The idea of going public is an intriguing one for many small businesses.  They see access to capital, lots of publicity and generally a better business life than the previous one they lived where they were always begging for money, no one outside their customer base ever heard of them and their business life although not always bad, certainly had ever-present challenges.  This article will lay out what it means to “go public,” what are the business challenges associated with making such a decision and yes, what the advantages truly are to be a small public business.

Most small business people mean one of two things when they say they want to go public.  They either mean that they want their shareholders to be able to publicly trade the company’s securities or they mean that they want to be able to approach the public to raise capital to support their businesses.  I point this out because although the first concept includes the second, i.e, if your company is publicly traded you can raise capital publicly, the second concept does not always include the first, i.e., a company can raise capital publicly but not necessarily have its securities trade publicly.  The small business owner needs to understand this very well before launching into an effort to publicly raise capital that will bring many more challenges with it.

To start with, let’s return to the years after the Great Depression.  Prior to that time, selling stock was a wide open game and many people lost money to schemes that were designed to aid the seller who did not make any effort to protect the investor.  The Securities Act of 1933 instituted a number of basic protections into the securities regulatory scheme that were designed to protect investors by making sure that information was available to them before they bought securities and to stop sellers of securities from using fraudulent activities to sell.

As noble as these desires were, it was not practical to think that the federal government could get involved with the sale of every security that took place in the country.  Consider, for instance, that a person forming a corporation to own and operate a convenience store would ultimately be buying securities from that corporation.  The expense for that small corporation to have registered securities to sell under those circumstances would be prohibitively high and would not really serve to protect anyone.

The Securities Act of 1933 later incorporated various exemptions to registration to handle situations where the risk to the public was deemed not too great.  The prime area for small businesses is Regulation D, which governs how a business sells securities without using public means of communications.  There are three safe harbor rules, Rule 504, 505, and 506 that prescribe how and what kind of information still needs to be delivered to investors, how sales cannot be conducted using fraudulent measures and varies the requirements depending on amounts of money being raised and to whom offers are being communicated.  These are referred to as Private Placements and the disclosure document used is called a Private Placement Memorandum, although the PPM does not follow a strict structure, just specific issues that must be addressed.

Understanding PPMs in general helps to understand the going public process.  Information is the key element to what a company has to deliver to potential investors before asking them to invest.  While the information is very much the same for a public offering as a Private Placement, the difference is how that information is derived and who checks it before it is delivered to potential investors.

To understand the public offering for a small business, it helps to understand the IPO process that one reads about so often in business magazines.  Essentially an IPO is conducted by having investment bankers study a company and make a determination about how much cash is needed, how many securities will be needed to be sold to attract that much capital and preparing for the changes the company will undergo to be a public company.

A road show is held in which the company and its investment bankers travel around the country visiting stock brokers to sell the brokers on the company and on the offering.  The investment bankers will start with a range of numbers of securities it thinks the company will offer and a price range for purchasing those securities, say between 10 and 15,000,000 shares of common stock at a price between $10.00 and $14.00 per share.

At the presentations to the stock brokers, questions are asked and finally the brokers make commitments at one or more prices and the number of shares like “We will purchase 4,000,000 shares if the offering price is $12.00 or 3,000,000 at an offering price of $14.00.”  The company’s investment bankers keep a running tally to see when they have sufficient commitments to meet the company’s capital needs plus the investment banker’s fees.  When they reach a point where they have enough commitments to do that, they stop the road show and report to the various committed stock brokers that they will be allotted a certain number of shares at whatever price the company accepted.  These shares are then sold by the stock brokerage to their customers in transactions that will be effective at the time the company is officially trading on an exchange.  At that time the new shareholders can sell in the market or keep the shares waiting for price appreciation.

The IPO process is marked with a large number of high expenses to the new public company and a great deal of exposure of formerly private operating information.  These two aspects of the IPO process may be the greatest reason small businesses seek other ways to raise money publicly.  In addition to the information that a company must present to new investors to go public, the new public company must now make quarterly and annual reports to the SEC to be held in public files for investors to research at any time.   All of this process comes with immediate and long-term continuing expenses that can make a public offering quite challenging for a small company.

