Looking
for a bank loan? A $500,000 equity infusion? Or would you like to
crowdsource some cash off the Internet? A one-day financial forum staged
by Enterprise Toronto last week offered fundraising tips for
entrepreneurs of all sizes and sectors.
The No. 1 takeaway: Raising capital ain’t easy. On a panel representing the full spectrum of financial resources, the banker, community-fund manager, crowdfunding consultant, angel investor and venture capitalist all agreed that the biggest mistake prospective clients make is thinking the process will be easier than it is. Yes, these funders want to do business with you. But they have terms, standards, qualifications and limits you have to meet, and that will require preparation, analysis and clear thinking on your part.
But here’s the good news: if this process were easy, all your competitors could get funding, too. So be glad that growth capital is available only to people like you, with the smarts, vision and track record to earn it.
As keynote speaker Jacoline Loewen told the more than 100 forum attendees, the growth projections and marketing plans you prepare for funders’ scrutiny represent essential thinking about your business. Even if you don’t score capital with every meeting, going through this process will strengthen your business and make you that much more attractive to the next lender or investor you meet.
Here are some key takeaways from the sessions I attended:
Keep up! There are new forms of financing coming on stream all the time, to address specific needs or market niches. For instance, this was the first time I had seen a financial panel that included microloans and crowdfunding — two new and very different sources of capital for those who have trouble raising conventional financing.
Can’t get a bank loan for your startup? Ontario’s Trillium Foundation bankrolls a number of community funds that provide low-cost microloans to qualifying entrepreneurs. (In general, you should own 51% of your business, it’s helpful to have taken some business courses, and you must use the loan to expand your business rather than pay off debt.) Panelist Michael Scotland of Toronto’s Access Community Capital Fund said first-time microloans are available for as much as $5,000, at interest rates just 1.5 percentage points above prime. (There’s also a 5% administration fee.) If you pay off your first loan, Access may provide subsequent loans up to $10,000.
Sweating over a business plan to impress your banker? Check first to see if he or she will read it. Alex Ciancio of TD Business Banking noted that most small-business lending decisions are based on your credit-worthiness — not your business plan. Taking good care of your personal credit history is one of the most important things you do to help your business.
Do you have collateral? Many entrepreneurs seeking bank loans are surprised to be offered interest rates three or four points over prime. That’s because most rate-related advertising refers to mortgages or credit lines, where borrowers put up their homes or other assets as security. Ciancio noted that lower-cost business loans are available if you have the collateral to secure them.
Look closer to home. Although no moms or dads were represented on the panel, several participants noted that love money — from family and friends — is often the best first step for entrepreneurs. “It’s usually the cheapest and most flexible money you will ever raise,” Ciancio said.
Relatives and pals can also get in on crowdfunding. This is where you create a pitch on a crowdfunding website (such as Kickstarter or Indiegogo) asking people to support your business project, usually in return for receiving equivalent value in products or personal services. “This is a good place for family and friends to step up,” noted consultant Christopher Charlesworth of HiveWire. “If your mother won’t invest in you, why would anyone else?”
Crowdfunding capital isn’t free. You have to provide sufficient value to attract supporters (in Canada, crowd-sourced capital is not equity or debt, it’s essentially a donation). You also have to learn how to tell your story, Charlesworth says, because that’s what people invest in. Having amassed a database on North American crowdfunding activity, HiveWire has found the average crowdfunding project raises $7,000.
Tell a compelling story. Venture capital and angel money are for the few companies whose growth trajectory has the potential to give investors a return of 700% to 1,000%, in about five years. Once again, your challenge is getting the story right. VCs and angels receive many more proposals than they can fund, so a compelling Executive Summary is the best way to get their attention.
Again, cash comes with a catch. Several attendees asked why investors need “exits” within five or six years. Why can’t they just stay invested in good companies? Angel investor Gerard Buckley, CEO of Jaguar Capital, noted that “an investment isn’t a marriage, it’s just a relationship.” While several CEOs seemed concerned about their need to sell the company so that venture investors can get their exit, VC Bram Sugarman of OMERS Ventures said founders can stay on if they want. Although if their companies have had anywhere near the success they were hoping for, the founder probably won’t be able to raise enough cash to buy out the investor.
