Tag Archives: getting money for your business

Show Us the Money! How to Get Funding for Projects or Businesses

By Gretchen Glasscock

Whether you work in a large corporation or start your own business, you will always have to fight for resources. Getting them and allocating them shrewdly is a key to success. Women have a notoriously hard time borrowing money, and we’re often forced to rely on high-interest, short-term credit, if we can get loans at all.

Former Democratic presidential candidate and Senator Hillary Clinton, a champion of global micro-credit, has said: “Although the economic plight of a poor woman in Bangladesh who wants a loan to buy a second milk cow or sewing machine may seem worlds away from that of a technology entrepreneur in San Francisco, the bottom line is this: No matter where they live, women need help breaking down the barriers to capital.”

Many entrepreneurs start out at the concept stage by bootstrapping their startup themselves, or by turning to friends and family for financing. Once a startup grows beyond these initial resources, however, women entrepreneurs face the challenge of crossing the capital chasm to take their ventures to the next level.

  • Learn how to bootstrap your business. Maria de Lourdes Sobrino arrived in California from Mexico City with fond memories of her mother’s kitchen and gelatin treats for family and friends.  Astonished that ready-to-eat gelatin did not exist in the U.S., Maria (whose nickname was Lulu), opened a small storefront in Torrance in 1982, where she made 300 cups of gelatin a day by hand.  She had no outside funding at all until 3 years later, when she got an SBA loan in 1985. Today, Lulu’s Dessert Corporation has more than 70 employees, more than $6.1 million in sales, makes 130 million cups of desserts a year, and is ranked among the largest and fastest growing Hispanic-owned businesses in the United States.
  • Find an incubator. Cate Muther had been the senior marketing officer at the networking giant Cisco Systems, when she drew on her private-sector experience to start the Women’s Technology Cluster. The first incubator specifically targeted to female high-tech entrepreneurs, the WTC was the first project of the Three Guineas Fund, a foundation Cate funded herself and named after a Virginia Woolf essay on philanthropy and women’s financial independence.
  • Get money from the Small Business Administration. SBA’s 8(a) Program is designed to level the playing field for minorities. Leticia Herrera’s company is a stone-and-metal restoration and cleaning services now called ECI (formerly named Extra Clean, Inc.).  When she started her company, she faced an intensely competitive environment in the Chicago metropolitan area. Using her SBA’s 8 (a) designated status to seek and negotiate contracting opportunities available to minority and women-owned businesses, she grew her company, in 11 years, to 50 employees, with annual revenues close to $3 million. And her clients include the City of Chicago.
  • Borrow—by finding agencies that will really lend you money. The author, launching the first vinifera ( the classic European and California wine grape) vineyard and winery in remote West Texas, and was offered a low- interest government loan for $2 million+ that was designed for start-up industries in towns of less than 20,000 (my rural location in the shadow of Blue Mountain, Fort Davis, Texas had 850); all I had to do was submit the application. However, after a series of run-ins, the local agricultural agent gave me the true heads-up:  “Look, lady. Everyone in this town, including me and my son, wants to be a farmer or rancher.  My son has to work in the pharmacy, and I have to work here.  So, your application is never leaving this desk, and you are never getting this loan.” Lesson learned: avoid male-dominated industries and lending agencies. Try to work with lending agencies that have a stated policy of wanting to lend money to women: for example, Wells Fargo, or one of the many federal programs (if you can steel yourself for the red tape).
  • Get money from Small Business Investment Companies. Whitney Johns Martin is founder of Capital Across America, a Small Business Investment Company (SBIC).  Her company was the first SBIC in the 40-year history of the program to focus on investing in women-led companies. Through Capital Across America and its co-investors, more than $45 million has been invested in women-led ventures since 1998. Johns Martin is also co-founder and manager of the Texas Women Ventures Fund in Dallas and a past national president of NAWBO.
  • Find angel investors who will be interested in your industry and business. Angel investors generally invest $50,000 to $500,000, and they invest in 50 times the number of deals venture capitalists do. It’s also patient money, willing to wait 3-7 years for a return. Kimberlie L. Cerrone, managing director of The Angels Forum, has extensive strategic planning, deal-making, and international business and legal experience. Several venture capital firms—including Softbank, Sevin Rosen, USVP, Asia Pacific, Bessemer, Rock Creek, and Chevron Ventures—regularly introduce Kimberlie to early-stage portfolio companies. She often joins these companies as an executive, consultant, or advisor, to help them establish patent and trademark portfolios, perfect their sales and licensing strategies, establish legal and financial methodologies, and execute their early strategic international, vendor, and customer deals.
  • Find the right venture capitalists.  These investors are looking for a business that, in 3 to 5 years, will have $30 million in sales in a global business opportunity. Although almost all are strictly in it for profit and are impatient and impersonal, there are a few for which “generativity” has kicked in—that is, the desire and commitment to guide the next generation of successful entrepreneurs and help pave the way for their success. Gayle Crowell began her career as an educator for the State of Nevada, and did such an outstanding job that she was recruited into the tech sector, with executive roles at leading software companies (including Oracle, E.piphany, and RightPoint Software). Now an active Silicon Valley leader, she is a venture capitalist at Warburg Pincus, helping others get their start.

