Category Archives: Articles

Financing Decisions in the Real World

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Tom Stephenson, Managing General Partner, Verge Fund

Tom Stephenson, Managing General Partner, Verge Fund

Raising equity capital for your business never happens in a vacuum. External forces inevitably affect when and how and where you hunt for investors, just as they affect your decision about how much money you’ll need to support your company for a few years until you start showing a profit.

External forces include the financing market — the universe of people and institutions that constitute funding sources for your company — as well as the larger business market in which you operate. Understanding these forces will help you develop a strategy for fundraising.

Beware the bubble

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

Investors have no more insight than you do into how a market or an individual company will evolve. They, too, can misread the economic signs and underestimate or overestimate the market appeal of a particular product or service. Their fallibility is one reason why certain market segments get “hot” and others get “cold.”
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Equity Funding: Milestones That Matter in the Life of Your Businesses

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Creating a road map with meaningful milestones for the development of your business will help you determine how much equity capital to raise and when to raise it in such a way that you maximize ownership of your company over time.

Many entrepreneurs who decide to share ownership in their companies in exchange for capital investment identify goals that substantially increase the value of their business when reached, and they schedule financing rounds to follow these achievements.

If your product requires pre-approval from a federal agency such as the Food and Drug Administration or United States Department of Agriculture, for example, clearing this hurdle represents a success that makes your business more valuable and attractive to investors. If you raise just enough money to accomplish this goal and carry you through another three months — until you can complete your next round of fundraising and deal with unexpected costs — you can increase the amount of equity that you and your earliest investors maintain in the company.

Reaching these milestones also means you’ve reduced the risk for investors and greatly improves your chances of finding new partners and greater amounts of capital.
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Equity Capital: Show Me the Money – But How Much?

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Tom Stephenson, Managing General Partner, The Verge Fund

Tom Stephenson, Managing General Partner, The Verge Fund

Once you’ve decided to finance your new business with equity capital and reconciled yourself to sharing ownership with a partner or partners for several years, it’s time to decide how much money you should raise and when to do it.

It’s not as simple as predicting how much cash you’ll need in the early years and setting off to raise that amount all at once. What you decide at the beginning has a great bearing on how much of your business you’ll own a few years down the road when it becomes self-sustaining.

If you decide instead to raise the money in multiple rounds, you give up less equity in the long run. You might even become established enough to forgo further equity financing and instead borrow money through a traditional loan.

Transaction costs and investor needs often frame this funding decision.

Understand transaction costs

Raising money costs money — and time. The biggest time-consumer involves managing the equity-investment transaction: reviewing documents, preparing due-diligence materials and negotiating specifics of the deal.
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Springboard Gives Entrepreneurs a Boost

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Tatjana Rosev

Tatjana Rosev, Los Alamos Nat’l Lab Communications Office

The most successful entrepreneurs recognize the benefits of networking with external experts — service providers, industry consultants, venture capitalists, business coaches and successful CEOs — when starting or building a company, especially when the economic forecast is uncertain and entrepreneurial confidence is at an ebb.

But there’s more to effective networking than passing out business cards and attending seminars to meet and interact with influential others. It also requires connecting with individuals locally and nationally who have a vested interest in helping entrepreneurs take their companies to the next stage.

Wise Counsel

Business coaching is a powerful, collaborative relationship between an entrepreneur and a coach/consultant who is more versed and better established in a particular industry or discipline than the business owner and has better access to human and financial resources. Being trained by a coach how to identify, evaluate and overcome obstacles to growth can help the entrepreneur achieve his or her goals faster and more effectively. Northern New Mexico Connect’s Springboard program offers free coaching to technology entrepreneurs in Northern New Mexico whose companies are at various stages of development.
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Event/Competition Offers More Tools to Woman-Owned Businesses

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Catherine E. Zacher, NM State Coordinator, Count Me In For Womens Economic Independence

Catherine E. Zacher, NM State Coordinator, Count Me In For Women's Economic Independence

New Mexico is committed to the success of the tens of thousands of small businesses that drive the state’s economy, including the 62,710 owned by women, according to Lt. Gov. Diane Denish.

Lt. Governor Denish ran a successful research and fundraising business called The Target Group for 12 years before embarking on her political career. As lieutenant governor, she has championed initiatives to attract capital investment in New Mexico businesses, including an upcoming event/competition that aims to increase the percentage of woman-owned New Mexico businesses that generate $1 million or more in revenue.

The national organization Count Me In for Women’s Economic Independence meets Sept. 18th in Albuquerque, and its goal is to inspire female entrepreneurs to transform their fledgling businesses into million-dollar ventures.

According to the 2004 census, only 1,655 of the state’s woman-owned businesses reported annual revenue at or above $1 million. If that number grew to 6,800 by 2010, the state’s economy would grow by $6.8 billion and 46,000 more jobs would be created.
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Speeding Up Startups in Northern New Mexico

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Tatjana Rosev, Los Alamos National Laboratory Communications Office

Tatjana Rosev, Los Alamos National Laboratory Communications Office

The gap between the early stage funding needs of a startup company and the expectations of a typical venture-capital firm can prevent many innovations from growing beyond a concept into a commercial commodity. Because venture capitalists and angel investors tend to support products and services in intermediate, less-risky stages of development, numerous government and academic institutions have created “pre-seed” or gap funds to accelerate the creation of new companies and sustain developing companies through the research phase so their owners can focus on preparing their businesses for later-stage equity investments.

