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Raising Money

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					Raising Money
Capital is the lifeblood of any startup. The more capital you have, the
faster you can learn, develop and achieve your vision. I know this is
true from first-hand experience. I have raised over $40M from angel
investors and Venture Capitalists to fuel the growth of both my previous
and current business. Raising money has its downsides (mostly that you
give up some control) but if you can raise it from people that you
respect, the rewards are tremendous.
If you're just starting a business, you've already relied on your
resourcefulness in countless ways. And it's resourcefulness and ingenuity
around raising money that will get you past this stage and through many
other stages of operating a business. Lack of funding is often the kiss
of death for most young companies. It doesn't have to be that way.
Whether you are raising funds for the initial launch of your company or
securing a second (or third) round of financing, cash is king. You need
money to create the product, research and develop several designs, and
pay the people who are working with you. And if you need office space,
technology, additional equipment, transportation, you'll need even more
money... the list is endless, really.
For most small business owners, funding comes from a combination of
personal savings, loans and contributions from investors. As businesses
grow, these sources don't really change. Although larger businesses
usually turn to more public options, many entrepreneurs continue to
invest personal funds into their businesses at every stage of its life.
Basically, I break down getting funding into two options:
1. Raising money from people and investors
When my business partner, Martin Gates, and I were launching an online
payroll service and trying to manage the finances, we decided that we
would operate for six months and not draw a salary from the business.
Then after the first six months, we agreed that if we met our milestones
we would work for a year at a $25,000 salary-not an easy task when you
consider we live in Silicon Valley and both had mortgages to pay!
To have this plan work, we made sure we had enough money in the bank to
cover 18 months. We didn't want to go 18 months without income, but we
wanted to have enough cushion to protect us while we invested capital
into the building our product and team; we would rather invest money in
the business-building the prototype, setting up the infrastructure for a
Web application, and ultimately getting the product to a point that would
excite investors.
In addition to the capital we put in, we went to our networks; we
approached people who had worked with us, who already felt comfortable
with our business backgrounds and reputation. We wanted them to say, "We
know you, we know the market and we will invest in it." Their response
was: "We know you and trust you. Go for it." It was humbling and
empowering at the same time.
We did not ask family to invest in the business. Mixing business with
family is risky. In addition, family is less likely to be able to really
judge the opportunity. They are naturally biased. Friends and business
associates can judge your credibility more objectively; they ask tougher
questions and force you to develop a better business model; and through
them you will build a stronger network that will help the business beyond
its capital needs. Also, I figured that if I couldn't get money from
people who already knew my business reputation, then I couldn't get money
from anyone.
I can't stress this enough, getting someone to give you money makes you
really evaluate what you are doing. It helps you figure out your business
model and hone how you proceed.
Eventually, using the initial seed of money from our network of business
friends and colleagues allowed us to hire more people, create a robust
marketing program and then go to Venture Capitalists to show that the
product had launched and had a market, at about 16 months-two months
short of our 18-month deadline. We started the business in August and
raised VC money in December of the following year.
By the time I started y newest company, it was a very different scenario.
I reached out to an even wider network of business colleagues, who
contributed based on my previous success. Having a legacy of success
helps considerably.
If you don't think you have a large network yet, don't worry. Your
network is always larger than you think. Of course, you can always borrow
from your other assets such as stocks or 401k's. If you decide to borrow
from your 401(k) retirement account, there are taxes and other penalties
associated with doing this, so move cautiously.
2. Raising money from banks or the Feds.
As a small business owner, it's tough to get a loan from a bank. When it
happens, the bank ends up requiring all sorts of covenants that may end
up being at odds with growing the business. However, if you are a
homeowner, then a home-equity loan or home-equity line of credit could
work for you. The loan rates are lower than others (such as credit card)
and it helps keep the business in your own hands. It's risky, though. You
don't want to lose your house.
The federal Small Business Administration is an excellent resource for
information on funding sources and as a source on its own. The SBA offers
a lending program called LowDoc, which offers loans of $100,000 or less
to small businesses of all kinds. In general, the repayment term on an
SBA loan is five to 25 years.
René is currently CEO and founder of bill.com. He realized the tremendous
need to simplify and automate the way businesses manage bills, invoices,
payments, contracts and other important financial documents; and the
challenge of not having control and intelligence into daily spending and
cash flow. bill.com solves these issues and also puts all valuable
financial documents in one place for secure access anywhere/anytime.
Prior to bill.com, René co-founded America's #1 online payroll service
PayCycle, which now employs over 100 people and serves over 50,000
customers. PayCycle has received multiple 5-star awards from PC Magazine
and numerous accountant trade publications.
René spent five years at Intuit, creating and managing the company's bill
presentment team and growing its bill payment and credit card businesses
30% in one year. He also launched Intuit's first connected payroll
product, growing the team from two employees to 300 in 18 months.
René received a Masters of Science degree in Industrial Engineering and a
Bachelor of Arts degree in Quantitative Economics from Stanford
University.

				
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posted:10/16/2010
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