There are three ways small businesses can raise capital that are much less expensive than the traditional IPO method.  The first is the private placement method where a company approaches potential investors with whom the company has a “prior business relationship” and explains the company’s capital needs and what the company is willing to offer to the investor to get the investor to spend his money.  A private placement can get very complicated if one investor begins to negotiate a deal that is different than the one the company intended to offer or has already offered to other potential investors.  Under such circumstances, the company may find itself re-negotiating with the early investors and having to take a deal it had originally not intended to take just to get the financing.

The public methods of raising capital for a small business can relieve the company from having to negotiate with individual investors.  The company may find that investors subsequently do not invest because they cannot negotiate, but the company remains in control of the process even though it has not received money.  The two methods of publicly raising money that are available to small businesses are collectively referred to as Direct Public Offerings and individually they are known as SCOR (Small Corporate Offering Registration) or Regulation A offerings.

The primary difference between the kinds of DPOs is the maximum dollar amount of the offerings and the regulatory agencies that will review the offering before it can be launched. A SCOR offering is offered under Regulation D of the Securities Act of 1933 and the state securities laws of the states where the potential investors live.  Generally, a SCOR offering is limited to $1,000,000 but some states further reduce the maximum amount of these offerings.  A Regulation A offering can go as high as $5,000,000, again possibly reduced by state securities laws in the states where the offering will be sold to potential investors.

Here is how a DPO is conducted.  The offering company prepares a disclosure document that spells out what the offering company is, what its business is, who runs it, who has invested in it, what the capitalization structure of the company is, what the current debt of the company is, what are the reasons someone might lose their investment in this company, what the business plan of the company is, what the goals of the company are and how the company intends to use the capital it raises.  All of this information is placed in a disclosure document that is reviewed by the state agencies responsible for securities in each of the states where the offering company intends to sell securities.

The review process between multiple states can get a little difficult to manage if one state wants a change that conflicts with a change another state wants, but it usually can be worked out.  At one point a few years back, a multiple state review process was utilized but that has been dropped.  Once final registration is set by the states involved, the offering company is free to utilize the public airwaves, public newspapers, and any other public manner to let people know that the company is raising money.  There have been a number of innovative methods used to advertise DPOs including pasta boxes and beer six-packs.

A regulation A offering has an added level of regulatory inspection to it.  The SEC must review the offering document.  This is a much reduced level of review from the process an IPO offering goes through.  Once the SEC has reviewed the offering, it is submitted to state agencies for their review and registration before the company can begin selling to the public.  Many entrepreneurs who look at DPOs stop at this point and never consider the next aspect of public securities that investors will want to know about probably soon after they purchase public trading.

For the very small company, public trading can be very difficult.  This is because every public trading arena requires the company whose stock is being listed for trading to meet requirements so that the trading arena can be sure that there will be trading activity in the stock.  These requirements will be a certain capitalization, number of public shares, and number of public shareholders that will increase the possibility that there will be a regular trading activity in the stock.

The Pacific Stock Exchange has maintained a separate trading environment for DPO stocks where companies that meet the SPE’s requirements can freely trade in the aftermarket.  Other places where small company stock can be traded include the Over the Counter and Bulletin Board markets.  Each of these marketplaces has its own requirements that the trading company must meet.  A company contemplating a DPO should consider these requirements prior to conducting the DPO to be sure that the resulting stock can be reasonably listed and traded, so the company’s investors have a place where they can sell their securities if they want to.

Finally, a public company has numerous new reporting requirements once it has sold securities to the public.  This is so the investor can easily stay up to date on developments with the company.  These requirements are a significant regular expense that a company needs to plan for in its business plan post offering.

Small businesses can reap great rewards by going public.  They must fully understand what is involved to do so and what is involved for the company and the potential investors before contemplating an offering to the public.  Well considered, a public offering of a company’s securities may be the beginning of a new foundation for business success.

