Liz Handlin participates in the blogswap run by CollegeRecruiter.com. Interesting article on sources of funds for start up companies. Since my own company, Interview on Demand, LLC just went live with our first product offering in January - video interviews for hiring managers, in January, I thought her article very appropriately timed.
Article Title: Getting Financing for Your Business
Author Byline: Liz Handlin
Author Website: http://ultimate-resumes.blogspot.com
Earlier this week I attended a breakfast seminar hosted by Leadership Austin called “Planting Seeds, Growing Strong Entrepreneurs†which featured Laura Kilcrease, Managing Director of Triton Ventures, and Andrew Martinez, President of the Greater Austin Hispanic Chamber of Commerce. Thom Singer moderated the program. The program was lively and informative and one of the gems I picked up has to do with obtaining capital as an entrepreneur.
Many of my clients have been or will be entrepreneurs at one time or another and access to capital is an issue that entrepreneurs think about constantly.
Laura Kilcrease is a founder of Austin Technology Council, the IC2 Institute at the University of Texas, and she is the Managing Director of Triton Ventures, a venture capital firm that invests in spinout and startup technology companies whose products give them a defensible position in large and growing markets. So, Laura certainly qualifies as an expert in financing for entrepreneurial ventures. One comment that she made at the seminar really stuck with me. Ms. Kilcrease said that there are stages to getting financing and that those stages are a chain. From an economic perspective, if any of the links in the chain fall apart (run out of capital, make bad loans), it becomes more difficult for business owners to get financing.
If you are an entrepreneur who needs capital to get started, following are the steps in the investment capital chain that you should expect to work your way through on your way to building your business.
FFF (Family, Friends, and Fools)
This is the first stage of financing in which an entrepreneur obtains relatively small amounts of money from friends, family, and “fools†(I think that term is meant humorously) to start a business. The FFF stage is high risk because you, the entrepreneur, probably have little or no experience in building a business so your investors may have very well thrown away their investment capital.Tip: Be aware of SEC regulations that govern investments.
If all goes well after the FFF stage of financing, you will have paid back your investors and the business will be growing. However, your business may not be stable enough, large enough, or have been in business long enough to qualify for a low interest bank loan. So, what’s an entrepreneur to do? Look for Angel Investors.
Angel Investor
An Angel Investor is an affluent individual who provides capital for a business start-up, usually in exchange for shares of stock in the company or ownership equity. Some angel investors organize themselves into angel networks or angel groups to share research and pool their investment capital. Angel Investors, like FFF’s, are taking a risk by investing in an entrepreneur so the terms of the deal may be very high interest or may result in the Angel owning a large part of the business.
A company that is still growing after wisely using the Angel capital may need even more money to take the business to the next step. Maybe your company needs to invest in new technologies or a new building which costs more than Angel investors are willing to contribute. But, the company may still not qualify for bank loans. What now? Polish up your business plan and call on a Venture Capital Firm.
Venture Capital (VC)
Venture capital is a type of private equity capital typically provided by professional outside investors to new, growth businesses. Funding is generally made as cash in exchange for shares in the invested company. A venture capital fund is a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies, or ventures, with limited operating history, who cannot obtain a bank loan.
The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to owning a portion of the equity. Venture Capitalists are a little like loan sharks in that they are making high risk loans so they expect a hefty ROI and they expect to get continuous feedback about the business. They may even insert their own hand-picked executives into your company to keep an eye on their investment. Further, if you don’t perform the way your investors expect, you could lose your entire business to the VC firm.
If you have gotten this far your business is probably large and profitable thanks to the combined efforts of you, your financiers, and the management team that you and the VC firm put in place. At this stage your VC investors will want to get their money + profit back so you either need to buy them out or, if you want to continue to grow the business either for sale or IPO, there are a couple more steps to go. The business probably qualifies for bank financing so if the company needs an infusion of cash a bank is a good way to go because they will charge much less interest than a VC firm will.
Debt Financing (Loan from a Bank)
At this point, bankers may be courting you for your business. If not, bring your business plan to a reputable commercial banker and get a loan to take your business to the next level of growth and profitability.
Ready to get rich? An IPO is the way to go. Contact an investment bank about taking your company public. You may want to stick around as part of the management team and continue to run your company. In fact, the bank may insist on that. On the other hand, some CEOs take their companies public and then retire to enjoy the good life.
Initial Public Offering (IPO)
An IPO, also referred to simply as a "public offering," is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO, the issuer may obtain the assistance of an investment bank, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.
So there you have it, the steps to getting financing as you grow your business. Not all steps apply to every business. If you want to own your own small or home-based business and you don’t plan to grow the enterprise beyond a certain point then you probably won’t need to move all the way through the financing chain.
But if you are thinking if founding the next Microsoft or Apple you need to know who to approach about investing money in your venture and you need to know what they will expect you to have accomplished before you make the request. Good luck!
Tip: If you would like to start your own business but aren’t sure where to start try contacting your local Chamber of Commerce to what workshops, mentoring, or other help is available
Article courtesy of the Recruiting Blogswap, a content exchange service sponsored by CollegeRecruiter.com, a leading site for college students looking for internships and recent graduates searching for entry level jobs and other career opportunities.
It has been a long time since I’ve written regularly on my recruiting blog 
but some really nice folks helped talk me up and my readership blossomed. I’ll give you a list of a lot of those helpful folks later on in my post.
Ok, many of you may be wondering what is up with the newly changed "pink" theme to my blog. Well about this time last year, I decided to take up a cause and I