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This 44 message thread spans 2 pages: 44 ( [1] 2 > >     
business plans & funding an idea
without putting my house up for collateral
lorax




msg:3752961
 8:06 pm on Sep 26, 2008 (gmt 0)

I know the deal with standard business plans (I'm in the US) - need one and know your stuff when you go to the bank/VC/funder. The issue I'm up against is that here in Vermont is the majority of the banks are oriented towards B&M ventures where there is some tangible asset they can sell should things go south. I'd like to keep my house out of it if I can. Other ideas for collateral? Has anyone dealt with this situation?

 

Demaestro




msg:3752965
 8:16 pm on Sep 26, 2008 (gmt 0)

This may sound crazy but if you can sell the bank/lender on the high value of the domain name market you may be able to get an appraisal of the value of the domains themselves and offer them up.

As well you can list "technologies" that could be considered assets. Things like a customizable shopping cart solution. A customizable e-commerce database.

Try to do what the big guys do. Sell them on the idea there is value in the digital products you are using to run your site and their "re-usable" nature.

I know this is thin, but look at companies like SCO and others who don't even have a product and have sold the banks on assets that don't even really exist. I am sure you have more then SCO does.

LifeinAsia




msg:3752968
 8:16 pm on Sep 26, 2008 (gmt 0)

There aren't too many places that will give you money for "free" without some sort of collateral, whether it's your house (for the bank) or the majority of your company (for a VC). Especially with the economy going south and money being tight. (Then again, at today's prices, houses are almost worthless as well...)

Another way to look at things is from the lender's perspective. If YOU don't believe in your venture enough to risk your house on it, why should THEY be willing to risk their money?

If you have very good credit, you can probably cobble together the money from cash advances on credit cards. The (likely) higher rate is the price you have to pay for not providing collateral.

I guess it really depends on how much money you need and your company's history and your financial track record.

[edited by: LifeinAsia at 8:20 pm (utc) on Sep. 26, 2008]

Demaestro




msg:3752980
 8:31 pm on Sep 26, 2008 (gmt 0)

Another thing that popped into my head... there are some firms that will prepare 5 year business plans and some of the more reputable ones will endorse plans.

An endorsed plan by a reputable business management firm may help as well. I did that about 10 years ago and it cost me $2000 for the plan and they didn't take money to endorse it they only endorse plans they think have a high chance for success.

Honestly though don't the banks have enough homes on the books.... they might be happy to take something else on a loan.

[edited by: Demaestro at 8:33 pm (utc) on Sep. 26, 2008]

Fortune Hunter




msg:3752986
 8:36 pm on Sep 26, 2008 (gmt 0)

you can probably cobble together the money from cash advances on credit cards.

I have both used this technique (for very small ventures) and seen others do it. It can certainly work, but I was always worried about this approach if I didn't expect a big chunk of cash coming back to me quickly so I could pay off the cards quickly just because of the high interest rates associated with cash from a credit card cash advance. Without a doubt this is probably the most expensive capital you can borrow short of using a loan shark.

An alternative technique I have heard other small businesses doing lately since the banks are burning up and sinking into the swamp lately is using prosper.com. I have read some articles of some small businesses using Prosper.com for these types of loans as opposed to just personal loans and from what I am reading many times the terms of are even better than a bank, even if you could get a bank loan now.

ken_b




msg:3752987
 8:37 pm on Sep 26, 2008 (gmt 0)

If you need/want $1,000,000.00 for the project it's a whole different answer than if you need/want $10,000.00.

Maybe try to get two or three investors to put up lesser amounts of cash and spread the risk around a bit.

lorax




msg:3752990
 8:39 pm on Sep 26, 2008 (gmt 0)

Company history is great. Cash flow has been fine with one exception - not that notable and corrected this month. Personal credit is excellent. Company has a credit history as well and it's great too.

I'm trying to think outside the box here. The domain idea crossed my mind. The company (an S-Corp) owns over 250 domains in the market space. Some are very sweet. I've thought of actually buying the keyword domains of the funders I'm going to approach - to help illustrate my point re: value of the domains. Still thinking about this one.

I'd like to frame my plan as you noted Demaestro, pitch them on the value of the concept. My biz plan is focused on a value set that I think the local banks will identify with. I know a few local funders that may be interested as well - simply because of the values that this plan is based on. But I don't want to count on that.

lorax




msg:3752993
 8:42 pm on Sep 26, 2008 (gmt 0)

re: amount.

