| Fact: In 2005 over 500,000 new business | | | | receive orders you know you have a winner. |
| incorporations were organized in the United | | | | More entrepreneurs successfully can start the |
| States.Fact: Of these 500,000 new businesses | | | | road to success by bootstrapping than by any |
| less than 1,000 received venture capital | | | | other method.Licensing |
| funding.There are vastly more entrepreneurs | | | | |
| seeking start-up funding than there are | | | | Since the bubble burst in 2000, we have done |
| available funding sources and investment | | | | far more product licensing campaigns than any |
| pools. This is a fact. And yet, 499,000 | | | | other deal style. Licensing requires a |
| incorporations occurred in 2005 without the | | | | thorough foundation of intellectual property |
| cover of an investment funding commitment. | | | | protection. First to market advantage, a |
| Many of these new businesses will fail. | | | | strong Unique Selling Proposition, lowest |
| Nevertheless, the urge to seek the | | | | possible of goods (while maintaining highest |
| fulfillment, financial security, freedom and | | | | possible quality standards) and verifiable |
| the satisfaction of overcoming the odds still | | | | sales model.Angel Investors |
| drives us to try.The lingering doubt, and | | | | |
| hurdle each of these new entrepreneurs | | | | There are so-called angel funds, so named |
| confront is this, "where does the money come | | | | because like fairies they sprinkle a little |
| from"? We look at, on average, 600 | | | | dust on potential deals of interest, just |
| submissions per year in my consulting | | | | seed money basically. Angel funds tend to |
| business. The absolutely, number one reason, | | | | stick to specific fields (technology, |
| most of these presentations will not ever | | | | wellness, software, etc.) where they have |
| make it beyond the idea stage is an | | | | great experience and contacts. |
| unrealistic understanding on the role of | | | | |
| investment and sources of available start-up | | | | They typically take an oversized piece of |
| funds.My first assessment of an opportunity | | | | equity, as first money in is most at risk. In |
| is always the idea itself. Assuming the | | | | addition, angels are few and far between, |
| submission passes our layered analysis, the | | | | hard to find. Look at local Chamber of |
| next hurdle is the inventor or prospective | | | | Commerce fairs and regional government |
| entrepreneur. Is he a dreamer, or a doer? And | | | | incubators as a source for networking |
| the first disqualifying trip wire for a | | | | angels.Mezzanine Finance |
| dreamer is the expectation that they can have | | | | |
| someone incur all of the financial risk, | | | | Once a deal has shown market potential, |
| 100%, while they commit nothing. When I say | | | | sales are growing, the market is responding |
| nothing, I mean no patent filings, no | | | | and the risk factor has been mitigated, |
| production quality prototypes, no qualified | | | | mezzanine financing becomes an option. |
| research, no testing, etc. They have only an | | | | Usually the mezzanine round is for far more |
| idea.Angel investors do exist, but even they | | | | investment money than the angel-round, and |
| do not very often consider investment in | | | | the equity percentage is not as dear. Many |
| dreams, cocktail napkin designs or untested | | | | banks now have mezzanine arms to service |
| theory. And yet we eliminate 60% of the | | | | growing, but not yet mature |
| product opportunities we view, many with | | | | opportunities.Investment Bank |
| interesting commercial potential, simply | | | | |
| because the submitter can not, or will not | | | | Investment Banks are very difficult to work |
| invest in their own opportunity. If you do | | | | with unless a project is typically past the |
| not believe in yourself, your opportunity, | | | | angel and mezzanine funding stage. They want |
| why would anyone else?The development monies | | | | to see sales traction, even if in a limited |
| for patent and trademark filing, design, | | | | test market. Investment Banks have |
| research, creating working models is what the | | | | exceedingly aggressive Harvest Goals, |
| funding world calls 3-F money. 3-F money | | | | recognizing that even with the most heavily |
| comes from friends, families or fools. This | | | | vetted deals, only 2 in 10 or so will succeed |
| is very high risk and usually very small | | | | and pay-out. |
| amounts are needed. Most of the products we | | | | |
| see require from $12,000 to $20,000 to put in | | | | Also, Investment Banks are not interested in |
| a professional presentation that could be of | | | | small loan amounts. It is a reality that it |
| interest to investors, licensees or partners. | | | | is easier to secure several million dollars |
| Most of the people that submit to firms like | | | | than several thousand for a new project. They |
| ours have jobs, homes, and investments. Many | | | | will not be interested in a local bakery. |
| love to chat about their boat, second home or | | | | |
| recent safari vacation. But they claim to | | | | A strong, experienced management team is |
| have no money to invest in a project that | | | | always a top priority for Investment |
| they state is an absolute winner, and will | | | | Banks.Small Business Administration |
| make millions for everyone involved.This is | | | | |
| an absolute deal killer, a non-starter. We | | | | The SBA is an excellent avenue for the first |
