Posts Tagged ‘small business funding’

Wow! You Need Money to Start a Business.

Alley Cat News Article

By Kristin Gabriel  (3/23/99)

–Here are the facts on how from WOWFactor, Inc.’s President, Margaret McGillin–

Margaret McGillin founded WOWFactor, Inc. in 1995, with a vision of creating advantages for women in the digital economy. In October 1998, WOWFactor was acquired by Frontline Communications Corporation, a publicly traded  (Nasdaq: FCCN), regional full service Internet Service Provider and National Ecommerce Company based in Pearl River, NY.  Margaret joined the management team as V.P. Marketing & Sales and has recently been promoted to E.V.P. Marketing, Sales & Business Development. She continues as President of WOWFactor.

If you think all you need to start up your business is money, e-commerce, or not — you’re wrong. Business-to-business e-commerce will boom at a 41 percent annual growth rate over the next five years. (Statistics from the Yankee Group.) E-commerce business today is rapidly expanding with small to medium-sized companies boasting affordable e-commerce business solutions that are convenient and cost-effective. The Internet is in the process of being built with new business ideas each and every day. Reducing the bottom line is the driving force behind e-commerce; however, starting an e-commerce company still requires most of the same fundamental considerations as starting any business.

Many people start up a business on a slim dime, using up income or savings to pay for everything until the business is off the ground. But until a business is off the ground, what happens when the money runs out? Do you use your life savings or credit cards? This is pretty risky business, because if the business fails, your personal credit could be demolished.  You could choose to raise the money yourself, by taking out a second mortgage on your home or by selling some of your possessions, or you could even borrow from family and friends. Do you take on partners or investors, or seek out venture capital firms that finance startups?

“Getting from point A to B may seem like the impossible dream, but there is hope,” says Margaret McGillin, president of *WOWFactor, Inc. a unique, user-friendly marketplace and information source designed to assist women with their personal and business goals efficiently via the WWW.  “Finding money for your business involves a variety of considerations, financial and nonfinancial. As we continue to support women, our goal is to deliver personal and professional solutions that will enhance the decision making process and earning power of women-owned businesses, which represent about one third of businesses internationally.” Recognized as a Netscape Destination Distinguished Provider, WOWFactor is only one of six online communities selected. (*A subsidiary of Frontline Communications; Nasdaq:FCCN)

McGillin also points out that under capitalization, or not having enough capital, is the main reason for business failures in the United States. One fact is that, after a business is started, entrepreneurs should be prepared to go for at least a year without breaking even. Starting on a slim dime is harder and takes longer for the business to reach a stable point, but puts much less risk on personal finances.

“What you really need to do is to be realistic about the fact that not everyone will want your product or service. So you should first determine whether you’re ready to start a business by researching the market, then calculate your start-up costs, monthly expenses and your net worth. It’s imperative to understand your business finances, fund your start-up business, expand your current business, think about revenues first, conserve capital, and then invest the money that you have made from planning well,” she continues.

After you’ve taken a look at both the costs of starting a business and your market, you should have an idea of how much it will cost and how much you should be able to earn. Assuming that the startup costs are more than you have in your checking or savings account, and more than your business will earn in the first few months, you’ll need to figure out whether you can raise the money to cover the difference.

Whether you are thinking about borrowing the money from family or friends, trying to locate a bank that is willing to lend money to your new business or looking for a business “angel” who will contribute equity capital, your search for obtaining capital will require the same diligence and as you give to decisions involving your business.

The Business Proposition

Here are some of the factors and guidelines that McGillin uses as benchmarks in advising the many women shaping business and technology today.

First and foremost you’ll need a clear and complete business proposition outlining what you are selling, who’s buying your product or service and why. McGillin asks these questions. Do you have a market? Who is your competition? How fast is the market moving? Do you have an unfair advantage? Once you have answers, you’ll need to prove it. This includes evidence of a track record, a team, your unfair advantage, revenues, orders, partners, product and endorsements. You will need to think about a business plan, financial modeling, selecting an intermediary, research of the investment climate, money raising strategic decisions, tapping referrals, networking and book assembly and distribution. Then be prepared for contacting, listening, adapting, following up, presentations, updating, relationship building, and addressing legal issues.  Now you may be ready to look at the question, what is the investment climate?

Target Your Money

A clear and complete business plan seems obvious when you’re out looking for financing. Not surprisingly, it’s that same business plan process that provides the foundation for completing your plan to secure funding.

