Funding.

     It is a primary issue facing all businesses no matter what size they are.

     Anyone with dreams of owning a business needs to view fundraising as a top issue to plan for.

     For starters, the owner of a new venture needs to figure out how much money they will need.

     Once an estimate is decided on, considerations should be given to how they will fund the enterprise: self-funding, investors, or loans.

     According to the Small Business Administration (SBA) “Otherwise known as bootstrapping, self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401(k). With self-funding, you retain complete control over the business, but you also take on all the risk yourself. “

     If a person decides to try and convince investors to help fund the enterprise, here are some insights about venture capital.

• Focuses high-growth companies
• Invests capital in return for equity, rather than debt (it’s not a loan)
• Takes higher risks in exchange for potential higher returns
• Has a longer investment horizon than traditional financing

     “Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your company in exchange for funding,” according to the SBA.

    The following concepts are useful in dealing with investors or venture capitalists.

     Find an investor --
Look for individual investors — sometimes called “angel investors” — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.

     Share your business plan -- 
The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.

     Go through due diligence review -- 
The investors will look at your company’s management team, market, products and services, corporate governance documents, and financial statements.

     Work out the terms --
If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to make an investment.

     Investment -- Once you agree on a term sheet, you can get the investment! Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in “rounds.” As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.

     Crowdfunding is another way to raise money for a business venture.

     Crowdfunding raises funds for a business from a large number of people, called crowdfunders. Crowdfunders aren’t technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money,” according to the SBA.

     “Crowdfunders expect to get a ‘gift’ from your company as thanks for their contribution. Often, that gift is the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. This makes crowdfunding a popular option for people who want to produce creative works (like a documentary), or a physical product (like a high-tech cooler),” according to the SBA. “Crowdfunding is also popular because it’s very low risk for business owners. Not only do you get to retain full control of your company, but if your plan fails, you’re typically under no obligation to repay your crowdfunders.”

     The last fundraising strategy to think about is a small business loan.

     “You should have a business plan, expense sheet, and financial projections for the next five years. These tools will give you an idea of how much you'll need to ask for, and will help the bank know they’re making a smart choice by giving you a loan,” according to the SBA.

Eric Cormier is Senior Vice President of Entrepreneurship and Strategic Initiatives at the Southwest Louisiana Economic Development Alliance (Business Incubator of Southwest Louisiana)/Chamber SWLA. He can be contacted at 337-433-3632 or ecormier@allianceswla.org.