Coming to Terms: Document Spells Out Investor/Owner Relationships

By Ebetuel (Beto) Pallares, PhD, Founder of Joseph Advisory Services and Investor-in-Residence, Arrowhead Center at NMSU

By Ebetuel (Beto) Pallares, PhD, Founder of Joseph Advisory Services and Investor-in-Residence, Arrowhead Center at NMSU

An entrepreneur who’s ready to let investors contribute equity to her promising venture needs to shape an agreement that allows others to share in the rewards but lets her retain significant control over her creation.

The rough draft of that agreement is called a term sheet. It’s essentially the template for the legal contract that ultimately spells out the responsibilities and relationships of business partners.

Commonly used by professionals during pre-investment negotiations, a term sheet can also be used by small-business owners to discuss terms with investors, including friends and family members. The document aims to protect the interests of all parties to the deal and prevent the disputes that can destroy personal and professional relationships if things don’t work out as expected. Continue reading

Supreme Court Case Has Lessons for Mortgage Lenders

Alexia Constantaras

By Alexia Constantaras, Attorney at Law, Montgomery & Andrews, P.A.

Lenders that resell or buy mortgage loans might feel the impact of a February decision by the New Mexico State Supreme Court that affects their ability to foreclose if the borrower defaults.

The case, Bank of New York v. Joseph A. Romero, involved a Chimayó man who refinanced a mortgage he had taken on a home he inherited from his father decades earlier. Romero secured the original loan to open a business in Española; the 2006 Equity One refinance was done to pay off that older mortgage and other debts.

Romero claimed his business made approximately $5,600 per month, but Equity One didn’t confirm that information Continue reading

Simplifying the Funding Search for Seed-Stage Startups

By Bill Hartman, President and CEO, Ion Linac Systems, and President, The W. Hartman Group

By Bill Hartman, President and CEO, Ion Linac Systems, and President, The W. Hartman Group

I’m not a venture capitalist, but I’ve headed up several successful technology startups and recently ran an early stage software company that raised almost $2 million in “seed stage” funding. I’m now leading a pre-revenue New Mexico startup raising our first equity-based funding.

As anyone who has done this knows, raising startup funding in New Mexico is challenging — partially because our state is relatively isolated from the national playing field, but also because of the challenges the New Mexico and broader US venture capital communities have faced meeting the returns expected by their investors and the VCs’ ability to raise new investment capital. The amount of venture capital available has decreased as the initial funding of 8-10 years ago has been fully deployed in startup companies, but exits and positive returns from those investments have so far been relatively few.

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Businesses Turn Accounts Receivable Into Quick Cash

By Finance New Mexico

By Finance New Mexico

Accounts receivable represents money a business will get when — and if — the client pays his bill. It’s not money in the bank, but it’s money the business expects to collect within 30 to 60 days.

While waiting, many businesses that are owed large amounts of money — either because of generous or traditionally slow payment policies or foot-dragging clients — can struggle with cash flow shortfalls and be unable to pay their employees and vendors on time. Continue reading

USDA Program Helps New Mexico Farmer Turn Milk and Honey Into Money

Terry Brunner

By Terry Brunner, State Director, USDA Rural Development Agency

Daven Lee got much more than money when she received a $12,500 grant from the U.S. Department of Agriculture’s Rural Development program in 2010.

After eight years of selling her handmade soaps and lotion bars at the Santa Fe Farmers Market and other local outlets, the owner of Milk & Honey Soap wanted to go from retail to wholesale. But first she needed a business plan – complete with financial projections – that could attract big investors.

“The funding allowed me to bring in a business adviser,” she said of the funding that matched her own $12,500 investment. “I wanted a road map.” Continue reading

Law Opens Investor Pool for Small Startups

FNM-logo-redesign

By Finance New Mexico

A crowdfunding campaign to finance a movie about TV character Veronica Mars recently set a record — $2 million in 10 hours — on the Kickstarter platform. The backers were fans of the show and wanted to see a movie based on the character. In return for this donation, the contributors will get rewards, such as DVDs of the movie or other swag.

That’s a far cry from the typical crowdfunding project, which usually aims at a smaller target. But it suggests the possibilities of micro-financing vehicles that use the global reach of the internet to support projects unable to secure more traditional loans. Continue reading

Seek Venture Capital When the Market is Hot

Tom Stephenson

Tom Stephenson, Managing General Partner, Verge Fund

Raising equity capital for a business venture never happens in a vacuum. External forces inevitably affect when and how and where investors are found, just as they affect decisions about how much money is needed to support the company for a few years until it starts showing a profit.

External forces include the financing market — the universe of people and institutions that constitute funding sources for a company — as well as the larger business market in which it operates. Understanding these forces can help an entrepreneur develop a fundraising strategy.

Pure financial investors are in the game to make the most money they can from their investment in a company. But even they can make mistakes and act impulsively. Continue reading

Telling a Story that Drives Investment

Trevor Loy

Trevor Loy, Partner, Flywheel Ventures

When presenting an opportunity to investors, entrepreneurs usually begin by describing their invention and explaining why people need it. Next they present the financial team’s projections about what customers would probably pay for the product or service and what the entrepreneurs want to charge. They end by introducing the entrepreneurial team and detailing members’ credentials.

This approach is the inverse of what venture capitalists like me care about and consider when evaluating an investment. I want to hear about a venture the way I want to read a book or watch a movie: I want a story. Who are the protagonists and the other main characters? What goals do the characters hope to achieve, and how valuable would the goal be if it’s reached? What challenges do the characters anticipate and how will they respond to them? Finally I want to know my role so I can decide if I want the part.

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Venture Capitalists Put Market Before Product

Trevor Loy

Trevor Loy, Partner, Flywheel Ventures

When searching for investors, many entrepreneurs and inventors first present their product or technological innovation and then vaguely present the target market as “people who need this product.” But this isn’t how customers think when deciding whether to spend money.

Consumers start with a problem or “pain point” they desperately want to go away. They watch for anything that proposes to solve this problem. Discovering it, they decide whether it’s affordable or whether another product offers a better or cheaper solution. They might even decide they’re willing to live with the inconvenience if the solution is too costly.

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Entrepreneur Alert: It’s Time to Prepare for Technology Summit

Betsy Gillette

Betsy Gillette, Director of Market Research & Planning, TVC

Technology Ventures Corporation exists to help innovators find investors for technology-based products they hope to bring to market. In January, 2012, the Albuquerque-based company will select up to 20 entrepreneurs with the most commercially marketable ideas and help them prepare business plans to pitch in April to funders at TVC’s Deal Stream Summit, formerly called the Equity Capital Symposium.

Most of the scientists and engineers who become clients of TVC are sophisticated about technology but novices when it comes to selecting target markets, appraising market needs and attracting venture capital funding. Entrepreneurs interested in being coached by TVC should prepare now by developing the marketing aspects of their business plans. The more realistic they are about the need for their product, market size, customer base and branding, the more likely they are to draw investors.

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