So, you have a great idea. Now what? Ideas by themselves are worthless. Executing on ideas takes capital. How do you go about getting this?
Bootstrapping and Resourcefulness
Tina Seelig, Professor of Entrepreneurship at Stanford, wrote a book, What I Wish I Knew When I Was 20. In it, she describes an exercise she gives to her students. Student teams are given $5 and two hours to generate the best returns they can. Some of the students get the best results without even spending the $5. The point is, ingenuity and creativity can be worth more than money. Bootstrapping and resourcefulness is the foundation for the first and best fundraising.
When you are starting out, look for all of the low-cost/no-cost resources you can. For instance,
• Ask for help
• Call in favors
• Help others with their entrepreneurial projects
• Get help from local universities and incubators
• Bunk in at other companies extra space
• Look for equipment and furniture at sales and auctions
Thomas Edison once said, “The scope of thrift is limitless.” Fixed expenses are the enemy. Bootstrapping, working out of a garage or basement, and looking for every possible way to get results without spending money is the first and most important skill an entrepreneur can have, and a skill to keep using even and especially after you get funding.
Revenues: The Next Best Financing
Revenues have been the world’s favorite source of non-dilutive financing for over 6,000 years. When you start a business, build into the plan revenues that will at least cover your basic expenses. This will give you time, and as Rich Ferrari of DeNovo Ventures says, “If you have time, you have everything.”
What is the Anticipated Exit?
Many structures and exit opportunities exist for an entrepreneurial business. The most common is sale of the business to a strategic buyer. It is important that the business structure and goals are aligned with those of the investors. For example, a business that generates nice cash flow but will not scale up into a large company (a so-called “lifestyle business”) may attract the rare angel investor if structured as a loan paying an above-market interest rate. Investors seek a business that will scale, into which they can put a substantial amount of money to work, and are looking for returns of three to five times their investment in three to five years or better. An investor may occasionally consider a lower return, but this will come in exchange for a shorter investment term and less risk. A deal that can return ten times in a reasonable amount of time is attractive to anyone.