Every business starts with an idea, a plan and a chunk of change, but number three can be a barrier for aspiring entrepreneurs.
Speakers advised entrepreneurs on how to obtain startup funding in a lecture on Sept. 12th at UVU. The lecture, “How to Raise Money in Utah,” was put on by the Wayne Brown Institute, a nonprofit organization that helps entrepreneurs create solid business plans.
Entrepreneurs are known for the immense amount of passion, sweat, blood and tears they put forth. But when it comes down to it, starting any business also requires money. And how do entrepreneurs get a handle on funds? One simple word — investors.
But investors aren’t quick to drop thousands of dollars unless it is likely they will get a return. The return happens when a business they’ve funded begins making a profit and pays back the investor.
According to Kent Thomas, founder of Advanced CFO Solutions, of every 10 entrepreneurs funded, only seven actually pay back their investors. Sure a 3/10 loss doesn’t sound that bad, but when it’s referring to thousands of dollars, a lot more than single digits goes down the drain.
When entrepreneurs understand this, they will understand why investors are skeptical.
James Oakes, a communications studies major from San Diego, Calif., believes it can be a little intimidating talking with investors. But after taking entrepreneurship classes, he believes it is not impossible to obtain funding.
“I think the most important thing is being able to articulate your message and purpose and share the vision that you have in a way that they’ll want to support you,” Oakes said.
Investors agree.
“How you are perceived by an investor is everything. Ninety percent of all entrepreneurs are first timers, so they probably haven’t dealt with an investor,” said Brad Bertoch, president and CEO of the Wayne Brown Institute. “They (investors) want to know if you really understand that there is a way to create businesses.”
Here’s a review of what investors look for based on Berotch’s and Thomas’s addresses:
1. The number-one item investors look at is the potential company’s management team. A team needs well-skilled, dedicated individuals who can bring positive results.
2. If you don’t have a lot of startup revenue, investors need to know you have customers who will buy your product. This means the product needs to be something someone will actually use.
3. Understand and identify your market. Present a clear, organized strategy on how to reach it.
4. Investors need to know their money will be used wisely. Wearing an Armani suit and driving a Mercedes is a red flag for investors. They want to see entrepreneurs who can manage their own money before they write them a check.
5. Don’t make an investor the foundation of your business. Investors want in and out in a reasonable time frame. Use their money to start your business. Then pay them back and move on. Don’t keep them tied to you.
6. Be honest with investors. Explain to them why your business may or may not succeed, and don’t overestimate your money-making abilities. Nothing turns off investors more than telling them you plan on making $7 million in the first year.
“As entrepreneurs, we tend to be very optimistic, and we tend not to really look in detail at all of the ‘what ifs’ that might happen in business,” Thomas said. “Help us (investors) get over that; present to us real information.”
