Every venture begins with an idea and the resources of the founder(s). Then come other sources, including MCDV (the credit card companies) and our friends, family, and acquaintances. Once we’ve tapped into all those we know well and not so well, we begin to expand into the network of those people known by those we know. We’re looking for funding – refining our story and our ability to persuade and pitch.
When we move beyond the friends of friends, however, our approach must get more sophisticated, and (if we haven’t already learned them) we must understand the rules of raising capital. From the documents and the presentation to the due diligence process and timing, seeking investors requires an understanding of the market place and the selling process. Make no mistake – the capital market is just like any other competitive arena where buyers and sellers are meeting and making deals. The informed, the prepared, the company with the well-honed message which can reach the right audience and create the most interest will have the most interested buyers and the most financials alternatives (always within reason).
The process of raising capital begins before you speak with the first potential investor, long before you send out the first letter or make the first call. The process begins with your accomplishments, successes, and milestones – the vision you have, the story you have already written, the business you have already started, the team you have and are assembling, the plan you have written and are pursuing. The process has begun with the foundation which has been laid and the bricks being put in place upon that foundation. That is what enables you to weave together the fabric of a story of where you have been, where you are today, and where the business is heading. If you do not have that vision of the future and a clear story, then stop now and get it written. Be able to articulate it and make it live for potential investors.
Find sources of funding which are non-dilutive for the high risk stage of proof of concept and product development and which also create commercialization opportunities. Sounds like a fairy tale doesn’t it? It isn’t. The United States government has research and development grants for small businesses (generally defined as businesses with fewer than 500 employees and at least 51% owned by individuals, the full eligibility rules and definitions are available on the SBA website) which can be important sources of capital for projects in early stage companies. These programs (Small Business Innovation Research and Small Business Technology Transfer Research) provide funding which is not loans or equity. Furthermore, the research is funded BECAUSE the government has a need or interest. This provides an opportunity to begin making the connection for a customer in the future.
The path to federal grants is not an easy one and it isn’t without costs or investment. The grant proposal process, from identifying a potential grant through generating and submitting the actual proposal, requires an understanding of the rules, the programs, the information required, and the time required. A proposal is not an overnight term paper – put it together and submit it (despite the fact that many people do it that way and some win). The decision to pursue grant funding requires an understanding of the “strings” attached. A few of these string are the rules for use of grant funds and the impact on how you do business, procurement and where you do business, and even on the intellectual property of your business. All need to be understood. From accounting and business management practices, to licensing and where your goods can be manufactured, to rules on subcontracting and mandatory audits, grant funding comes with requirements and regulations., There are, however, millions of dollars in funding available. Once a business learns the rules and regulations and develops a viable strategy for addressing the business issues, then tapping into this source of non-dilutive capital can replace other sources of funding for projects you plan to do anyway. Furthermore, it enables you to connect into a potential customer base! Well, that is a chapter to include in any well-written, well-scripted venture’s story…Are you taking notes?
Copyright ©2010 Lea A. Strickland