Money for Entrepreneurs

On a Twitt from @gtiadvisors, he mentioned an article from Entrepreneur Magazine:

http://bit.ly/1ZR66s

If you want to secure venture capital, avoid these 8 mistakes by Brad Feld:

“As a venture capitalist, I’m constantly on the receiving end of pitches from entrepreneurs looking for capital. While there are plenty of different mistakes you can make, these are the ones I see over and over.

1. Not knowing your audience: I invest in early-stage software and internet companies in the U.S. I’m always amazed when someone reaches out to me to invest in a telecom company, a retail products company or a biotech firm. Do your research and make sure the venture capitalists you target invest in what your company does.
2. Asking the venture capitalist to sign a nondisclosure agreement, or NDA: This is a stupid idea perpetuated by lawyers. Most venture capitalists will not sign an NDA, so all you’re doing is putting up a barrier to get their attention and demonstrating your naivety.
3. Sending a 74-page business plan in the mail: This might have been the right approach in 1972, but today you should start with a short e-mail introducing you and your company. If you must, include a short (four pages or fewer) executive summary. Make it easy for a venture capitalist to either engage or say he isn’t interested. If the venture capitalist is interested, he’ll inform you of the next step in the process.
4. Spamming 150 venture capitalists with a “Dear Sir” e-mail: If you do send an e-mail, make sure it’s personalized. Remember to target your audience first, and then personalize your e-mails to that person. Oh, and if my name is “Brad,” please don’t start off with “Dear Fred.”
5. Name-dropping other venture capitalists: If I’m interested in your company, I might ask you who else you are talking to, but don’t start off by name-dropping. It probably won’t have any positive benefit, and if I know the other folks you are talking to, I might reach out to them. If I hear they are lukewarm or, worse, have no idea who you are, you just blew it.
6. Listing 27 advisors but only one co-founder: Advisory boards, especially at the very early stages of a company, are generally useless. A few key advisors who have deep domain knowledge or experience in your industry are great, but a long list of lightly engaged people who have well-known names but aren’t helping you diminishes your credibility.
7. Using the wrong materials at the wrong stages: When you are raising money, you should have an arsenal of presentation materials ready to go. However, dumping it all on the venture capitalist with one big thud is rarely effective. Instead, provide access to a demo or PowerPoint presentation so I have the option of reviewing it and talking with you instead of getting pitched.
8. Thinking there are rules that apply to all situations: Each venture capitalist is different. Learn what you can beforehand so you can tune your approach to each venture capitalist.”

During a recession is a very good time to start a company. Nolan Bushnell and Ted Dabney founded Atari during a significant downturn in 1972, and that allowed them to share risk with business partners, which allowed them to keep the costs low.

The founders said in an article: “For example, we were able to move into a large facility. Our meager balance sheet could never have supported that rent, but the landlord looked at us a a better option than just leaving the building vacant. Also, our vendors were all willing to provide long terms for payment on their parts and services.

The most important part of all was that I had my pick of the best engineers and managers in Silicon Valley. Since many of their friends were laid off, the thought of moving to a fun job at a new start-up seemed not that much more risky to them than staying put where they were. Our ability to cherry-pick the best of the best allowed us to crush any technical problems we encountered and the talent we amassed powered Atari as not just a game market leader but also a technical super power. We were the first non-government organization to use the N channel MOS semiconductor, and we basically put that technology on the map. We innovated on so many technical levels that by the time I left the company we had a 85 percent market share.”

Many things are better for a start-up during a recession. Now is the time to start a company. It is very important that the business plan and all paperwork has been updated to this economy. Financial Projections calculated more than 2 years ago, need to be re calculated. Marketing plans need to be updated to include Social Media and internet marketing if applicable.

Over the years we have  been asked what is the best structure for their  business in order to get it funded.

We have information on that on our website www.fudsforprojects.com, however I figured repeating it on our blog would be a good idea.

