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Well, I spoke with Roberto Fiebig, President and CEO of Tigre Capital on POPPOFF, and he shared six effective way to raise money for your venture.
1) HOW MUCH CAPITAL DO I NEED?
Although many resources provide information on starting a business with little or no money in the bank, remember that if something sounds too good to be true, it probably is. Don’t be misled by the popular literature. Having little or no capital is a primary reason why businesses fail.
2) HOW DO I RAISE NEW CAPITAL?
The most common source of startup capital is the business owner him or herself in the form of credit card advances, home equity loans, and loans from family members. Federal and state governments sponsor numerous subsidized loans and grants for startups through the Small Business Administration and its counterparts on the state level.
3) WHAT IS THE VALUE OF MY COMPANY?
The value of a company is important because it is the basis for determining the “cost” of the new capital when seeking equity additions to the capital structure. Simply explained, a company with a $1 million valuation and no debt seeking a new capital of $1 million would be worth $2 million after the investment. The old owners would own 50% of the new $2 million company (for their contribution of the old company with a $1 million value), while the new investors would also own 50% interest for their contribution of $1 million cash.
4) WHO MIGHT BE INTERESTED IN INVESTING IN MY COMPANY?
As the amount of the funds needed increases, you will be required to access an increasingly sophisticated investor seeking maximum return for assuming the risk of a new venture. Family and friends are typically the first group sought by business owners seeking capital. They are less discriminating than professional investors, and are more likely to invest due to the relationship than the economics of the business proposal. On the other hand, family investors bring their own set of problems, including the possibility of strained relations if the investment fails.
5) WHAT ARE MY LEGAL RESPONSIBILITIES TO POTENTIAL INVESTORS?
Generally, business owners seeking funds from individual investors are required to provide forms and specific factual information in understandable language to potential investors so they have the ability to evaluate the investment and determine whether it is right for them. Offerings and continued legal obligations of companies to their investor owner are regulated through the US Securities Act of 1933 and the Securities Exchange Act of 1934.
6) HOW DO I NEGOTIATE A WIN-WIN AGREEMENT?
A funding event, whether for a startup or an ongoing operation, involves two parties: the investor and the company. In some cases there is a single investor; in others, multiple investors. In the latter case, such as a crowdfunding event, the investors participate as a unit, each sharing a portion of the same investment. In some cases, funding is take-it-or-leave-it; in others, there is intense negotiation. In each case, the parties strive to reach an agreement that accomplishes their respective goals. It can be complicated, but if the dream is there, go for it!
For more information, check out www.TigreCapital.com.
Good Luck . . .
From the files of Mary Jane Popp at KAHI Radio in Sacramento, California
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