Los Alamos National Security, the public-private partnership that runs Los Alamos National Laboratory, sponsors the Northern New Mexico Connect Venture Acceleration Fund to support businesses with lab affiliations. While such funding is rarely enough to carry a company all the way to profitability, it bestows credibility, public exposure and access to venture firms and allows an entrepreneur to reach critical commercial milestones that demonstrate to a potential backer how the company plans to deliver an attractive return on an investment.
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Credit Crunch Isn’t Squeezing Equity Lenders

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Jarratt Applewhite, Founder, NM Community Capital

Jarratt Applewhite, Founder, NM Community Capital

Sandy Weill, the billionaire tycoon who built Citigroup into the largest financial institution on the planet, was asked by TV interviewer Charlie Rose how much his net worth had declined during the ongoing credit crunch. Weill said he was probably “25 percent to 30 percent” poorer than he had been six months earlier.

Before you weep for Weill, consider how much “poorer” he would be if he lived in New Mexico and had to do the kind of driving most of us do every day.

But even billionaires aren’t immune when the economy is ailing. Policy wonks and economists can argue endlessly about whether today’s economy meets the definition of a recession, but outside the Beltway it’s clear to most people that these are the roughest financial seas in decades. When our homes, the biggest assets most of us own, are losing value, it’s hard not to worry.

Eyes on the distant prize

Living in a “flat” world of interdependent nations and economies accentuates the turbulence of global markets. Rising oil prices, falling employment and a weak dollar make most investors nervous enough to seek new ways to protect their capital. Instability creates anxiety, which leads to tightened credit and more restrictive access to debt capital.

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Are You Ready to be Your Own Boss?

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J. Roy Miller, State Director, NMSBDC Network

J. Roy Miller, State Director, NMSBDC Network

It’s often said that more people start businesses during economic slumps than when the economy hums. This seems counterintuitive because when recession seizes the economy or seems to be stalking it, consumers limit purchases, businesses slow production and workers lose their jobs. But after an extensive job hunt, many laid-off workers see starting a business as a lot less risky than working for someone else.

The dream of running one’s own business has been part of American culture for centuries, championed in films, music and literature. Small business drives the U.S. economy, employing half of all private-sector workers, according to the latest statistics from the U.S. Small Business Administration. All of those businesses started with an individual who envisioned doing things independently.

How do you know if you have what it takes to be your own boss?  Consider the following questions, and be brutally honest with yourself when answering.

Do you have the right character to start a business? Are you a leader and self-starter? Can you handle stress? Are you and your family prepared for the likelihood that you — and they — might be working long hours?

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Free Money for Your Business? Yeah, Right!

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Sandra Taylor Sawyer, Director, NMSBDC at Clovis Community College

Sandra Taylor Sawyer, Director, NMSBDC at Clovis Community College

With lenders becoming less willing to extend lower-interest credit in an unpredictable economy, it’s understandable that entrepreneurs might be tempted to respond to one of the offers of “free money” that are ubiquitous on late-night or daytime television.

Many of us have seen the commercials starring the guy in the question-mark suit and polka-dot bow tie who has been a mainstay of non-prime time television for years. This guy has made a fortune writing numerous books that claim to direct readers to “free” government money to start businesses, build homes, pay bills and so on.

And he’s not the only one making such assertions. Plenty of lower-profile hustlers claim inside information about free money that’s available to help people start a business. Their advertisements include enticements to send money or attend a seminar to learn where and how to get these grants (for $399.95 to $900 or more!). Once hooked, the hapless prospector learns that the “inside” information originated on the Internet or in government records that outline technical-assistance programs for businesses or money for nonprofit organizations that provide health services, business advice or community activities for young people.

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Getting Help When Going Solo

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Kim T. Blueher, Director of Lending, WESST Corp.

Kim T. Blueher, Director of Lending, WESST Corp.

When you work for someone else, the job comes with a boss and co-workers. It might include people to supervise. You get a paycheck every two weeks. If you need something — envelopes, printer cartridges, gas for the company vehicle — you ask the person in charge of supplies. If you have trouble with a customer, you ask your boss for advice. You probably spend lots of time commiserating with co-workers about all sorts of things — the cranky receptionist, the dirty bathrooms, the broken air conditioner — or celebrating a major achievement or each other’s birthdays.

It’s an entirely different world when you’re self-employed. If you need envelopes, you have to go to the store and buy them. You have no one to commiserate with, and that paycheck might not be so steady.  And guess who gets to soothe the unhappy customer?

Working solo, it’s up to you to offer the best possible product or service. You alone are responsible for developing and implementing a marketing plan. You spend hours building and maintaining relationships with customers and researching, purchasing and maintaining your own equipment. It’s your job to keep the office clean and the lights and air conditioning working and to pull the weeds that grow around your building, whether you own it or not.

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