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
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:
Finding An Investor
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.
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.
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
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
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;
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
for more information.