Yes that is very important. I don't think I want to keep stock so the drop ship model appeals to me. In this case the funding I'm looking for is < $100K.

aspdaddy




msg:3753450
 6:16 pm on Sep 27, 2008 (gmt 0)

Unlikely anyone will buy concept especially in .com just now. Investors want to see existing business with real potential to grow to the next level (3M-10M)

One different approach is to partner with someone who has the resources that you need to spend cash on. With public spending down, seek out those companies that have capacity and are open to new product and market development but lack innovators. The downside is you are only going to retain 25-40%, but its still an option, once it bears fruit you can go alone with other ideas.

Im using this approach to enter a new market without laying out any cash, but more important, am able to enter very quickly as I have access to a companies sales & marketing resource

lorax




msg:3754389
 12:26 pm on Sep 29, 2008 (gmt 0)

>> Maybe try to get two or three investors to put up lesser amounts of cash and spread the risk around a bit.

That is a great idea ken_b. I may know just the folks to ask. I also like this idea from my point of view - I don't owe one person $80K - instead I might owe 4 people $20K each.

HugeNerd




msg:3755043
 9:53 pm on Sep 29, 2008 (gmt 0)

One different approach is to partner with someone who has the resources that you need to spend cash on. With public spending down, seek out those companies that have capacity and are open to new product and market development but lack innovators. The downside is you are only going to retain 25-40%, but its still an option, once it bears fruit you can go alone with other ideas.

I am a fan of this idea (let's call it the indentured servitude model). Why not approach a manufacturer? Rather than drop-ship with a net-30 scheme on an account, you can simply be their web entity. If they don't have a web presence already, you'd hope they see the inherent value -- makes your sell that much easier. You can offer clear value (sales tickets, revenue) and mitigate, maybe even eliminate, the personal risk. All of the fun, none of the hassle. You, as a web entity, see improved asset turns over a traditional drop-ship model because they would give themselves (and you) priority... It's like creating your own job within a company.

I'd set it up on a contractual basis: 5 year deal, 15-25% gross profit on first $xx.xx, 25-30% on second $xx.xx etc. -- here is where you 'pay' as you receive nothing if they don't make money off the site -- and throw in a clause about a benefits package. You can even maintain your own company name, url, etc and they can outsource "internally"... they own you, but you don't necessarily work for them...I guess I am angling for a wholly owned subsidiary.

It'd take a lot more wrangling, maybe, but there is potential...you'd be very, very, very surprised by how many manufacturer's and wholesalers are entering similar agreements (at least in my industry). Some of them are even letting competitors run their websites -- they understand their own limitations and savvy business owners, at least in the small to midmarket cap I have the most experience with, are aware that in such situations it is easier and cheaper to let someone create and develope on a predetermined budget than it might be to create a new division of the company.

[edited by: HugeNerd at 10:09 pm (utc) on Sep. 29, 2008]

Tastatura




msg:3755246
 3:42 am on Sep 30, 2008 (gmt 0)

I am under the impression that most VCs will not deal with small sums (~ 100k) as it's not worthed to them. They are looking to invest 7 figure deals - I know that it might sound nuts but when you dive more into it it makes sense.
I think that Angel Investor(s) would be better fit for you. Now-a-days even they are more organized and have groups and clubs. I am sure there is one by you. You can even pitch to them as a group ...

Not sure how much research you have done, but Standford's school of Business, MIT's and Berkeley's have excellent information on their websites with regards to VC's, Angel Investors, business plans, etc. I watched hours of (free) online videos from those schools - presentations, speaker forums, etc. - I could dig out links if you can't find them on their websites)

lorax




msg:3755479
 12:17 pm on Sep 30, 2008 (gmt 0)

>> most VCs will not deal with small sums

Ya. I may be mixing up the definitions but the people I'm thinking of under the label I used are not your typical VC. I haven't done my research on them yet but I will so I don't embarrass myself! I'm writing up a one page summary of the idea to introduce myself and the idea to potential investors.

>> Why not approach a manufacturer?

I have. I'm actually approaching several thinking along the lines of spreading the costs. Their ability to manage a cart on their own is very limited. Their products are fabulous but their online skills are .. um... less than adequate to compete cost effectively.

gpilling




msg:3755587
 2:13 pm on Sep 30, 2008 (gmt 0)

You could always try to get on the TV show "Dragon's Den". It is a show on BBC (and BBC America) that puts people with ideas in front of people with money (the dragons). It is fascinating to watch entrepreneurs pitch their ideas, and how poorly prepared they usually are. Sometimes they get funded, and an amount of $100K is not unusual.

If nothing else, watch it and learn from their mistakes in presentation. It could save you a lot of time.

HugeNerd




msg:3755618
 2:46 pm on Sep 30, 2008 (gmt 0)

Their products are fabulous but their online skills are .. um... less than adequate to compete cost effectively.

Exactly! If they are worth working with, they will know and understand this as well. Otherwise, you're asking to work with a "bad" customer...

malcolmcroucher




msg:3755636
 3:16 pm on Sep 30, 2008 (gmt 0)

We have a thing here based on the California business model which gives you a loan for 5% deposit and no need for security . Im here in africa.

