be able to repay the loan.

Yes, Virginia, your personal credit matters… Credit History

One of the first things a bank will determine when a person/business requests a loan is whether their personal and business credit is good. Therefore, before you go to the bank, or even start the process of preparing a loan request, you want to make sure your credit is good.

Skin in the Game… Equity

Financial institutions want to see a certain amount of equity in a business. Equity can be built up in a business through retained earnings or the injection of cash from either the owner or investors. Most banks want to see that the total liabilities or debt of a business is no more than 4 times the amount of equity. (In other words, when you divide total liabilities by equity, your answer should no greater than 4.) To receive a loan, you must first ensure that there is enough equity in the company to leverage that loan.

Don't be misled into thinking that start-up businesses can obtain 100% financing through conventional or special loan programs. It is common for business owners to put some of her/his own money into the business. The amount an individual must put into the business in order to obtain a loan is dependent on the type of loan, purpose and terms. For example, most banks want the owner to put in at least 20 - 40% of the total request.

Oops, now what?… Collateral

Financial institutions seek a second source of repayment, which often is collateral. Collateral are personal and business assets that can be sold to pay back the loan. Every loan program, even many microloan programs, requires at least some collateral to secure a loan. If a potential borrower has no collateral to secure a loan, she/he will need a co-signer that has collateral to pledge. Otherwise, it may be difficult to obtain a loan.

And remember, the value of collateral is not based on the market value. It is discounted to take into account the value that would be lost if the assets had to be liquidated.

Who’ s steering the ship?… Experience

Ultimately, a business can only be as successful as the weakest member of its management team.  An entrepreneur that owns or wants to open a business and has no experience in that business should not seek financing, let alone start the business, unless they intend to hire people who know the business or plan to take on a partner that has appropriate experience.

 

Understanding the evaluation criteria is only one step in securing financing for your business.  There are additional measures to take to become prepared.

Review, refine, and revise your business plan. Does it provide answers to common questions your lenders will ask?

Carefully select a bank; it is just as important as choosing a member to join your management team.

Realize that sometimes businesses need help. SBA's loan programs may be able to assist your business in obtaining financing. 

*SBA's participation in this blog does  not constitute an endorsement of the William E. Simon Graduate School of Business Administration or any other person or entity.  SBA's programs and services are provided to the public on a non-discriminatory basis.

You Don't Have to Be a Green Gazelle to Go Green

Increasing energy efficiency is a win-win for American businesses. Lower energy costs lead to more profits and greater efficiencies help to protect the environment. Nationally, small businesses spend more than $60 billion on energy each year. With minor investments and a green strategy, small businesses can cut utility costs 10-20% without sacrificing service, quality, style or comfort.

You don't have to be a green gazelle to contribute to the greening of our economy or society.  More than likely, you merely want to operate efficiently and save money. "Going Green" is one strategy to get there.  

First,  you don't have to go it (green) alone. The Federal Government has a variety of resources to assist you.   Check out Department of Energy's "Energy Savers" Website. A resource fo energy saving tips and strategies not only for your business but also your home.  Join the Energy Star Program, which is supported by both US Environmental Protection Agency and US Department of Energy, and develop an entire energy management system within your business.  These are a just a couple of the growing number of supports for business owners on the road to Green.       

Additionally, there are resources to help you execute your Green. The US Small Business Administration has financing programs to help accomplish your goals.  Under the American Recovery and Reinvestment Act of 2009, Department of Energy was given funding to jump start the green movement in our economy. A local resource for these funding opportunities is NYSERDA

In the wake of Earth Day 2009 it is important to remember that Every Day is Earth Day for many small businesses. Can it be for you?

*SBA's participation in this blog does not constitute an endorsement of the William E. Simon Graduate School of Business Administration or any other person or entity.  SBA's programs are provided to the public on a non-discriminatory basis.

Women: Make Mine a Million Wants You!

Make Mine a Million is a popular and well-known non-profit focused on working with women entrepreneurs to help them build successful businesses.

Recently, they launched a new initiative called The M3 Race. Essentially, this is "a year-long business growth marathon where women entrepreneurs sign up to meet certain business goals, such as generating annual revenues of $250,000, $500,000 or $1 million."

Overall, this is a great opportunity for networking and sharing ideas.

Thanks to Mark Marich over at Entrepreneurship: United by the power of ideas, for his post on this topic. We hope you will click over to the new initiatve link above and get involved with this fabulous opportunity.