Money for Entrepreneurs

In an article  in the S. Florida Business Journal, by Bruce Rector, he states:

“I often speak with shareholders of growth companies who view the infusion of external capital as a panacea for all that ails them today, such as constraints on expansion and lack of funding for more R&D. If only they had capital, they reason, the business would be propelled to glory.

There are many good reasons why a capital infusion might make sense for a company. But, before a company goes charging down the capital-raising path, it is crucial for shareholders and management to ask themselves a number of hard questions:

Am I ready for appropriate corporate governance procedures to be implemented?

Your company will not be allowed to run as a mom-and-pop business, even though that may be how it has functioned historically. You can count on a board of directors being implemented at closing of the investment process, and outside investors will typically participate on the board. There will be binding delegations of authority emanating from this board, giving different officers in the company the authority to perform their functions.

As part of this process, the owners may find that they no longer have the legal authority to bind the company in certain ways, or perform such functions as banking and contract negotiation, which they have historically done.

Am I ready be held accountable to rigorous operating and financial goals?

It’s great to be involved in a company that has what it takes to attract outside investors.

However, investment professionals are also accountable to the individuals investing in their fund. Therefore, they make very thoroughly considered investment decisions. And, on an ongoing basis, they will expect management to deliver the results that were portrayed during the due diligence and budgeting process.

Management absolutely will be held accountable to the shareholders. Management that fails to deliver promised goals should expect to be replaced. Excuses will not suffice.

Am I ready to no longer hold absolute authority at this company?

Many controlling shareholders derive a great deal of personal fulfillment from being the person who runs the company. With the appearance of institutional capital, this relationship to the company often can change.

New professional management might be brought in, and there often is a change in reporting relationships as part of that process.

When the dust settles, you might find yourself with less direct control and influence over the operations and strategy of the company.

If you can honestly answer “yes” to these questions, then you might be ready for prime time when venture capitalists and private equity groups again begin actively seeking compelling investment opportunities.

If you can’t answer “yes,” then management and shareholders need to rethink whether they truly wish to initiate the process of raising external capital.”

In cases where you can’t answer yes, then considering debt financing  and keeping ownership of your company is an alternative way to go.

The best way start any venture is by raising seed capital. It is very common at the beginning of the venture to be raised from friends and family. This start up money is usually enough to germinate the business through the process of conducting market research, building a prototype or getting the product or service ready to be sold. Until this first step is taken, approaching potential funding investors is fairly pointless since they will perceive that there is no business in which to invest.

Once you’ve started the process rolling, you can start looking at the options of approaching companies who provide venture capital such as angel investors and venture capital companies. There are major differences in these two types of investors and the best ways to approach them.

Whether you are presenting to a venture capital company or an Angel Investor, prepare a realistic and well structured business plan and  be sure that you know your product/service inside out. After the initial approach and only upon further invitation send a detailed executive plan – this will be your sales pitch so don’t just list features of the product without revealing benefits.

Angel investors are individuals who invest their own money so take a greater risk. It’s best to approach an angel group who, if you’ve made it past the screening committee will allow you a 20 minute presentation and then decide whether they will invest. Expect to give them 20 – 40% equity.

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The best way start any venture is by raising seed capital. It is very common at the beginning of the venture to be raised from friends and family. This start up money is usually enough to germinate the business through the process of conducting market research, building a prototype or getting the product or service ready to be sold. Until this first step is taken, approaching potential funding investors is fairly pointless since they will perceive that there is no business in which to invest.

Once you’ve started the process rolling, you can start looking at the options of approaching companies who provide venture capital such as angel investors and venture capital companies. There are major differences in these two types of investors and the best ways to approach them.

Whether you are presenting to a venture capital company or an Angel Investor, prepare a realistic and well structured business plan and  be sure that you know your product/service inside out. After the initial approach and only upon further invitation send a detailed executive plan – this will be your sales pitch so don’t just list features of the product without revealing benefits.

Angel investors are individuals who invest their own money so take a greater risk. It’s best to approach an angel group who, if you’ve made it past the screening committee will allow you a 20 minute presentation and then decide whether they will invest. Expect to give them 20 – 40% equity.

I was reading these tips from Eric Stevens on getting your Film Financed and found them very useful.

He has been in film finance  for over 10 years and   has come to learn methods that help aspiring films makers and independent  producers get financed and hopefully help  avoid the pitfalls he sees so often in this realm. He is pitched probably 3-5 films per week and he finds that  all have common mistakes.

E. Stevens states “Every film with only one exception is financed based on or along these lines. The exception is where the content has an emotional connection with the investor and they really don’t care about the rest.

1. Content: Obviously the story sells, and the genre has to be a money maker.

2. Attached talent: Many producers always tell me that such and such actor is attached but can’t get any paperwork. I understand the chicken or the egg situation here well. I know you can’t get a play or pay agreement without money. You CAN get a LOI or letter of interest from managers, or agents. This basically states if all the stars align and money is there the client may do the film. It doesn’t seem like much but you know by the amount of work you have to do get it, it means a lot.