Look into you local bank and see if they offer anything like this.

travelin cat




msg:3755679
 3:50 pm on Sep 30, 2008 (gmt 0)

You should talk to an SBA lender. We have received two separate SBA loans over the years to grow our business, neither one required a lien on our home. The interest rates are competitive and the paperwork is now minimal compared to the past.

lorax




msg:3755714
 4:22 pm on Sep 30, 2008 (gmt 0)

>> If they are worth working with

I've been thinking I need to develop a set of expectations/requirements for the vendors I work with. The big issue with a drop shipping arrangement is that fulfillment and product support are out of my hands. So, it makes sense to place expectations in writing for them.

>> California business model

I've never heard of it (no big surprise).

p5gal5




msg:3755817
 5:54 pm on Sep 30, 2008 (gmt 0)

Company history is great. Cash flow has been fine with one exception - not that notable and corrected this month. Personal credit is excellent. Company has a credit history as well and it's great too.

Do you have an established business relationship with one bank or a small business banker? Being in ecommerce, we like to do as much online as possible, but I've had instances where we ask for lines of credit, increase in credit card limits, etc., and the request is declined (perhaps we didn't meet one parameter out of 20).

Give a call to our banker (a VP of SB accounts for a large, national bank) and inquire about it - one look at our strong cash-flow and account history overrides any automatic/electronic declines. This is one instance where a personal interaction can really help with financing, loans and lines of credit.

lorax




msg:3755822
 6:01 pm on Sep 30, 2008 (gmt 0)

I do have an established relationship with a couple of local banks. I completely agree re: personal relationships - though I have had great luck with getting funding for small loans <$5K that way. Cash in my account within 24 hours if I need it. Rates aren't fabulous (about 9%) but they beat a credit card and the terms are between 1-3 years. I've only had to do this to cover operating expenses a couple of times and it has been handy.

zuko105




msg:3755837
 6:42 pm on Sep 30, 2008 (gmt 0)

You might find some investors here as well as some really good impact on your project!

rogerd




msg:3755874
 7:17 pm on Sep 30, 2008 (gmt 0)

This isn't the best time to be looking for money, but there are still lenders and investos our there. They will probably drive a harder bargain than six months ago.

1) Local angel investors would be the best bet, BUT you are likely to find most of them wanting tangible assets. I've attempted that in the Midwest, and these investors (often docs, retired business owners, etc.) want assets they can see. In your area, maybe there's more interest in Internet ventures. They will want equity (maybe some kind of hybrid equity like a bond or preferred stock that pays an annual return and can be converted into common shares if the business does well). They will want an exit plan to be sure they can cash out even if you are content to keep on going. And they may want to be able to assert control if you keep losing money and their investment is in danger.

2) Bankers are going to want a personal guarantee and most likely a second mortgage unless you've got major liquid assets in the company. Of course, if you had all of those surplus liquid assets you wouldn't need the loan to begin with.

3) An SBA loan might work, not sure what kind of terms they offer or whether a personal guarantee is needed.

4) Consider a "friends and family" round to get you to first base. If things head south, you may have to move out of town but at least you'll still own your house. :)

incrediBILL




msg:3755880
 7:31 pm on Sep 30, 2008 (gmt 0)


* SBA ( Small Business Administration )
Lots of useful information on their site:
[sba.gov...]

* Angel Investors - Angel investors come in all shapes and sizes. This term can be used for friends and family that invest, or small businesses that have investment cash lying around, with typical investments under $100K. Then there are Angel Investor funds and groups that typically invest $100k-$1M.

CNN has a good write up on Angels:
[money.cnn.com...]

Here's a nice list of places in Inc magazine:
[inc.com...]

* VC (Venture Capital) Lots of lists of VC online organized by investment type, location, etc. These guys tend to be very busy so you need to have all your details ready when you want to talk to them.

There are places that have VC workshops and mixer parties that allow groups of VC's and angels to see lots of ideas and talk to lots of people in just a few hours which is well worth attending if you can find one near you. People actually fly in to SFO to attend some of these functions in Silicon Valley as it's a fast track learning experience you'll never find anywhere else.

* Bootstrapping - This is where you bootstrap the initial stages of the project yourself using your own funds. Sometimes bootstrappers only personally fund the proof of concept development while others may go live with the product and prove customers will buy. The further along you are in the business cycle the less equity you give up to investors because there's less risk involved for them which is what makes bootstrapping appealing to self-starters. Others that want to grow bigger faster will take the other investment routes.

I've seen people use credit cards, lines of credit, or a home equity lines to bootstrap a business venture but I personally don't advise going into debt whatsoever to test a project idea if you can avoid it.

