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Business Plan Financing

So You want to Raise Money?
Most people write a business plan for the sole purpose of raising capital. You may be thinking that with the 6,000+ sources of venture funding that exist today, and the $200 Billion that those sources manage, it should be relatively easy to get your plan financed. Our answer to that is Yes and No.

First, every funding source available today wants to see a business plan. Second, while there may be a lot of capital available, no one gives money away for free. Third, the most important thing is that your business plan be easy to understand, concise and to the point, and be backed up with a strong management team.

The Importance of a Management Team
Investors don't invest in ideas. Investors invest in people. This is the number one mistake that people make in starting new businesses. You could have the best idea in the world and be in a position to completely corner the market - nevertheless, you won't raise a dime if you don't have a strong management team. The number one reason why business plans are turned down is because they lack a management team that has done it before.

But No One Has Ever Done What I Intend To Do
Just because the idea is yours and you own the company, does not mean that you have the skills necessary to run the company. If you can grasp the importance of this statement, and you are willing to stand behind it, you are well on your road to building a successful management team and raising your capital.

It is not necessary for you to be the President of your own company. It is much more in your interests to find someone who has already been the President of a company, has built that company to a respectable size, and has a good reputation in achieving business goals. Find this person, hire them, and offer them a compensation package that includes incremental equity in your company for achieving specific goals that you lay out for them. As primary stockholder, you will have ultimate control strategically while allowing this person (and the management team that this person builds) to run the company tactically on a day-to-day basis.

The first thing that investors look at when evaluating your business plan is the reputation of the management team in accomplishing similar results for other companies in the past. If your management team looks positive and presents a well thought through business plan, you have a very good shot at raising your capital.

You've Got Everything in Place, What's Next?
So now you've got your management team in place and they bring a tremendous capability and reputation to your company. You've got a sensational business plan that has no holes. What's next? Deciding what kind of money you want to raise.

Basically there are three types of funding that you can pursue:
Early Stage Financing ($25,000 to $250,000).
Early Stage financing consists of money that is required to get an idea off the ground. Sometimes referred to as Seed Capital or Angel Capital, it represents financing which is typically used for product development, market research, business plan re-writing, etc. The result of early stage financing is a real product, fully developed service, etc., ready to begin sales. Early stage financing usually comes from friends, family, or private investors.
Expansion Financing ($250,000 to $5,000,000). Expansion Financing is used to take a developed product or service and begin marketing and sales efforts, typically on a limited scale. Expansion Financing is often divided into four stages. The First Stage are funds for full scale manufacturing, development, and/or implementation. The Second Stage are funds for growing sales and sales revenue even though the company may not yet be profitable. The Third Stage, which is sometimes referred to as Mezzanine Financing are funds used for major expansion, new product development, or major advertising and marketing efforts. The Fourth Stage, commonly known as Bridge Financing, are funds for a company that is expected to go public within a six month period. Typically, bridge financing is used to re-restructure previous equity positions, and is usually repaid with the proceeds from the IPO.
Acquisition/Buyout Financing ($5,000,000+). Acquisition/Buyout Financing provides funds to finance the acquisition of another company. Some types of financing used for this purpose are high interest 'Junk Bonds' or substantial bank debt.

Finding An Investor
Now comes the difficult part. You've identified the type and amount of funding you need and now you have to actually find the investor. Most people initially starting a company will be looking for Early Stage Financing. Expansion and Acquisition/Buyout Financing is usually easier to raise because the business has typically been operating for some time, and a history can be shown. The riskier investment is the new business that hasn't started up yet or that is in very early stages of startup and needs the initial funding to get off the ground.

Some of the questions you may have include:

Who typically invests in these deals? What amounts of money are possible? How will investors normally participate? What do investors bring to your project besides money? What type of returns will investors require and over what period of time? Where can you meet or be introduced to the right people? How do you avoid the scams that waste your time? How do you check out the money sources? Are they clean and are they legitimate? What criteria will an investor use to evaluate your deal? How and when do you approach seed or venture capital funds, and how will they evaluate your project? Should you contact a venture firm directly or should you get an introduction? How do you get an introduction to a venture firm? What are the deal criteria for venture capital funds? How do venture capital funds operate, and what do they expect from their portfolio companies?

You are in the minority if you can answer these questions and feel confident enough to present yourself to the financial community. The problem that arises in pursuing this route is that if you make a mistake with a funding source, chances are that source will not meet with you again. Is that a chance you are willing to take?

At BizplanSource, we specialize in working with you to develop a financing strategy that will work, specifically for you. We have successfully worked with many companies to help them raise financing. We can not guarantee that we can find financing for you. Instead, we offer you our expertise and experience in helping you to put together:

A winning business plan which addresses all the issues that funding sources want to see;
A successful management team;
The strategic relationships necessary to effectively implement your idea;
The processes and procedures necessary for you to effectively manage and build your business; and
The strategic and tactical plans necessary for you to raise your financing.

At BizplanSource we have experts in business plan financing who will work with you to make certain that there are no holes in your approach, ideas, or documentation.
Contact Us for more information.