The Seed Capital for Startups Blog

How to Raise Startup Capital: Lessons From Deal-makers

How to Raise Startup Capital: Lessons From Deal-makers

From working with entrepreneurs since 1986, I have noticed one glaring problem most have. Most have no idea how to sell their startup or deal to investors. Instead they just write a business plan and shotgun it out to everyone. Then after a few months, when no one has jumped on it, they start complaining that investors are "too stupid" to see how wonderful the investment opportunity really is.

What rookies fail to take into consideration are tangible economic incentives and psychology. Deal-makers, on the other hand, understand how to offer short-term economic incentives made all the stronger by appealing to psychological needs.

Would you like to learn how to put together B2B deals? If you answered, yes, get a copy of How Deal-makers Raise Capital.

Order it today before the price goes up.

How Deal-makers Raise Capital

Or get the full manual on creative startup financing.

How to Use Creative Financing to Start Your Business

Free Mini-Course in Creative Financing for Startup Entrepreneurs

Are you an Entrepreneurial Champ or Chump? Find out.

Champs are the ones who understand how entrepreneurial finance works. Chumps are those who sit around hoping that some kind stranger will give them money after reading their business plan. When it doesn't happen, they complain about investors being "too stupid." You can increase your chances of being successful in attracting capital down the road if you learn how savvy entrepreneurs are always moving their companies forward.

You can subscribe for free here: Send Me Creative Startup Financing Mini Course Right Now!

You will need to confirm your subscription by clicking

a link in the confirmation email.

No thanks! No time to waste, just let me have the creative financing manual for startups!

Startup Capital: How it's Really Raised

Startup Financing: How it Really Works

Let's look at the typical stages in a successful company's financings. We'll start with the last and finish with the first. Although there are rare exceptions to this sequence, in most cases it looks like this:

-The IPO
This is the big pay-off at the end of years of hard work. It means liquid stock selling at, hopefully, a high P/E multiple. (The second best alternative is to be acquired by a large company such as a member of the Fortune 1000.)

-Venture Capital C-Round
The IPO is now in sight and the C-round is used to "fatten the pig" as much as possible in addition to preparing the company for it. Often this preparation includes replacing management with C-level officers who are known to and respected by Wall Street.

-Venture Capital B-Round
Wall Street is starting to take notice of the company. Therefore, the VCs want to maximize its forward momentum.

-Venture Capital A-Round
VCs step in when the business looks like it has potential for an IPO or acquisition a few years down the road.

-Angel Round
Angels come in with money when you have started selling. They jump aboard because you now have tangible proof of concept. You're finally walking your talk. It's no longer all just hot air coming from the founder. Be honest, talk is cheap.

-Seed Round
At this stage you have no more than an idea. You are going to build the next Facebook or Google or Apple...only it will take a year or two of work before there is something that can be sold. Or maybe it's a dull little business which excites only you?

So, who comes in at this stage if you should be lucky enough to attract any money? The answer is the "3Fs", otherwise known as Family, Friends, and Fools. Yes, this means your parents and rich frat buddies from your days at Harvard or Yale. What's that? Your family is not wealthy and you didn't attend an Ivy League college? In that case, you are going to have to finance your seed stage the most common way: with a day job.

Welcome to Planet Earth. That's how 99% of startups get through the seed stage.

I am providing this information because so many people post online requests for funding to cover 2 to 3 years of coding or R&D. Then when they are ignored, they get angry.

If you are realistic about what types of scenarios attract investors, you won't get angry. Instead you will work to create an opportunity that will be attractive to investors at every stage.

If you think that you are going to attract money to cover your living expenses and provide a bit of fun money while you code or do R&D for 2 or 3 years, you are in for nothing but frustration.

Small Business Loans: SBA ARC Loans

This is from the SBA. If the new owner is struggling with making payments debt, he might be eligible for an ARC Loan.

Lenders Can Help America’s Small Businesses Recover with SBA’s ARC Loans

By: US Small Business Administration

Lenders play a critical role in the health of the American economy, and are especially vital to small businesses. The U.S. Small Business Administration is implementing a special, temporary loan program you can use to help struggling American small businesses while reducing your risk during these tough economic conditions.

Under authority provided in the American Recovery and Reinvestment Act (signed Feb. 17, 2009), SBA has designed a deferred-payment loan program to help small businesses make payments on existing debt.

Section 506 of the Recovery Act authorized SBA to help viable small businesses make payments on existing small business debt. The America’s Recovery Capital, or ARC Loan Program, is designed to give viable small businesses facing immediate financial hardship some temporary financial relief so they can keep their doors open, refocus and get their cash flow back on track. ARC loans are available through SBA-approved small business lenders and have been authorized through Sept. 30, 2010, or until the appropriated funds run out, whichever comes first.

Non-SBA lenders can become ARC lenders. Contact your local SBA district office for information and training. You can find the nearest SBA district office at www.sba.gov/localresources/index.html.

Loan structure

• An ARC loan is a deferred-payment loan of up to $35,000.
• ARC loans will be used to make up to six months of principal and interest payments on qualifying loans for existing viable for-profit small businesses in the United States.
• Disbursement period (up to six months) is followed by 12 months with no repayment of the ARC loan principal, followed by a repayment period of five years. SBA pays monthly interest to the bank.

How lenders benefit

• Reduced Risk: 100 percent guaranty provides greater security and confidence to lend.
• Guaranteed Interest: SBA will pay monthly interest to the lender at reasonable rates throughout the term of the loan. 
• Conventional, commercial business loans (and SBA-guaranteed loans made on or after Feb. 17, 2009) are an eligible use for ARC loan proceeds.
• Proceeds may be used to pay on mortgages, secured and unsecured loans, lines of credit and credit cards if the debt was used for eligible business purposes under the program. 
• SBA turnaround on non-delegated loan applications – expected within five to ten business days.
• Access to E-Tran, SBA’s electronic application process available to SBA delegated lenders.
• Existing SBA lenders are eligible to make ARC loans and delegated lenders may make ARC loans on a delegated basis.

How the community benefits

• SBA loans help build and retain community businesses, create jobs and stimulate economic activity.

How small business owners benefit

• ARC loans are interest-free to the borrower, have deferred payments for 12 months, and have no SBA fees associated with them.
• ARC loans will allow borrowers to redirect cash flow from making loan payments to investing in their businesses.
• Banks will begin investing in small businesses again, making credit more readily available for those businesses that need it.
• Streamlined applications by SBA.

SBA loan programs now provide greater incentives to you the lender, are more affordable for small business owners, and help to drive economic recovery in your community.

For more information, click on www.sba.gov/recovery.

All SBA programs and services are provided on a nondiscriminatory basis.
U.S. Small Business Administration • Recovery Act: Lenders Can Help Small Business with ARC Loans • 2