Family, Fools and Friends, Seed Stage, Angels and VCs – Where the Money Comes From

Many entrepreneurs start out at the concept stage by bootstrapping their startup themselves, or by turning to friends and family for financing. Once a startup grows beyond these initial resources, however, the entrepreneur ( faces the challenge of crossing ) the capital chasm to take the venture to the next level. “

We should all understand, nothing happens in a business – any business- until money finds its way to the table. It may take many elements to start a business- inspiration, creativity, innovation, shrewdness, the ability to spot a market while it is still a distant speck on the horizon – but one of the most important is money.

Without money, there is no computer to write on, no brochures to mail, business cards to hand out, or phones to solicit business. Money is the beginning and end of all business and the nourishment it feeds on, no matter how revolutionary, life enhancing, trend setting, or society transforming your business may be.

So, a good place to begin, when you are thinking of creating a business, or in any of the early stages of a business…which can be many years into it….. is where the money will come from.

Types of Investors

Different types of investors represent different sizes of investments which may correspond roughly with the stage of growth the company is in, and what phase of growth they need to finance.

Friends, Fools and Family: Pre-seed Money

Most businesses are started when someone decides to invest most or all of her savings, then either moon light, or borrow from a supportive spouse, friends or parents to keep growing the business until it is self sustaining. They believe in you and your vision and are willing to put their hard- earned cash behind you. Also, they have a personal relationship with you, and, through long experience, have formed the judgement that you can probably pull this off.

If, in fact, for whatever reason, you are not able to pull it off, they will probably love you anyway, and figure they had the pleasure of being in on the ground floor of something which could have been very big ,if the cards had fallen the right way. They still think you’re great and very courageous to have tried it.

A pretty standard investment from a friend might be $10,000, just enough to get you started with postage stamps, copying equipment, and a few other basics. This is called pre- seed money.

The next step up the food chain is to angel investors.

Angels: Seed Money

Business angels are successful entrepreneurs, professionals or people with inherited wealth. They have a little extra money to put at risk, for a variety of reasons, which may include mentoring others, the thrill of the ride, or the desire to make money.

You must have a prototype of the business up and running to approach angel investors, who generally invest $50,000 to $500,000, with the average falling at around $250,000. Angels usually invest in groups of 2 to 5.

Angels invest in 50 times the number of deals venture capitalists invest in, which is a pretty good clue as where to look for money, at least in the initial stages of a business. Another differentiating factor is, angel money is very patient money, and they are willing to wait 3 to 7 years for a return on their investment. This is seed money.

There are probably active angel investor groups in your city. Ask your banker, lawyer or accountant to help you identify them, and, if possible, introduce you.

Venture Capitalists

Venture capitalists have only one goal, which is to make as much money as they can for their investors. They thrive on high risk, high return investments and have the capability of investing several million to 10s of millions of dollars and can accelerate your growth dramatically. ( In fact, they will insist on accelerating your growth, so be ready for it.)