About the Author

James Wilson is a business attorney with the Wilson Law Group, PLC in USA. He works with small businesses. He can be reached at JWILSON@WILSONLAWGROUP.NET or +1-804.864.5268.

Image: thephotoholic / FreeDigitalPhotos.net

The death of “THE DEAL” has been greatly exaggerated since the financial meltdown of September 2008. Yes, there has been a dramatic slowdown of deal closings for business owners seeking to raise capital or sell their business but the deal has never died. While few predict a dramatic pickup in deal volume any time soon, people are completing transactions and there are signs that deal activity is on the rise. You just need to know how to position yourself to attract the right capital or buyer.

As a business owner, have you done everything you can to maximize the value of your company? Below are some helpful insights that can assist you as you endeavor to answer this question as well as successfully close a round of financing, transition ownership or sell your business in this challenging environment.

Are you ready? Is your business ready?

Your company’s value is not simply determined by earnings and industry multiples alone. There are a host of issues inherent to closely held businesses that can impact deal value or even kill a deal.

Certain issues may arise that will make an investment or sale virtually impossible, I call these red flags – they signal to an investor or buyer not to go into the water.

For example, how large is your largest customer? If it’s 40 percent or 60 percent or higher then you may face a serious obstacle. Other issues won’t necessarily block an investment or sale but can significantly detract from what someone is willing to pay you. We call these issues yellow flags – these signal an attitude of it’s OK to go in and swim, but be warned, there’s something you cannot see underneath. For example:

1)     Key man and/or woman issue(s).

2)     Financial reporting has not kept pace with the growth of the business.

3)     Failing to document business processes.

4)     Lack of a business plan or ownership transition strategy.

5)     Legal and company formation documents in disorder or not up-to-date.

Without examining these various issues, what you expect may be quite different from what you will receive at closing. Worse yet, what lurks below the surface may kill a deal.

What to Look for in an M&A Adviser.

Big or small, the size of your company should not matter. Your adviser’s experiences and network of buyers and capital providers should span the entire private placement market, from growth equity to buyout firms and strategic buyers.

I also recommend that you select an adviser that has a network that consists of buyers and investors throughout the United States and internationally, across industries. This will allow you to find your company’s ideal partner or multiple buyers to maximize valuation – that said, the process should remain targeted and efficient.

Too often investment banks seem to send information to 80, 100, 200 potential buyers and capital providers. It’s as if they have their standard list of investors and that’s it. The same investors/buyers, regardless of appetite, experience or need, receive every assignment. As your representative, an investment banker needs to understand who is looking for what and what each potential investor or buyer brings to the table. This is a key component to executing a process for you that is smooth and discreet and achieves results that maximize your value and meet all of your objectives.

By truly knowing who you are trying to attract, you will not need to run a loud auction that exposes your company’s proprietary information – it is your life and blood and you should guard it carefully.

If you shop your opportunity widely and indiscriminately by internal resources or with the help of an investment banker, do not be surprised if your employees, customers, competitors and others gain access to information that can damage your auction or worse yet, THE COMPETITIVE POSITION OF YOUR COMPANY.

Final Thoughts – Focus on the Future.

Lastly, something for business owners to consider before deal closing – your “new” board member and business partner DOES matter. After closing a round of equity investment or selling control in your company, either for growth or liquidity purposes, it’s too late to realize your new partner is incompatible with your style and/or is not a value addition.

About the author

R. Travis Coley is a partner at Hidden River Capital, where he specializes in representing expansion stage and closely held and family-owned middle market companies. Contact him at: tcoley@hiddenrivercapital.com, (856) 577-3398 or visit www.hiddenrivercapital.com.

© Copyright R. Travis Coley 2010. All Rights Reserved.

Image: jscreationzs / FreeDigitalPhotos.net

Several months ago, I had written an article on raising capital from customers and fans. I thought now was the time to write a follow up about it because I have gained more information about this topic.

Lot of people email me telling me that they want to raise capital for their businesses. The problem with many of them raising capital is they have unrealistic expectations.

