Launch - Summer 2008 - (Page 30)

In fact, fewer than 1 percent of companies in the United States ever see VC money. Why? The short answer is because VCs have very tight and defined criteria for investment. They look only for high-growth deals with the potential of returning 10 times an initial investment within five to seven years. Back in the real word, the rest of us a have a wide range of other options. Many options involve debt financing — some type of loan requiring eventual repayment. Other options involve equity financing in which you give up a percentage of ownership. Some options may involve a combination of both debt and equity funding. One word of warning: Anytime you accept some type of equity funding, pay special attention to the effect of share disbursements on your company’s capitalization table (often called a cap table). Consult a business and finance attorney or get advice from a seasoned entrepreneur. This is especially true if you ever plan to seek VC money at a future date, as a messy cap table will often sour any potential VC interest. There may be a better way to structure the deal saving you headache down the road. In no particular order, here are some of the more popular means of funding a startup: Friends and Family Typically a debt and/or equity arrangement, friends and family money is a broad term describing funding you get from anyone you know. Typically this person likes you and believes in your idea. Remember, this is also a person you still may have to hang out with on a regular basis even after your company tanks and you lose his or her money, so be careful. Even if the money is a gift, get a business and finance attorney to help structure the deal. Getting everything on paper now helps avoid lawsuits, cap table issues and blood feuds later. Angel Investors While money from friends and family can be considered angel money, a typical angel deal involves someone a bit more sophisticated at investing than your uncle. Angels invest their own money and often work together in groups. Deals can involve debt, equity or a combination of both. Angels don’t have the same requirements as VCs and are much more flexible in the types of terms they can offer. See growutahventures.com for a list of Utah angel groups. Self Funding One of the best ways to start a business is from your savings account. If you’ve just some made money by selling a previous business and live in Utah, you can avoid some capital gains taxes by rolling the money into a new business. Bootstrapping The classical definition of bootstrapping involves starting a company with very little up-front capital then ratcheting the company up step-by-step based on incremental revenue growth. Bootstrappers justify every penny spent and keep budgets lean. Profits earned during the early years typically are invested directly back into the company to spur growth. Bootstrapping often means slow growth, but also reduced risk. Seed Fund Incubators Pioneered by Y Combinator and new to the scene, seed fund incubators offer an intensive multi-week entrepreneurial mentoring course and $5,000 to $30,000 in funding in exchange for 2 to 10 percent of the equity in your company. Seed fund incubators generally look for promising software or Internet startups with one or two founder/employees. Other U.S. seed fund incubators include TechStars, LaunchBox and Summer@Highland. 30 launch summer http://growutahventures.com

Table of Contents Feed for the Digital Edition of Launch - Summer 2008

Launch - Summer 2008 Contents Editor's Note Dashboard Marketing Column Funding Column Sales Column Risks vs. Rewards Myths of Entrepreneurship Opportunities vs. Ideas Funding Options for Startups Making Sense of Term Sheets

Launch - Summer 2008

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