“I need some money to get started. Do you know someone who could help?” or, “I need an angel investor. Can you find an angel for me?” or “I’ve heard from a number of people that you are the guy to call to help me get money.” (Usually that last call means they have tried a lot of other people, and I am the last resort.) Whatever the case, these callers are all business people who have a great concept and are trying to come up with a way to develop the concept.
I wish I could come up with a list of universal angel investors who are friends of multi-unit retail and franchise and want to help worthy people. People have tried to develop investment funds over the years to help the start-up concept but most have not lasted. Thus, a “magical” list of angels does not exist.
What type of advice do I give the people who call me? In a nutshell, I tell them: “Beg, borrow and be original.” Let me discuss this in more detail.
PROVE YOUR CONCEPT
Prove out your concept as much as you can with the limited resources you have. Test the concepts on friends and family, other business experts, your attorney, your accountant. Ask each person to critically evaluate the concept and be open to accept their suggestions and criticism. Have your concept checked out by successful people in a similar marketplace. Sometimes these people may even think the concept is so good they may be the ones to help move your concept ahead. Remember it is good to have all perspectives at the beginning of your concept. In general, generate a lot of activity regarding your concept.
Beg. Go to your friends and family.
- • We call this “uncle and aunt money,” which means money from friends and family who believe in you, your trust worthiness and are willing to help. This is probably the easiest money you will ever get.
- • It is important your friends and family invest their money in a reasonable manner. Their money should come in as pure equity. Always make sure easy money does not inhibit future investment. Do not give up the farm.
- • Do not tell your friends and family you will pay back their borrowed money right away. This approach is a slippery slope. Always provide latitude concerning investor payback.
- • Use friends and family money to get your first location open; and if possible, your second location, to prove out the concept. Once a concept is proved out, you are ready for the options and other investors.
Borrow. Look to your own ability to fund the concept. Most entrepreneurs are risk takers, and you are your best advocate. Exhaust your own assets. Consider a second mortgage or a line of credit. (These types of financing may be your cheapest source of funds.) Even though some people have funded start-ups through credit cards, I do not recommend this method. Also, I would stay away from using your pension, profit sharing or 401K plans. (Those should be segregated to give you some sense of security.)
- • Explore minority business programs, women owned business programs, state grants, and incubator funds from local colleges. Check on-line for further new and creative funding sources.
- • Look at equipment leasing and SBA loans, possibly using your existing business collateral and personal assets for your first SBA loan.
- • Do not overlook the idea of a joint venture. Consider a joint venture with someone who is in a similar market and is looking for a concept. This joint venture approach may be an effective way to piggyback off of other companies’ successes. You should be aware that having a joint venture partner may limit your options but it is a great way to move your concept to the next level.
- • Do not forget that ideas cost money to develop; and as soon as you have an idea developed, you have an asset that has value. It can cost $1,000,000 to $2,000,000 for the development of a retail concept and proto-type. While concepts may have a value, normally early stage businesses do not. The real value is to be able to hold onto the concept and grow it.
Be Original. Make sure your concept is unique. Recognize that while there is no such thing as a better mouse trap, there is a better device for catching wild animals – that’s what you are looking for.
1) Use your own resources.
2) Do not jeopardize your long-term security by using your pension, profit sharing or 401K plans.
3) Borrow to a reasonable extent.
4) Tap into your family and friends’ resources so long as it does not create hard feelings.
5) Do everything you can to move your concept ahead. Motion is key. Be your own band leader – you can’t hire someone else to do that. Keep your parade moving forward.
6) Be creative and unique in your concept; don’t steal another concept.
From January 2005 Franchise Times