As carefully as you considered your business, plan your search for funding. Always remember revenues first, because that’s the first thing investors look at. As you market your ideas to angels and venture capitalists, remember that the VCs know the angels and the angels know the VCs. While your immediate market opportunity may not fit one particular angel or VC, it may fit one of their friends. And let’s face it; you’re working a numbers game. The odds of succeeding on the first presentation are long. You’ll make many presentations and meet many different individuals. Each one provides a unique point of view and opportunity. Each can help in the future, either directly or by referral. If you can’t get a meeting, get a referral.  If you can’t get a referral, get feedback.  Listen to the feedback and improve your proposition, or the way it’s articulated.  Keep building the evidence, relationships and your team. Then understand that timing is everything.  Adapt but don’t compromise on the essence of your business proposition.

Then remember that if you get one offer, you will get others. Don’t take a bad deal. Chemistry counts Interview your investors as hard as they interview you. After all, there is always the chance that an investor will lead you to an acquisition valuation — buying your idea or company — rather than an investment valuation. Money is only part of what investors can offer to help make you successful.

The Mating Ritual

So you’re just starting to look for your angel or VC. You’ll find the process is similar to that time worn “mating ritual.” How does it work in today’s financing arena? Think of it this way:

The Referral

You’ve been out beating the bushes. Cold calls, warm referrals, lots of presentations. More referrals, fewer cold calls. In fact, you notice a few are calling you. Everyone participates in multiple discussions, looking for a couple of key areas of agreement. The network is working smoothly. And finally it happens. You find a match.

The Match

Your work is finally paying off. You’ve met someone who understands your business, understands your market, understands how you’re going to make it big, and has money to invest. They meet the “criteria.” Life seems a little more intense these days. The pace has quickened.

The First Date

You’ve determined that this looks good, and feels good. A couple of informal meetings seem to only heighten interest. You’re fascinated with the expertise and financing. They’re intrigued with your market potential (and who wouldn’t want to back the next Microsoft?).


Everything looks so good; it’s only natural that we tell our friends. Spread the word. We’re on our way to success. Of course, these are our friends. They’ll tell us if the king has no clothes, won’t they? More importantly, they ask the tough questions we’ve been trying to ignore. Is this really a good fit?


So even after asking all of the tough questions, our friends still think we’re on the right track. A couple of more meetings. The future looks bright. It’s hard not to be excited.

The Term Sheet

Now it’s time to start putting it all down on paper. You know what you expect. You were very clear during your presentations. All of your business plans and memoranda were concise. Everyone knows what you are thinking. The other side has their agenda too. You meet, you discuss, and you reach a compromise. Things are good enough to move onto the next stage.

Due Diligence

Everything’s down on paper. Now it’s time to determine that everything that is on paper matches reality. You should be checking them as they are checking you.

The Deal

Finally, all of the hard work pays off. It’s hard to believe this all started with one phone call a long time ago. Signatures exchanged more handshakes, and finally, the check. You take your business to the next level.

In summary, this mating ritual or process may take up to 120 days, but think about it in this way:

  • A referral (The fixing up)
  • The Match (Meets the criteria)
  • Fine Person Test (The first date)
  • Validation (Friends approve)
  • Excitement (This could be it, want to move things along)
  • The Term Sheet (The engagement ring)
  • Due Diligence (Meeting the family)
  • The Deal (The Marriage)
  • TBA (Ideally, the honeymoon, and living happily ever after)

Raising Money

Which source do you start with?  Personal resources? Grants? Revenues? Private angel investors? Banks? Venture capitalists?  Suppliers?  Or strategic partners? The answers depend on whether or not you have revenues.  You need to know when and how to ask for investment money.

First, qualify your investor by making sure you are talking to the right person for the correct amount of funds. Get a meeting in person. Wait until the time is right, but don’t wait too long. Be prepared to answer a lot of questions. Investors want to know what percent of the company their money will buy. When you go for a loan, bankers will have proprietary disclosure forms you’ll have to fill out in order for them to see your financial picture. Venture capitalists and other investors will also want to know about your personal cash flow. Make certain to have that information handy for different investment levels. If the investor says no, try to turn the no into a maybe and find a way to leave the door open. If the investor says yes, let them open doors to assist you in getting other investors.

