Financing a Startup Is Much More Than Getting Someone to Sign a Check

You have a great idea, the drive and energy to make it happen, but your savings are
light. You need to find capital to get started, but you feel that the strength of your idea
and your persuasive marketing talents will surely make investors grab t

heir checkbooks
and start signing. If only it were that simple, but, unfortunately, it is not.

Gone are the free-flowing nineties when investors would literally throw millions of
dollars at a good idea. Angel and venture funds are still licking their wounds from the
bursting of the Internet bubble a decade back, and what funds they do raise primarily
go to shoring up the previous “mistakes” in their portfolios. These investors tend to be
very risk averse in today’s environment, preferring rather to buy struggling companies,
repackage them, and then sell for a profit, corporate “flipping”, if you will. While they
may see hundreds of potential deals a year, they are very selective, choosing perhaps
two or three from the lot to support.

Within this context, a “budding” entrepreneur should avoid the temptation of seeking
money from highly structured angel or venture-type funds. The competition is too great,
and the demands for a “sure deal” will severely discount the value of your business
model. The more prudent path is to focus on less demanding funding sources, namely
friends, family, business partners, vendors, and locally sanctioned state development
funds.

Before seeking outside financing, you must become what has been called “investment
ready”. First, you need detailed financial projections that support your implementation
plan, based on real facts, not pie-in-the-sky guesstimates that will crumble upon close
scrutiny. The story from the numbers should match up well with your marketing pitch.
Incorporate all in a well-written business plan, with a supporting PowerPoint deck of
slides and a one-page summary of your offering. These materials should be updated
over time to record your early successes and progress. There are many websites that
will assist in the development and presentation skills required for later meetings.

The other component of being “investment ready” is, perhaps, more critical. Investors
will demand that your business model has been confirmed in the market. You must
build a prototype that solves a problem for at least one customer that has been willing to
pay money for your solution. Investors rarely invest in an

“idea” these days. They want
proof that there is real demand for what you are proposing, and funding for this stage
may have to come from savings or existing credit lines that you have at your disposal.
There are other entities, like SBLD.com for example, that can help with subsequent
working capital needs, as long as you can demonstrate your potential. Firms like
SBLD.com have filled the “gap” left by angel and venture funds.

Focus on making your “idea” operational on a shoestring budget, and incorporate your
financial results in your projection models. Investors want to reward real results, not
assume “performance risk”.