Many of them expect the investor to fund 100% of the capital on a business based just on an idea. The business has no assets, no revenues just an idea. Yes, investors do fund seed stage businesses but for someone with no track record, it’s a long shot.

Imagine, you are an investor, a kid with a business plan shows up and says he’s got a great idea but no product or service  and he isn’t putting any of his money on the table because he’s got no money and he’s also got no track record to back up his idea. What would you do? Obviously, you wouldn’t invest a penny unless you’ve been smoking crack and living in a cave on another planet for the last decade.

So, what is the right approach?

Try to boot strap initially. Try to get some money from somewhere – family, friends, sell some of your old stuff, sell your time (your services for money), do a barter, get some favors and try to pull up some money to get started.

Once you get started, build your product as soon as possible and start generating some revenues . Once these revenues are generated, you are in a way better position to approach investors.

Even if your product is a mediocre success, you have a way better chance of raising capital from investors than if you just had an idea and a business plan.

Also, remember to do your homework before you approach an investor. Get to know what investors are looking for and learn as much as you can about presenting yourself to an investor.

Join our mailing list below and get a FREE 7 day ecourse on raising capital.

Vinil Ramdev is an entrepreneur, business coach and author of several “ebooks” He is also founder of StartupGrowthExpert.com

Image: graur razvan ionut / FreeDigitalPhotos.net

We asked several investors about what specific strategies entrepreneurs need to employ when raising capital for their business.

Most people who sent in their responses were experienced investors who had invested in several businesses or experienced entrepreneurs who had raised financing for their businesses in the past.

This is a list of some of the responses from investors.

1. Network, network and more network

Develop a relationship with the investor before you actually present your business plan. If you do not know an investor, try to get a referral from somebody. It could be friends, family, a neighbor or anybody. Try to get a referral from somewhere. A cold call is a really tough sell. I have tried cold calls in the past. The response has been not so good and besides it’s hard to get the right person on a cold call.

2. Persistence

Most entrepreneurs make the initial contact and then they forget about it. It’s important to follow up. It’s just like the sales process, you need to follow up without being pushy or being a pest.

Michael Rhodes, General partner at Syncubator says “Entrepreneurs justifiable are focused on their ventures but venture capitalists and angels vet hundreds if not thousands of opportunities simultaneously. Entrepreneurs need to learn the art of professional follow up without being pushy. There are techniques that entrepreneurs can deploy that will make them stand out from the rest. Hand written thank you notes go a long way. Follow up with the product sample, etc.”

These are simple yet extremely powerful networking tools that have been around for a long time. They are much easier to implement than getting a college degree.

3. Clarity and vision

Most investors believe when an entrepreneur presents his business plan he should be absolutely clear what his product is and how he plans to make money.

Pablo Solomon, famous for his art business says “The keys are honesty, clarity and vision. If you can communicate your vision in a clear and honest manner, you can interest investors.”

Robert M. Herzog, President  of Robert M. Herzog & co  who has helped early stage and start up companies raise over $150 million, including starting several of his own businesses in Internet, media, energy and other sectors besides claiming to have raised every form of capital and who is well versed in all forms of raising money says “Be very focused, you may have a million spin-of and secondary ideas in your head, but you have to convey very clearly how you will walk before you will run. Be clear about what you know, and admit what you don’t know, if you try bluffing through what isn’t known or in place, it will come back to haunt you.”

Carol Roth of Intercap Merchant Partners who has helped companies raise over $1 billion in capital and has invested in a variety of early stage companies says “Be crystal clear. You should be able to communicate what your company does and what customer need/pain point it solves in plain, simple language that a non-native English speaker can understand. You could say that you have “a device which uses various combinations of electrical circuits and mechanical devices to produce and control an output of energy waves to increase the temperature of edible items over varying periods of time” OR you could say that you have “a microwave, which heats up food quickly.” Go with the latter- investors have limited attention spans.”

4. Understand the process of raising capital

Lot of entrepreneurs have no idea about the process of raising capital. They have heard of stories of an investor just writing a check to a college kid at a dinner table. At most times, that check is usually written after months of due diligence and follow up.

