Fantasyland
April 27, 2009
Entrepreneurs live in a fantasyland. They see and believe in things that do not yet exist. For some, there is no need for anyone else to agree that this magical land is real. For most, some minor encouragement is needed.
In the dark times, it is nice to have a few people who also see the shiny city on the hill. If they are lucky the entrepreneur has managed to surround themselves with supporters who, even if they don’t see the city, will lie and say they do. I believe success and failure is directly related to the existence of a support group.
When I first started on my entrepreneurial journey, I found a support group. But, unfortunately it was a group of people who would never meet me at Starbucks for coffee. In fact, they had no idea who I was (and still don’t). They existed only as a series of 1s and 0s on my IPod.
Every week, through the magic of the Internet, I attend class with the elite. I sat and listened to the great entrepreneurs of our time tell me exactly how they did it. They encouraged me. They told me that failure was not a bad thing – it was just part of the process. They told me it was just as hard to change the world, as it was to start a taco stand – so why not change the world. They took off my Midwest blinders and introduced me to a world of infinite possibilities.
With each new podcast, my fantasyland became possible. I could build it. It could be done… and it could be done from Little Rock Arkansas.
As I committed to my journey and began building MeritBuilder.com, I found other Midwest entrepreneurial refugees. Over the last 12 months I have formed a new support group and they WILL meet me for coffee. I have not forgotten my old friends. We still get together every week and I listen and learn, but now I can share what I have learned with real people who actually talk back.
If you are thinking of going on this journey, find a support group. Chances are they are not the people around you. If they are sitting in the cubical next to you… they have already committed to a series of decisions you are trying to reject. They could not image it for themselves and chances are they won’t genuinely be able to imagine it for you.
Instead introduce yourself to a new group of friends. I recommend the guys/gals over at Stanford ETL. Your friends there have created a series of podcasts that are nothing short of inspirational. If you get started now, you can meet with them every night for the next few months.
Armed with a support group… begin to dream. This country was founded by a group of people who believed in a fantasyland, so you are in good company. If you are committed to your journey people will start to gravitate to you. You will form a new support group… a group of people who can meet for coffee and over a cup of Joe – change the world (or start a really great taco stand).
Start Up Meet Up!
April 14, 2009
Hey Arkansas Start Up Fans!
There is a new meeting in town: the Arkansas Tech Start-Up Meet Up. It is scheduled for next week April 21st. If you are interested in entrepreneurship and you live in the Little Rock Area… you should be there!
Here is the link:
http://entrepreneur.meetup.com/1957/
Please RSVP ASAP!
Forms of Capital
March 25, 2009
Last year I attended the Arkansas Venture Forum. It was an outstanding event that brought together investors and entrepreneurs from around Arkansas. But most importantly – it provided me with some insight into the mind and motivations of local investors. I thought I would recap one of the presentations here.
Catching the eye of an investor may be about “who you know.” But, the decision to invest is little more science and a little less Voodoo than it appears.
To begin, we will need some buckets. Each of the buckets below represent types of Capital. While you can slice and dice each of these, for the purposes of our discussion we will keep it at the 50,000 foot level.
The Buckets Are:
- Equity – If your venture is successful this is the MOST expensive form of capital. Made widely popular by Wired Magazine’s chronicles of the Adventures of Silicone Valley, this form of capital is most often associated with the Concept, Research, Development & early commercialization stage of a venture.
- Mezz. Debt – By this point your little company is Near Breakeven… congratulations! But, you still need a little extra $$ to land that big client or fund your super bowl commercial… time to raise some mezz. debt!
- Debt – Welcome to the world of big business… you have impressed your creditors by creating a profitable company and need a few million to develop your next killer product line. Call your local banker and let him know where to put his depositor’s money!
Now to fill the buckets with cash you need to know - “Where does one get the $$” and “What do they want.” First things first - Where one looks for capital:
- Equity – If you are early stage with a killer slide deck, great idea and hopefully something to Demo, you want to hit up Angels, VC’s, & Government Agencies for cash. Still working on the demo? Try to find an Angel. A good angel will mentor as well as provide early capital and connections. The connections get you to the next round with VC and Government!
- Mezz. Debt – Sub debt lenders.
- Debt. – Banks and institutional investors
Money is not free… Here is what your investors are going to want from you:
- Equity – Your investors are going to want “common equity” or “preferred equity.” Often the entrepreneur gets a little concerned at the thought of “giving” away a piece of their company. But keep in mind… you are not giving. You are partnering. In return you get a shot at your dream. Angel’s and VC invest when risk is the highest and they deserve a great upside… being successful means know when to share!
- Mezz. Debt – Redeemable preferred equity, convertible preferred equity, or Sub Debt with warrants.
- Debt – Senior debt.
How do you know if you have a business worth investing in? If you can realistically demonstrate a reasonable ROI, you are in good shape. The earlier in the project, the higher the expected ROI. It should be noted, investors (especially early investors) have to believe in the concept, the team, and the plan for execution – so focus on that! But, return is important too.
- Equity – 25% to 35% ROI
- Mezz. Debt – 12% to 25% ROI
- Debt – 6% to 12%
If you can bootstrap until you get to near breakeven your cost of capital can be greatly reduced. As an added bonus, it is easier to get a company that is near breakeven funded (or that is the rumor).
So that was the presentation with a little added commentary for me. Are you an investor or entrepreneur? Has your experience differed? Please leave comments and feedback.
Soon I will post some of the sources of capital here in Arkansas!