In an article I read  by Davis Glass of Business Credit News, he stated:

“There are a couple of things you can do to determine that. Sit down with a tax or legal professional or do some research of your own. I tend to do the research myself. I find that the tax professional gives their slant on which entity I should choose, based only on what’s best from a tax perspective as the attorney has the liability perspective only. If you were to sit down with me, I’d give you the positive and negative to each of the entities from the tax and liability side, but I spend a great deal of my time determining your financing needs now and in the future. So the answer to which is best is really determined by you once you have all the facts from the different perspectives.

To help in getting all the facts here are a few tools. First, is a link to The Company Corporations website where you can fill out a questionnaire and learn what entity other people in your industry are using in your state. This is helpful to understand what the majority of people who are forming S Corporations, C Corporations and LLCs are doing.

Second, I’ve provided an explanation of the three types of entities I tell 99% of small business owners to form either an S, C or LLC.

LIMITED LIABILITY COMPANY
Limited Liability Companies have been around for many years in such countries as South America and Germany, but was first adopted in America in 1977 by Wyoming.

Evidence of LLC legislation in other states around the country did not take place until the IRS made a key ruling on the taxation of this new structure. On September 19, 1998, the IRS issued Revenue Ruling 88-76, stating that LLC’s would be taxed as partnerships even though none of the members (partners) or managers would be personally liable for any of the company’s debt. This ruling encouraged other states to adopt this new vehicle as well. All states have accepted LLCs into their domain as legitimate business structures.

The LLC structure can be used to hold property and transact any type of business. LLC structures are similar to partnerships, limited partnerships and “S” corporations. An LLC by default is taxed as a partnership which make it a flow-through entity. It passes all of the LLC profits and losses directly to the members of the LLC. Individual members are therefore taxed at their personal tax rates. It is possible to elect a different tax status when you file your SS-4 form with the IRS. Speak with a tax professional to determine which is best for you.

LLCs can also be handy tools when exploring joint ventures. For example, let’s say you are enjoying the benefits of controlling your own corporation, and you now want to combine efforts with another individual by forming a joint venture. Taking two corporations that you control and forming an LLC will allow the profits or losses from the joint venture to flow directly into your respective corporations. The taxable entity in this case would be the corporation. This is a simple way to bring two corporate entities together and keep an arm’s length from the business at hand.

CORPORATIONS
Although a corporation is separate and distinct from its stockholders, directors or officers, it is a separate entity that can act only through its members, officers, or agents and cannot have knowledge or belief of any subject independent of the knowledge or belief of its people. A stockholder (owner or partial owner) is a holder of shares of stock in the corporation and is NOT IN LEGAL DANGER for the acts of the corporation. In other words, you, as the owner, are not responsible. A stockholder is not the employer of those working for the corporation nor is he the owner of a corporate property.

A corporation is a citizen in the state wherein it was created and does not cease to be a citizen of its state of domicile by engaging in business or acquiring property in another state. Since corporations are solely creatures of Statute, their powers are derived from the constitution and laws of the state in which it is incorporated. As an artificial person, a corporation is considered to have its domicile in the state where it is incorporated and the place where it has a statutory presence. When the corporation functions in a different state, the site of its designated resident or registered agent is sometimes called its “statutory domicile”.

The existence of the corporation is not affected by the death or bankruptcy of a shareholder, officer, or director. It has a continuous existence as long as it complies with the statutory requirements of the state where it is incorporated.

For the purposes of raising capital and building credit for a small to medium sized business, corporations provide the best chances for gaining approval and are recommended by the authors of this book. A corporation is a separate legal entity from the owners and officers of the business. It files a SS-4 form with the Internal Revenue Service to obtain a tax identification number that will be used to create a separate credit profile for the business.

Corporations are the oldest business entity in the United States and have the most case history. Credit card companies have designed credit cards just for corporations. Venture capitalists and banks will spend more time with the owner of corporation then that of a sole proprietorship. Corporations are taken more seriously in business. Some companies will not hire another business unless it is incorporated.

There are several types of corporations, but the two that are most commonly used are the “S” and “C”. To decide which of the two is best for your situation consult a tax professional.”

His article provides a lot of useful information worth mentionned here.