Find mentors who will tell you the truth about how your business is doing.
Know that if you launch your venture with the help of investors, you’re giving away a part of your company.
And realize that to get started, you may have to use your own money –— and lots of it –— before applying for a bank loan.
These are some of the tips that experts gave to an audience of more than 120 current and prospective entrepreneurs this week. The event was “Financing Your Great Idea,” sponsored by the Charlotte Observer and by Blue Cross and Blue Shield of North Carolina.
The sold-out event featured five panelists, including several small-business banking managers, an inventor who runs her own company, and an angel investor.
Panelists spoke candidly with the audience about what it takes to get funding for an entrepreneurial venture. Here is some of what they said:
‘IF YOU’RE RUN OVER BY A TRUCK …’: Dan Gotte, executive director of Charlotte’s Inception Micro Angel Fund –— the largest angel fund in the Charlotte area –— first explained the key differences among angel investors, venture capital funds and lenders.
Banks are loaning money that entrepreneurs eventually have to repay, Gotte said. Angel investors, like the ones you see on ABC’s “Shark Tank,” are individuals who invest their own money in a business in exchange for equity in the business. Venture capital firms, on the other hand, invest other people’s money in exchange for equity, and rarely do so while a business is in infancy.
And what are angel investors’ top concerns?
Scalability and sustainability, Gotte said.
Angels want to know when a business will be big enough and successful enough to be sold (“an exit,” in investor-speak) for much more than the investors put in.
As for sustainability: “If you’re run over by a truck, we want to know the business will continue,” Gotte said.
‘THE UGLY TRUTH’: As a mother of nine, Robyn Pellei was chock-full of ideas that would make other parents’ lives easier.
But she needed a lot more than personal experience to grow her business, ViveVita, and line of nine products, including washable chair covers and silicon bands for labeling cups, pacifiers and toothbrushes.
It’s hard to start a business with a bank loan, Pellei said, which is why many entrepreneurs have to self-fund for a while before applying for a bank loan to expand.
“The ugly truth,” she said, “is you’re probably going to have to use credit cards and your own savings as resources. In this phase, you’re spending your 401(k) … your kids’ college savings. And that’s how you eventually get to a banker and show, ‘Here’s what I’ve done.’ ”
Another precaution: Be careful with any money you’re loaned, Pellei said. “It’s one thing for your idea to work. It’s another for it to make money, enough money to pay someone back.”
SUBSTANCE, NOT VOLUME: John Hipp, CEO of NewDominion Bank, said every aspiring entrepreneur needs three key people on the team: a good accountant, lawyer and banker. And when finding the banker, look for one who’s experienced and decisive, he said.
Hipp also said to remember that a good idea isn’t enough to carry a business; working capital is a critical component.
To secure that capital, know the ins and outs of the market you’re entering and how your background (or your team’s background) prepares you to perform well.