Still, it’s a nice problem to have.
The No. 1 takeaway: Raising capital ain’t easy. On a panel representing the full spectrum of financial resources, the banker, community-fund manager, crowdfunding consultant, angel investor and venture capitalist all agreed that the biggest mistake prospective clients make is thinking the process will be easier than it is. Yes, these funders want to do business with you. But they have terms, standards, qualifications and limits you have to meet, and that will require preparation, analysis and clear thinking on your part.
But here’s the good news: if this process were easy, all your competitors could get funding, too. So be glad that growth capital is available only to people like you, with the smarts, vision and track record to earn it.
As keynote speaker Jacoline Loewen told the more than 100 forum attendees, the growth projections and marketing plans you prepare for funders’ scrutiny represent essential thinking about your business. Even if you don’t score capital with every meeting, going through this process will strengthen your business and make you that much more attractive to the next lender or investor you meet.
Here are some key takeaways from the sessions I attended:
Keep up! There are new forms of financing coming on stream all the time, to address specific needs or market niches. For instance, this was the first time I had seen a financial panel that included microloans and crowdfunding — two new and very different sources of capital for those who have trouble raising conventional financing.
Can’t get a bank loan for your startup? Ontario’s Trillium Foundation bankrolls a number of community funds that provide low-cost microloans to qualifying entrepreneurs. (In general, you should own 51% of your business, it’s helpful to have taken some business courses, and you must use the loan to expand your business rather than pay off debt.) Panelist Michael Scotland of Toronto’s Access Community Capital Fund said first-time microloans are available for as much as $5,000, at interest rates just 1.5 percentage points above prime. (There’s also a 5% administration fee.) If you pay off your first loan, Access may provide subsequent loans up to $10,000.
Sweating over a business plan to impress your banker? Check first to see if he or she will read it. Alex Ciancio of TD Business Banking noted that most small-business lending decisions are based on your credit-worthiness — not your business plan. Taking good care of your personal credit history is one of the most important things you do to help your business.
Do you have collateral? Many entrepreneurs seeking bank loans are surprised to be offered interest rates three or four points over prime. That’s because most rate-related advertising refers to mortgages or credit lines, where borrowers put up their homes or other assets as security. Ciancio noted that lower-cost business loans are available if you have the collateral to secure them.
Look closer to home. Although no moms or dads were represented on the panel, several participants noted that love money — from family and friends — is often the best first step for entrepreneurs. “It’s usually the cheapest and most flexible money you will ever raise,” Ciancio said.
Relatives and pals can also get in on crowdfunding. This is where you create a pitch on a crowdfunding website (such as Kickstarter or Indiegogo) asking people to support your business project, usually in return for receiving equivalent value in products or personal services. “This is a good place for family and friends to step up,” noted consultant Christopher Charlesworth of HiveWire. “If your mother won’t invest in you, why would anyone else?”
Crowdfunding capital isn’t free. You have to provide sufficient value to attract supporters (in Canada, crowd-sourced capital is not equity or debt, it’s essentially a donation). You also have to learn how to tell your story, Charlesworth says, because that’s what people invest in. Having amassed a database on North American crowdfunding activity, HiveWire has found the average crowdfunding project raises $7,000.
Tell a compelling story. Venture capital and angel money are for the few companies whose growth trajectory has the potential to give investors a return of 700% to 1,000%, in about five years. Once again, your challenge is getting the story right. VCs and angels receive many more proposals than they can fund, so a compelling Executive Summary is the best way to get their attention.
Again, cash comes with a catch. Several attendees asked why investors need “exits” within five or six years. Why can’t they just stay invested in good companies? Angel investor Gerard Buckley, CEO of Jaguar Capital, noted that “an investment isn’t a marriage, it’s just a relationship.” While several CEOs seemed concerned about their need to sell the company so that venture investors can get their exit, VC Bram Sugarman of OMERS Ventures said founders can stay on if they want. Although if their companies have had anywhere near the success they were hoping for, the founder probably won’t be able to raise enough cash to buy out the investor.
Still, it’s a nice problem to have.
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