| are constantly solicited to become the | | | | time startup, minorities and women to utilize |
| inventor's partner, hundreds of times per | | | | as a funding source. The SBA is government |
| year. Investors must see passion, commitment, | | | | subsidized. That said; it is very slow, |
| confidence and an inventor with skin | | | | bureaucratic and risk averse. A good source |
| (dollars) in the game. The lack of personal | | | | of funds for traditional types of businesses, |
| commitment one brings to a project is proof | | | | such as retail, local service and light |
| that a dreamer is impersonating an | | | | manufacturing.Factoring |
| entrepreneur.Friends, family and fools assist | | | | |
| in funding, investing or partnering most of | | | | Again, this is a personal favorite, as I |
| the 499,000 new incorporations filed in 2005. | | | | have used receivable factoring to fund |
| This does not include the huge number of sole | | | | several of my startups. Basically, a factor |
| proprietorships established each year. Most | | | | is a financial institution that will buy the |
| new businesses do not require the involvement | | | | firms purchase orders, if the orders are from |
| of venture capital funding sources, blind | | | | top grade companies. For instance, the |
| pools or investment banks. Their scale is too | | | | entrepreneur receives a purchase order for |
| small for consideration by firms seeking | | | | widgets from Walgreen in the amount of |
| larger investment opportunities with huge | | | | $200,000. The order becomes a form of |
| harvest (cash out) potential.Many | | | | collateral and a pre-negotiated percentage is |
| entrepreneurs have used credit cards, | | | | advanced to the vendor. This is used for |
| personal savings, a home equity loan, sell | | | | working capital, often for completing |
| that antique car, tap a retirement account, | | | | inventory production. The open balance, less |
| or utilize an inheritance to fund their new | | | | factoring fees, is credited when Walgreen |
| enterprise. Just remember however, this is | | | | pays the invoice amount. Virtually every dry |
| high risk and more business start-ups fail | | | | goods manufacturer factors invoices.In |
| than succeed. Nevertheless, securing the | | | | summary there are many funding options |
| initial development funds in this way shows | | | | available depending on the size, scalability |
| commitment and can advance a project to the | | | | and current status of the new business |
| point where deal placement is a real | | | | opportunity, no entrepreneur should ever |
| possibility.During the 1990's a gold rush | | | | attempt to approach funding sources without a |
| mentality occurred that distorted the | | | | customized business plan, exciting |
| financial markets. Money for many investment | | | | presentation materials and strong financial |
| types was readily available. Due diligence | | | | projections. The most likely source of |
| was morphed by theory and new age abstract | | | | funding for 99% of all new ventures will be |
| business models. The sky was the limit.Well | | | | personal resources, friends, family and |
| the sky was not the limit. The bubble burst | | | | fools.Geoff Ficke has been a serial |
| and in the first decade of the 21st century | | | | entrepreneur for almost 50 years. As a small |
| we are now in an investment cycle where | | | | boy, earning his spending money doing odd |
| cynicism rules. Every deal is thoroughly | | | | jobs in the neighborhood, he learned the |
| vetted and re-vetted. Terms are very | | | | value of selling himself, offering service |
| strident. A submission must be absolutely | | | | and value for money.After putting himself |
| professionally researched and presented. The | | | | through the University of Kentucky (B.A. |
| market allows for no shortcuts or errors in | | | | Broadcast Journalism, 1969) and serving in |
| assumptions made. | | | | the United States Marine Corp, Mr. Ficke |
| | | | commenced a career in the cosmetic industry. |
| With this reality in hand, and the knowledge | | | | After rising to National Sales Manager for |
| that self-funding, or 3-F funding are the | | | | Vidal Sassoon Hair Care at age 28, he then |
| most prevalent options for startup monies, | | | | launched a number of ventures, including |
| are there any other options? What are they? | | | | Rubigo Cosmetics, Parfums Pierre Wulff Paris, |
| There are several, and I will be writing | | | | Le Bain Couture and Fashion Fragrance.Mr. |
| specifically in more detail on each. | | | | Ficke and his consulting firm, Duquesa |
| Consider:Bootstrapping | | | | Marketing, Inc. ( has assisted businesses |
| | | | large and small, domestic and international, |
| My personal favorite, as I successfully | | | | entrepreneurs, inventors and students in new |
| started my first business by bootstrapping. | | | | product development, capital formation, |
| What is bootstrapping? Simply stated, this is | | | | licensing, marketing, sales and business |
| an avenue to start your business without | | | | plans and successful implementation of his |
| borrowing, giving up any equity, total | | | | customized strategies. He is a Senior Fellow |
| self-reliance on yourself. Sell your product | | | | at the Page Center for Entrepreneurial |
| or service before you have inventory. If no | | | | Studies, Business School, Miami University, |
| one buys you have lost nothing. If you | | | | Oxford, Ohio. |