3. Budget: Below and above the line. If you don’t have one get one. Submit a top sheet with you business plan. If you have one scrutinize it, have a line producer look it over. TRIM THE FAT!! With the technology advancements CGI and animation does wonders.

4. Distribution: This is always an obstacle for ANY producer. Some of my clients see this as their biggest obstacle. Why? The risk involved..preselling territories costs a lot in the way of equity as their is no finished product to view. However, a lot of times you need it to get the investors. DO a mix, get a commitment on some territories while leaving others open.

5. Financial structure: Most of you already know this but I will say it anyway. Each film must be setup as its own corporate entity. LLC, C Corp, Partnership, that’s for your attorneys to decide.

The way I have always suggested moving forward is doing a debt/equity mix or debt with an equity kicker. NEVER let your debt be over 30% of your budget. This will turn off any potential investor. While you are telling them they are in first position they know debt always takes first.

Usually what this means is that you can finance part of your film or slate, but the debt money isn’t kicked in until proof of funds on the equity portion is provided.

Take advantage of incentives in place! In the U.S. and some parts of Asia there are a lot of incentives for producing your film in that territory. For the EU I would venture to guess there are some, but I honestly just don’t know about them.

Look for states offering incentives for filming there. BUT BEWARE.. there are caps, and you must use their state citizens or you get no credit for those dollars expended. This has a lot to do with your above the lines costs which account for a good portion of any budget.

There are federal tax incentives to up to 15-20 million. Check them out.

Finally IRR. I see coupons issued for 115%, I see shares issued giving away the farm to investors.

How do you value your film. BE HONEST! first of all. IMDB is a valuable tool. Run your talent and see how much the films they are in pull in. Do genre comparisons. Look carefully at your distribution. Can the content be easily translated for other markets? Are the stars well received overseas?

Finally if you can offer a slate. Investors like to spread their odds. especially where you can use the same assets to produce additional platforms like games, and sequels.

There is no better time for film investments than now. It is the safest out there when the studios are begging for financing and short for content. This creates a void you can fill.

If anything movies will increase this year and next. People simply can’t afford to do other things and need the escape a good story gives them.”

Coming to you from the voice of a financeer.

THE MOST IMPORTANT JOB IS THAT OF LEARNING HOW TO NEGOTIATE WITH OTHERS WITHOUT FRICTION, SPECIALLY IF YOU ARE TRYING TO GET FUNDS FROM ANGEL INVESTORS OR VC FIRMS.

Experts in negotiation handle the process so smoothly that discussions hardly seem like negotiations at all. And they get their point across fast and with tact. While the word negotiation itself conjures up visions of cigar-chomping adversaries pounding the table to emphasize their demands, the best results are achieved when all the parties involved are able to put themselves in the others’ shoes and arrive at an agreement that is beneficial to everyone involved. It has to be a win-win situation.

Whether you are negotiating a selling part of your company, a higher salary, a new job,  the acquisition or merger of a company, your chances of success are far greater when you approach the situation positively and with a clear objective in mind.

It also helps to understand the motives of others involved and to have in-depth knowledge of the subject under discussion. Angel Investors, VC firms, fund managers  for the most part, are sophisticated business people, so you need to cut the small talk and get to the substance. No one has time to waste.

Finally, approach every topic with an open mind-don’t simply try to bully others into accepting your proposal or point of view.

You will get funded faster when you apply all this.

I read a great article from one of my favorite Entrepreneur Magazines: INC.

http://www.inc.com/magazine/20090101/angel-investing-2009.html

Angel Investing 2009

By: Kasey Wehrum

In a tough economy, angel investors are more cautious than ever. But it’s still possible to find funding. Here’s how

Where would we be without angel investors? In 2007, 258,200 angels pumped $26 billion into 57,120 companies, making these wealthy individuals the single largest source of start-up capital, according to the University of New Hampshire’s Center for Venture Research. But despite their ethereal name, angel investors are all too human. Their money comes from their investment portfolios, and theirs, just like yours, have been hammered. That’s sparking big changes in the way angels invest. Even in a tough economy, deals can still be done, but don’t expect them to happen in a hurry. Angels are pretty spooked these days. “Even highly diversified investors may be seeing a 20 to 40 percent decrease in the value of their stock portfolios,” says Michael Gruber, founder and managing director of Cornerstone Angels, a Chicago-based angel group. Further complicating matters is the fact that many angels are entrepreneurs themselves and may be more concerned with shoring up their companies than with helping you build yours.

As a result, they are being a lot more cautious than they have been in years past. The Center for Venture Research says investments through the second quarter of 2008 totaled $12.4 billion, up 4.2 percent from the same period in 2007. But just 23,000 ventures received those funds, a 3.8 percent drop. Why? “There’s safety in numbers,” says Marianne Hudson, executive director of the Angel Capital Association. Angels, she says, see syndication not only as a way of reducing risk but also as a means of ensuring that good companies are properly funded.