So, they just show up at the the investor’s door step and they expect the investor to write them a check. That very rarely happens. In fact, it’s impractical to even expect it.

Kevin Castello, associate director of the Baylor Angel Network says “Do your homework first on Angel investors. Understand the basics of what you are getting into – the average person wouldn’t go to the bank without knowing what the bank loan process is likely to look like. Understand the valuation process: we will have to raise x amount of dollars which will cost us what percentage of our company.”

5. Realistic plan

Entrepreneurs are generally optimistic people and most of their projections are usually in the air. It’s wonderful to aim high and have big ambitions but at the same time there needs to be a foundation on the ground. And, that foundation needs to be grounded in reality.

Davis Jones, an entrepreneur who has launched businesses in real estate, internet, computers and health care and has negotiated several venture deals says “Be honest with yourself and investors, have realistic, conservative projections and don’t let your enthusiasm overshadow your objectivity.”

6. Plan to pay back investors

This is something many entrepreneurs don’t even think about. Even if they do, the numbers are quite unrealistic and don’t really work.

So, have a clear strategy and a very clear timeline as to when and how you plan on paying back your investors.

7. Make your business investor friendly or fundable

Sometimes, your business model needs to be in the range investors are looking for, besides fulfilling several other factors that make the business fundable.

Carol Roth of Intercap Merchant Partners who has helped companies raise over $1 billion in capital and has invested in a variety of early stage companies says “Make sure your business model is investor-fundable. Most business models aren’t big enough to attract the attention of sophisticated investors like angels or venture capitalists. These investors want to invest in businesses that have the ability to give them a 30% to 50% return (or sometimes higher) on their capital on average and for VC’s, that can become $50 million- $100 million in revenue in three to five years. This means that your business may not be a fit for an angel or venture capital investment. Venture capital firms only fund a fraction of one percent of all businesses in the US each year. Be realistic on whether you have a business model that is likely to scale quickly and be of interest to venture capitalists or sophisticated angel groups. If not, don’t waste your time going to them for funding – look elsewhere. If you do have a plan that meets the above criteria, try to get an introduction through someone who has a relationship. Spend time with your network seeing “who knows who”, as a direct introduction will keep you from the bottom of the business plan (or pitch deck) pile.”

Write down any questions you may have for investors in the comments section below.

You may also want to listen to the interview with Carol Roth who’s helped raise more than $ 1 billion for her clients. Click here.

Vinil Ramdev is an entrepreneur, business coach and author of the ebook “How to write a business plan for astonishing results? In just 3 days!” He is also founder of StartupGrowthExpert.com

Image: Salvatore Vuono / FreeDigitalPhotos.net

Seed stage

This is money that is typically invested when the business is in the idea or concept stage. The founders are still investigating an idea and require money typically for market research and developing a prototype.

There are funds that focus only on seed stage companies. So, if you are looking for funds while in the seed stage, you need to weed out all the firms that do not focus on the seed stage and stay focus only on companies that focus on the seed stage.

Start up stage

The startup stage is usually the stage where the business has an idea and it needs capital to hire employees, get the product developed and launch the product.

Growth stage

This is a stage where your business is already generating revenues. You may or may not be profitable yet, but you have a tested product or service and you need more money to expand your business, to take it to new markets, increase your advertising budget or develop new products.

Mezzanine or bridge financing

This is the stage where your company is looking to go public. That is, you are looking to get listed on one of the stock exchanges. You may need money to hire an investment banker, do the paper work to get your company listed or promote your stock offering to potential buyers.

IPO

This is the stage where your company gets listed on the stock exchange for the first time. This is the time the founders of the company usually sell some of their shares in the company to cash out. It’s a time for the founders and investors to see some liquid cash.

Your business may not go through all these stages of funding. You may at the growth stage want to buy out your investors and use your business as a cash cow. All this depends on what your business goals are.

It is important to remember the various stages of funding because there are venture funds that specialize only in companies in particular stages of funding. For example, some venture funds will focus only on companies in the seed stage and some others will focus only on companies in the startup stage or the growth stage. So, you need to weed out the venture funds that are not applicable to your company.