No matter which way you go, you'll need to have your elevator pitch ready. An elevator pitch means you need to be able to describe what you're doing in the time it takes to ride in an elevator. If you can't explain the idea in 60 seconds or less, you're going to have a hard time selling the idea to anyone because people don't tend to give loans or invest in things they can't easily understand.

lorax




msg:3755890
 7:45 pm on Sep 30, 2008 (gmt 0)

>> 60 seconds

You're generous. My pitch takes 20, well, ok, maybe 30 minutes. ;)

I have put my own $$ into the project thus far. This venture is separate from my professional services but may benefit some of my clients. It can certainly be added to the mix of offerings that I've put together over the years. So the whole funding part is to build this as a separate arm of the umbrella S-Corp that owns my professional web services division.

Can stocks be used as collateral for funding? Probably not because if I can't pay the loan it's likely the stocks are falling in value anyhow.

travelin cat




msg:3755902
 8:10 pm on Sep 30, 2008 (gmt 0)

An SBA loan will always require a personal guaranty (I was an SBA lender for 12 years). You may wish to check out their Micro Loans [sba.gov] which have a max loan amount of $35,000 but do not necessarily require a mortgage as collateral, it's up to the actual lender, the SBA guarantees a portion of the amount lent and does not actually provide the loan.

travelin cat




msg:3755903
 8:11 pm on Sep 30, 2008 (gmt 0)

Can stocks be used as collateral for funding?

It depends on the lender. If they do accept the stock, they will want to be in possession of the actual stock certificates.

werty




msg:3755936
 8:57 pm on Sep 30, 2008 (gmt 0)

I was thinking prosper.com / virginmoney.com or another of those microloan sites/companies. There seem to be many of them out there right now.

Also if you have an AMEX you could apply for a business line of credit which has a higher interest rate (similar to that of a credit card) but is more flexible with the way you can control the money. (wire transfer, checks, credit card)

HugeNerd




msg:3755965
 9:21 pm on Sep 30, 2008 (gmt 0)

What about playing the lottery?

J/K (unless you win, then I expect a percentage as a consultation fee)

I think, from what I keep reading, banks might be the roughest road to travel for the next month or more. Interbank loan rates seem to prohibitively high despite a low Fed target rate. Alternate funding, at least to my eye, would appear to be cheaper and easier.

Are you a member of your local Chamber of Commerce? I should think that, in our current business climate, trying to form personal relationships with other local business owners (some of whom, if I understand correctly, might benefit from your venture) is a good avenue to pursue. The insight and knowledge of the local market may cause them to view such an investment as more reasonable than those with no direct experience/knowledge (granted this is dependent on the scope and target market for your venture). Or, maybe more importantly, they could put you into contact with the exact people you need to meet with in your area -- I am thinking that personal, direct knowledge can trump pure actuarial risk assessment on a small business loans in a tight economy. This would be particularly true when you are really pitching yourself, your potential, and a concept. Why not make sure they know you and not just 60 seconds worth of words?

Also, what about appealing to the big guys? Google, Yahoo, Amazon, HP, Dell, IBM etc. Anyone with beaucoup bucks and knowledge of the web. I have to think they are always looking to hear about new ideas, potential investments, etc. Hell, IBM spent over $20 million to develope a Second Life office...
You might risk having it whisked out from under you in the future, but I know they view investments which don't pan out as being cheap when compared to the cost of being second to anyone. Thus is the power of a brand management. Leverage their hubris (and concept developement pipeline) to your advantage.

ken_b




msg:3755998
 9:44 pm on Sep 30, 2008 (gmt 0)

Control....

One of the reasons I like the idea of 3 -4 or more investors is that you might be able to structure the deal so that you still have a good chance of not losing control... even though you may not continue to own a majority interest.

As long as you don't end up with a "group" of investors that are tightly tied to each other, you still have a chance to convince enough of the group to vote with you to maintain effective control.

You might not always convince the same investors, and it might not work if things go bad, but you still have a chance.

Whatever, I wouldn't go for a 50/50 deal.

HugeNerd




msg:3756016
 9:56 pm on Sep 30, 2008 (gmt 0)

I've been thinking I need to develop a set of expectations/requirements for the vendors I work with. The big issue with a drop shipping arrangement is that fulfillment and product support are out of my hands. So, it makes sense to place expectations in writing for them.

I cannot speak to all industries, but in mine, it works the other way. They have the expectations and requirements; you can agree and work with them or find another source. If they have been in business for any length of time, they have all of this in writing already. The bigger the vendor, the less say you will be given as brand is king; you are working with their brand and so must bend to their will.

This 44 message thread spans 2 pages: 44 ( [1] 2 > >
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