If you are looking for funds, be prepared for a buyer’s market. That means requests for more control as well as lower valuations. “I’m not saying we are going to be angels from hell, but we are not going to be stupid about how to price,” says John May, managing partner of New Vantage Group in Vienna, Virginia. On the other hand, says Bill Warner, chairman of the Triangle Accredited Capital Forum in North Carolina, “no angel wants to put an entrepreneur in the position of not being able to reap benefits from a successful exit.”

It is true, we have many Investors’ requests for projects. There is still a lot of money around, and Angel Investors know that they can have a better ROI investing in companies than in the Stock Market. However they are being a lot more careful.

We are  constantly asked what  the difference is between the registrations that we offer.

And we are always looking to build quality relationships that can benefit all parties.

So here is  an explanation of our Clients/Users:

Investors: are qualified individuals and groups of Angel Investors as well as private and corporate investment funds, any type of company that provides different types of funding worldwide  and are actively looking to fund companies.

Companies: entrepreneurs/companies that are looking for capital to start, grow, expand, merge or be acquired. We have access to a large deal flow from quality companies in all stages of development and in different industries worldwide.

Affiliates: individuals or businesses that are interested in referring Clients/Users to us whether it be companies or Investors.

Preferred Businesses: businesses that offer services that any of our Users can benefit from.  These could be attorneys, accountants, business plan writers, insurance agents, business consultants and many others.

If you are an Investor, you can register at:

http://fundsforprojects.com/listings/register_investor.php

In order for Investors to gain  access to certain specific projects, we may require proof of funds and the place of origin of such. After we receive all information and approve it, we will custom compile a portfolio of companies that fit each Investor’s criteria.

To register as a Company: If it is a company/project that we are actively looking for, there is no charge to register it with us, so that we can present it to Investors. If it is an unsolicited project, then any company can register their project online and choose for how long they want to attempt to find funding through us.

Here is the link to register your project with us:

http://fundsforprojects.com/listings/register_company.php

To register as an Affiliate: there is no charge. This affiliate will be added to our system in order to trace which Investors and/or Companies are registering through the Affiliate.

To register as an affiliate:

http://fundsforprojects.com/listings/register_affiliates.php

To register as a Preferred Business: there is a charge for this. Our other USERS will be able to contact these businesses via our platform and utilize the services that they offer. We actually link their information/website on our platform and when a USER has a need, they have access to those Preferred Businesses. If you are interested in being one of our Preferred Businesses, please send an email explaining the type of service that you offer to:

Services@fundsforprojects.com

And we will inform you  how to proceed.

Sometimes it’s hard for entrepreneurs to understand that VC firms, Private Equity companies, Angel Investors and  brokers can get on  a weekly basis, minimum of 100 (or more) business plans , Private Placement Memorandums, deal offers and all kinds of emails offering the next Google, the next E Bay, the next Apple.

Someone at these companies has to read through all that paperwork and emails and make sense out of it. It takes a lot of hours and man power to figure out who is who in the deals. Meaning that there are usually a lot of intermediaries in the deals. People that hear about a deal and start shopping it around. 

So we (the people with the money to invest or the people that represent the people with the money to invest) always attempt to get to the right person in the deal.

Because intermediaries usually don’t have quick access to all the information required by the Investors, they can not negotiate on behalf of the company. They have to go through a series of people. So it delays the process when you present a deal to the Investors and then you can not get to the information requested. 

On our website www.fundsforprojects.com we have a minimal charge for companies that are looking for funds to present their funding request for 3 main reasons:

•  If a person is serious about raising capital for their company, they understand that is going to cost and that no one is going to give them money for free. And if someone has to take their time to read their funding request why should they do it for free? Most intermediaries are hesitant to spend even a small amount of money because it’s not their deal and they do not have an agreement signed with the company searching for the funds. So they may never see a cent out of the deal.

• It takes a lot of man power to go through all the deal flow that we get.  When we are looking for a particular company to fund, we invite them to send the information to us without any charge, because we have the people in our company assigned to look for these particular types of companies. If it is unsolicited and in a different industry, then we have to assign other people to go through the information and that costs money. If someone is willing to pay us to read their information, then we are willing to market their deal through our Investors or contacts in the industry.

• Most information that we receive is not in a standard format that answers questions that we want to know right away before we present a deal to the investors. So we have taken the time to create an online platform with standardized forms for both Companies and Investors. As those forms are entered on our system, we immediately look at them and assign it to the proper person in the company for follow up. It makes our work a lot easier and efficient.

To give you an example of how it works. A few days ago I posted a request for a very particular company that one of our investors is looking for, and we received so far a total of 230 projects that are relative to the criteria that we requested and about 70 in a completely different industry. It takes weeks to go through all those projects and a lot of man power.