Vinil Ramdev is an entrepreneur, business coach and author of the ebook “How to write a business plan for astonishing results? In just 3 days!” He is also founder of StartupGrowthExpert.com

Image: graur razvan ionut / FreeDigitalPhotos.net

There are primarily two types of capital – Debt and Equity.

Debt is capital that needs to be paid back. A personal or business loan is an example of debt capital. An individual or institution lends money to a business with an understanding that the money needs to be paid back.

It is similar to a personal loan in that you need to make interest and principal payments on a regular basis. Debt capital can be structured in several ways.

If you are borrowing money from a relative or a friend to start a business, you can ask for an interest free loan or you can structure it in a manner such that you can make the interest and principal payment after several years when your business starts seeing steady cash flows.

You can also structure it as an interest only loan where you make only the interest payments and make a balloon principal payment at a specified future date.

It is always a good idea to keep your cash outflows as low as possible during the initial years of your business.

Equity capital is capital that is given to a company or business in return for part ownership in the company. The investors are compensated from the profits of the company. That is, if the company makes any profits.

This is one of the least risky forms of financing because if your business goes bust you don’t have to pay back the capital. In case of debt capital, you have to pay back the capital borrowed even if you don’t make any profits.

Although, equity capital is the least risky form of financing, lot of entrepreneurs don’t want to part with ownership of their company. Getting equity capital is like getting partners and giving up part ownership of your company. Entrepreneurs see this as loosing control. But for the typical start up, equity is the best option. Lot of businesses fail because entrepreneurs use the wrong capital structure.

Vinil Ramdev is an entrepreneur, business coach and author of the ebook “How to write a business plan for astonishing results? In just 3 days!” He is also founder of StartupGrowthExpert.com

Image: Salvatore Vuono / FreeDigitalPhotos.net

This is a basic list of sources of capital that most entrepreneurs use while raising capital for their business.

1. Family and friends

Family and friends can be a great source of financing for the first time entrepreneur. If you have wealthy friends and family who can spare some money for you then they can be a great source of financing because your family and friends can provide for flexible terms and conditions.

However, lot of experts warn against taking money from family and friends. Although family and friends can provide you with flexible terms and conditions, they can cause you lot of grief and emotional pain if your business goes sour.

2. Angel investors

An angel investor is an individual who invests in start up businesses. This is usually a former entrepreneur who believes in the entrepreneurial spirit. Angel investors are usually a bit more flexible with their terms.

Sometimes angels pool in their funds together and invest in groups. When you are starting off, and if your investment needs are not very high, angels can be a great source.

3. Venture capitalists

Venture capitalists are institutions that invest in businesses for a share in the company. Venture capitalists are like angels but venture capitals are bigger more institutional funds.

4. Bank loans

If you are a start up business with absolutely no history, then the traditional bank loans may not be available to you right away. But a bank may give you a personal loan depending on your credit history.

In the US, there are also SBA backed loans. These are loans that are backed by the small business association. The SBA also provides mentoring and other help to entrepreneurs. You may check out the SBA website for more details.

5. Credit cards

Several entrepreneurs have started businesses with credit cards, if you have a high credit line or your business requires only a small amount of money. Then, credit cards can be an option. I would strongly recommend NOT going this route.

The very reason is that credit cards have very high interest rates and once you get in that hole, it’s pretty tough to get out of it.

6. Business line of credit

A line of credit is nothing but it allows you to access more funds than is available in your bank account. If your bank account is $ 10,000 and your line of credit is $ 15,000 then you can withdraw $ 25,000 from your bank account. Sometimes, it is also called overdraft account.

The additional $ 15,000 that is withdrawn from your account will show as negative $ 15,000 in your account. This is not free money. It has to be paid back to the bank. So, be careful.

Several banks provide a line of credit if you set up a bank account with them. Before opening a bank account with a bank, ask them if they provide a line of credit. Get a business line of credit even before you need it.

This is again high risk and sometimes a business line of credit can have very high interest rates. So, watch out and be very careful.