Venture capitalist money comes from pension funds, wealthy individuals and institutional investors, all of whom expect to make money. Venture capitalists are usually looking for a significant market position in a particular space as well as a very high return on their investment. Remember, they are answering to investors, themselves.

Venture capitalists, or VCs are looking for a business which, in 3 to 5 years, will have $30 million in sales. They are targeting a large market size, and looking for a strong management team, a unique business model and a global business opportunity.

If you are not comfortable with any of these factors, or are looking for someone to be warm and fuzzy all the time, don’t look for VCs. As mentioned, their only interest is in profit. If you’re not making it, as expected, and on the time-table you’ve discussed, you are not just in the dog house, you are out of there, cut loose and left to your own devices. This is how a lot of dot coms who were told to burn through a lot of cash to gain market share fast, were suddenly left high and dry and cash-less. The VCs saw the market turn and decided to pull back, support their most promising, prize puppies and cut the rest adrift. As a result, many companies who could have been started and kept aloft with $1 million, but were given $10 million instead, with instructions to spend it all to reach a certain milestone, found, they had ramped up to a position of huge overhead which their cash flow couldn’t support, and, without further venture capital cash infusions, they were dead men or women walking. And soon, they were just dead men, or women.

So, the bottom line is, seeking money from a venture capitalist is a high risk, high reward proposition for you. Be sure it’s really what you want, and that you’re ready for the consequences it can bring.

“Capital Chasm” Companies

A relatively new phenomenon are the companies which have been formed in the past few years to address the problem of the “capital chasm”.

As one such company, SeedStage.com, put it:” Many entrepreneurs start out at the concept stage by bootstrapping their startup themselves, or by turning to friends and family for financing. Once a startup grows beyond these initial resources, however, the entrepreneur often is unable to cross the capital chasm to take the venture to the next level.

Most startups make the mistake of thinking that all they need is an introduction to a venture capitalist and money will be thrown their way.”

This, as SeedStage.com goes on to point out, is far from the truth. Venture capital firms have mushroomed, and they have also grown in size and tend to invest in later stage deals. They can barely sift through all the business plans which cross their desk.

Companies like SeedStage.com act as intermediaries, taking on the task of grooming the company. It helps “to build its core team, validate the market, develop the value proposition and business model, forge alliances and service partner relationships, and refine the investor presentation. Once readied, the startup is introduced to a widening circle of investors targeting appropriate industry, stage, valuation, and investment level. ” At the same time , the intermediary is assisting VCs in their screening process. Ultimately, an intermediary company, “brings together pre-screened and qualified entrepreneurs, mentors, investors, and service providers to facilitate funding and growth.”

These companies make their money when a deal is consummated between a company and an investor. Although this will cost a company some stock, it could be money well spent, in that valuable time may well be saved in securing investment capital.

Other Investors

Corporate Investors

Corporate investors invest for strategic reasons. They may wish to reduce time to market, or eliminate industry competition. If your company offers a product or service which dovetails nicely with a large coporation, a merger or acquisition could be a very profitable way to take your company to the next level and also get a lot of sophisticated, high level support in running your business

Institutional Investors

Institutional investors may approach you before an IPO, or initial public offering. Their goal is to enhance their financial returns. They will only talk to you one or two times a year, and don’t bring any added value, other than their investment to your company.

Only You Can Decide Where Your Money Should Come From

We know your family and friends believe in you, and there’s a pretty good chance some angel investors will also.

A growing number of women are getting VC financing today and more VC firms have women on their boards.

The most important part of the funding process, initially, is to decide what’s right for you. Do you want to bootstrap and be independent? If so, you may be happier doing that, and winding up with a larger piece of a smaller pie. But be aware that no investor will put money into just you. They are too afraid you will be hit by the proverbial bus or struck by lightening. If, on the other hand, you are willing to work hard on your business plan, develop a team, and be mentored by the advisors you will take on with VC financing, then that is a way which may lead to fame and fortune, which is a pretty good head start toward happiness.