As you prepare to approach potential funders, look for people who want what you can offer. Issues to consider when approaching the bank, potential investors, and other stakeholders are discussed next.
Approaching the Bank
Successful banking relationships are built on the personal relationship you develop with your banker. Don't rely on the phone book when choosing a potential loan officer. You should interview and evaluate his or her ability to help you at the same time he or she is sizing you up. Consider the following tips to help find the right bank and loan officer:
- Search for banks that target businesses like yours.
- Obtain referrals from entrepreneurs, accountants, lawyers, or consultants.
- Establish a business account where you do your personal banking.
- Look for full-service banks that participate in SBA lending programs.
- Find a lending officer that specializes in your type of business.
- Ask about the banking services you want for your business.
Go prepared into your interview with the banker. The loan officer will need to know certain things about you and your business to determine whether your business is a good fit with the bank's lending policies. Be prepared to share the following with the banker:
- How much money you need and what the money will be used for
- How the money will be repaid
- When you need the money
- A written business plan with completed financial projections
- What the bank stands to gain by providing money to your business
- How the loan will be repaid if things don't work out as planned
- Current, personal financial statements for any principals involved in the venture
- A list of collateral to be offered as security, including an estimate of the present market value of each item
The two primary types of equity investors are angel investors and venture capitalists. Each individual investor has different funding goals and should be evaluated for its potential match with your business's funding goals. Still, some generalities can help you prepare for these interviews.
Angel investors - Historically, angels have not publicized themselves as investors. Therefore, they can be difficult to find. They frequently attend events where entrepreneurs gather to informally nose around to see what might be of interest to them. You may also be able to find angels by contacting attorneys, accountants, entrepreneurship centers, and local economic development governmental agencies. In the past decade, however, investors have formed and joined over 200 new angel organizations in the United States. Angels join these organizations to find investing opportunities and to take advantage of efficient deal processing that organizations have adopted.
Venture capital investors -The best way to get your business plan noticed by a venture capitalist is through a referral from an attorney, board member, angel investor, entrepreneurship center, trade organizations, or other personal contact.
The story of Scott Cook's search for venture capital for Intuit® (the maker of QuickBooks®) is fairly typical. He contacted twenty venture capitalists and was turned down by all of them. Only after raising money from friends and family, writing his own ads, and receiving orders was he able to obtain funding.
Another opportunity for you to find interested venture capitalists is through venture capital events and competitions sponsored by your local entrepreneurial organizations. At these events, you can receive mentoring and pitch your company to hundreds of potential investors.
For example, InvestMidwest is a program designed to annually showcase the best technology and high growth companies from throughout the Midwest. Companies that have presented at InvestMidwest over the last six years have successfully raised over $200 million dollars in equity investment. Springboard Venture Capital Forums provide women-led high growth enterprises with access to investment capital and a six-month training and coaching program involving investors, accountants, lawyers and business development professionals.
Finding Other Stakeholders
If you find the traditional funding sources of banks and investors do not meet your needs, look elsewhere. To find other creative sources of financing, look for people who could benefit from what your company offers. These stakeholders are ones most interested in seeing your company succeed. In other words, when you win, they win. Stakeholders might include suppliers, the landlord, and even customers. They may be able to help by providing favorable terms of payment; if they are in a position to provide financing, all the better.
When you get the opportunity to talk with potential investors, be straightforward about your Business Plan and financing needs. Be prepared to discuss these issues:
- Your plan to meet the growth expectations in a functional area of business that interests the potential investor.
- Your management team: key positions filled and plans for the future.
- Your role in the business, now and in the future.
- An appropriate exit strategy, with specifics of which public companies might be interested in acquiring your company in the future, and why.
Once you initiate a relationship but before you are funded, maintain open communication to keep investors updated about your progress and setbacks.
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