Personal Resources

If your family and friends like your business idea, they may be willing to help you with a loan. This may be a good option, depending on how much money you need, however, you must make sure that you see the possible pitfalls. Ask who is running the business in advance. Do you want or need their assistance? Considerations should include how much interest are you paying on the money, and when they will expect their return? Are you selling them stock? Finally, remember to put any financial deal or loan agreement in writing.


If you think you can get a grant (free money) from a private foundation or the government to fund your business, think again. The reality is that if you want to start a for-profit business, you won’t find grant funds available.

Bank Loans

Commercial lenders usually shy away from new small businesses because the risks of failure are too high, so they look for a history of success and a solid credit record. Shop around before you settle on a finance provider or bank. Look to smaller lenders with good reputations for small business lending. Communication is imperative to learn how responsive, flexible and service-oriented the bank is. Many banks will approve a loan of $25,000 and less, based on your personal credit. However, a bank will want to see that you have a solid business plan, and that you will be personally responsible for paying back the loan. You might want to look at your bank as a partner, and cultivate a personal relationship with your banking representative. Banks tend to favor business owners who are honest about their objectives and the risks they are taking. Be prepared to share your cash flow and performance figures, short and long-range growth strategies and other proprietary information so the bank can realistically assess the risk factors and come up with a loan agreement to fit your needs. Get a nonbinding written proposal and remember, a solid banking relationship is a true business partner.

SBA Loans

If you need a bigger loan for your business, you may want to consider a SBA (Small Business Administration) backed loan or possibly state promoted loan. Some banks will offer small business loans through the SBA. An outside agency (SBA or State) reviews your application, business plan, and history to give you their approval. Then, a bank will be more likely to lend to you. You must have a complete business plan and may want to talk to other business owners who have been through a similar process. Each year, the Small Business Administration publishes a report that rates commercial banks on their small business lending performance. Ask your banker about SBA loans, but be aware that the loan requests from the SBA are at an all-time high because so many people are starting their own businesses. Therefore getting a loan from the SBA is becoming more difficult all the time, since there are fewer funds to go around and the SBA is under pressure to be more selective in who it loans money to because of high default rates on loans made in the 1980s.

Private or Angel Investors

The term “angel” financing originated on Broadway in the early 1900’s, where wealthy, high net-worth individuals with a network of friends would save a production by providing cash and save the day, so to speak. Today, the term refers to private individuals who contribute their skills and money to start-up companies. The small business boom has spawned an organized angel network of experienced businesspeople who, rather than creating a debt to be paid back, take equity position in the business financed. Often, these successful entrepreneurs, or angels, seek proprietary technology, hot and profitable businesses or a business that has a unique market niche. The angel also participates in advising the company. They typically seek personal characteristics of the entrepreneur and the market-product potential of the business. Angels look for a piece of your business pie and though they typically don’t try to come in and tell you how to run your business, they are often selective about the companies in which they invest and are increasingly looking for shorter five year returns on their money.

Venture Capitalists (VCs)

Venture capital obtained through a firm often targets new technology and inventions, while angels invest in a wider variety of deals. Venture capitalists require more paperwork and higher profit margins, and venture equity is often expected be repaid in approximately three years.

If your business needs a million or so in funding, the VC might just be the answer to make it happen. They will expect to have ownership over a certain portion of your business and most of them are very “hands on.” VC’s are usually well connected and want to see you make money, so they might not only bring the money to the table, but the networking to make it happen, too.

“I often meet with start-ups and emerging technology companies, many of whom are e-commerce sites. I look for good ideas within the technology categories being watched by Wall Street, well thought out business plans, several different revenue streams from within the company’s business model, and a solid infrastructure and management team within the company,” says Ronald S. Posner, Chairman of PS Capital, a venture capitalist firm based in San Francisco, New York and London, and a force who has helped shape the face of today’s high tech industry.

Posner holds key advisory roles with a number of startup and public companies, including Asymetrix (ASYM), (BYND) and SELECT Software Tools (SLCTY) and has spearheaded many of the most lucrative software deals in history such as Norton Utilities, Symantec, The Learning Company, SoftKey, Spinnaker, WordStar, and Borland, to name a few.


In conclusion, according to McGillin, “No risk is no reward.  Uncertainty is numbing experience, so knowing where you stand with financing your business is one of the keys to success. Just remember to surround yourself with people who believe in you and your business.  Be sure to repay your shareholder loans before taking a paycheck yourself, and paying payroll. After all, passion and smarts is infectious, so more than likely the people you meet will help you.”  For additional assistance to women in business, check out the WOWFactor web site at

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