7. Savings and Investment

Sometimes people start businesses with personal savings and even their pension funds. If you have been an employee and have been planning and saving money for a period of time. This is great. Be careful about using your personal savings because it is very easy to loose a lot of money in business very fast.

8. Government grants

In some countries governments give grants to start businesses. This may not be an option for you if you are a “for profit” business.

An option could be to set yourself up as a non-profit and pay yourself a salary. You can visit the US government website for more details http://www.business.gov/finance/financing/grants/

9. Customer financing

If you have already been in business and share a loyal customer following then your customers are a great option. Some musicians and film makers are going to their fans for financing.

Australian musician Clint Crighton has set up a method to raise money from his fans. For 100 Australian dollars, he gives his fans special privileges, a lifetime free entrance pass to his live gigs and a few more perks like a trip to Los Angeles for the recording of his album.
I have read about a few British teenagers who raised more than $ 100,000 just by selling closing credits to their film.

I have also heard of another business that raised money from their customers through the internet. The idea here is to have several people invest small amounts of money that add up to a lot of money. If you have 1000 people invest $ 100 each, you end up with $ 100,000. I think hundred thousand dollars is a lot of money for most businesses.

These are just some of the options available. Make your own list and go out there and pitch your business proposition.

Vinil Ramdev is an entrepreneur, business coach and author of the ebook “How to write a business plan for astonishing results? In just 3 days!” He is also founder of StartupGrowthExpert.com

Image: jscreationzs / FreeDigitalPhotos.net

If you are financing a start up business, then the most obvious choices of capital are

Family and friends

Most start up businesses are started with help from family and friends. They are the ones who are willing to help get you started.

They, however, may not be the best choice for you. So be careful and explore other options before you consider family and friends.

Angel investors

Angel investors are usually former entrepreneurs who look at start up businesses for investment. They are a wonderful source because they not only bring capital but have the potential to bring expertise, know-how and a resourceful network along with them.

You should consider angels as a financing option.

Savings

If you have some spare change that’s stacked away in your piggy bank. This is money you can use to start a business.

Some people are good savers who’ve saved a fair amount of money. But make sure this is money you can afford to loose. Don’t for heavens sake pull money out of your children’s college fund, it will come back to haunt you emotionally and mentally.

Your employer

If you are quitting your job to start a business and you’ve been a loyal, hardworking employee who’s made your boss a lot of money, this is the time for him to pay you back. If he is successful, and he’s got some money to spare, who knows he may just about become your partner.

Image: Michelle Meiklejohn / FreeDigitalPhotos.net

If you have already been in business and share a loyal customer following then your customers are a great option. Some musicians and film makers are going to their fans for financing.

Australian musician Clint Crighton has set up a method to raise money from his fans. For 100 Australian dollars, he gives his fans special privileges, a lifetime free entrance pass to his live gigs and a few more perks like a trip to Los Angeles for the recording of his album.

I have read about a few British teenagers who raised more than $ 100,000 just by selling closing credits to their film.

I have also heard of another business that raised money from their customers through the internet. The idea here is to have several people invest small amounts of money that add up to a lot of money.

If you have 1000 people invest $ 100 each, you end up with $ 100,000. I think hundred thousand dollars is a lot of money for most businesses.

Vinil Ramdev is a business coach and an entrepreneur who helps business owners increase revenues, cut costs and maximize profitability. He is the editor of startupgrowthexpert.com (startupgrowthexpert.com)

Image: jscreationzs / FreeDigitalPhotos.net

Before you start your search for capital, you need to do two things:

1. Write down your goals?

2. Stay focused on your goal till you complete the process of raising capital.

For example,

Raise $ 100,000 by Dec 31, 2010.

You need to clearly define the amount of money you need for your business and the deadline. The deadline will create urgency in your search.

Vinil Ramdev is an entrepreneur, business coach and author of the ebook “How to write a business plan for astonishing results. In just 3 days!” He is also editor of startupgrowthexpert.com (www.startupgrowthexpert.com)

>Image: FloatingLemons / FreeDigitalPhotos.net