Rob Frankel - Branding Expert

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Funding Your Internet Business.

Now that you're an netrepreneur, you're a card-carrying renegade. An online rebel that thumbs his nose at the legions of 9 to 5 drones every time he logs on dressed in nothing more than a pair of wrinkled pajamas. While regular working stiffs crawl to work with a steering wheel in one hand and a steaming cup of coffee in the other, you jump in the saddle with a steaming latte -- and most likely, a loyal canine -- loyally snoozing at your feet.

Now, what's missing from this picture?

I'll tell you what's missing: money. Bucks. Because no matter how cost-effective your busines is, you can't buy into the internet dream with dreams alone. It takes a plan. A vision. And most importantly, money.

Overwhelmingly, most internet businesses start out as roll-your-own enterprises, started by people like you and me. Some have been "downsized" out of corporate job; others have gotten tired of kissing the butts of morons whose career paths were inextricably linked to their own puckering ability. So the desire is there. But drive alone doesn't make it happen. If you don't have enough money to start up your venture, you are absolutely doomed to failure. And failure really sucks.

Well, the failure part isn't so bad. It's crawling back to corporate puckery that really hurts.

So let's get real. Let's accept the fact that you probably need more money than you've got to start up your net business. There are things you're going to want to do and LOTS of things you're going to want to AVOID. And a bunch of them are written down right here:

1. FIGURE OUT HOW MUCH YOU NEED: Amazingly, most people come to us looking for funding and can't answer a simple question like, "Well, how much are you looking for?" If you don't know, how do you expect anyone to give you anything at all? Aha! You fell into my trap! See point #2:

2. PEOPLE DON'T GIVE MONEY; THEY INVEST IT: Even though your Uncle Henry might have a couple of bucks to throw your way, people who are really serious about business don't "give" money to anyone. They look at your business as an investment opportunity. So figure out how much you need, WHY you need it and how your venture makes more sense for them than sticking it in a T-Bill.

3: DOUBLE THE AMOUNT: The only constant rule of funding that I've ever known is that everything takes more time and costs more money than you plan for. That's no slight on you, but think about the last project that you put through your business: how many suppliers messed up your schedule? Real life business involves more people than just yourself, so plan for the overages, lateness and general incompetence of others to crimp your plans.

4. WRITE IT DOWN: The second toughest thing to do with a start-up is to actually write the business plan. The TOUGHEST things to do is to write a business plan that won't cause potential investors to wipe tears of laughter from their eyes as they read it. Writing a credible plan is crucial to your success. The product or service idea alone won't cut it, so please pay attention to #5.

5: AVOID RED FLAGS: Jeez, this could be a column in itself! Most newbies pepper their business plans with all kinds of red flag warnings that let the potential investor know it's their first time out. Want to know the top three? Here they are:

"We used really conservative figures". Right. EVERYONE says that. When you say you used really conservative figures, you might think you're making your deal look affordable, but what you're really doing is telegraphing your inexperience. Real business people know it takes money to run a business, and big figures don't scare them. They may question how you arrived at those figures, but they won't be scared by them.

The second biggest red flag is virtually any phrase containing the word "potential". "Potential" usually means you have no idea of what your market is really like, because if you did, you would have written it down in the plan. Do your homework.

The third red flag -- believe it or not -- is not asking for enough money. Most newbies ask for just enough to squeak through their first year, which the pro's recognize as nothing more than an opportunity to fund your going broke (see below).

6. NOBODY INVESTS IN PRODUCT; EVERYONE INVESTS IN MANAGEMENT: The higher up the money chain you go, the less they seem to care about what kind of business you have. They want to know WHO'S running the business. That makes an odd sort of sense, because when people invest their money, they're actually trusting someone to take care of their money. And no matter how good your product is, IT doesn't run the business, PEOPLE do. If you can't showcase people who have some degree of success in some sort of business, your chances of getting funded are seriously in doubt.

7. THERE ARE THREE LEVELS OF FUNDING: Because the overhead is usually low, most internet businesses require far less start-up capital than traditional ventures. But for reasons outlined in point #8, you should realize that there are three basic forms of funding into which you can tap, depending on your capital requirements:

Family, as always, comes first. If all you really need is a few thousand bucks, Uncle Henry is probably your best bet. After all, he's your mother's brother and doesn't have any kids of his own and a good emotional pitch just might get you what you need. Lots of micro-businesses get started this way, but be realistic: this isn't business, it's welfare, and it's usually only good for a vary small amount. Family -- or Private Funding -- is usually the quickest route to money.

The second level is Semi-Private Funding. This is when you gather some business people in your living (or conferrence) room where you demonstrate and distribute your plan. Semi-Private Funding -- depending on the networks you develop -- can get you up to $500,000. That's not bad. Semi-Private deals are easy from a paperwork standpoint, because they tend to be less formal and rigid than the most-dreaded alternative, Venture Capital.

The third level of funding is Venture -- or Vulture -- Funding. Typically, these guys don't even want to look at a deal for less than $5 million. They're mainly lawyers and/or accountants who demand 70% of everything and take responsibility for nothing. If you enjoy long, strung out negotiation with all kinds of messy paperwork, this is for you. Nothing takes the joy out of starting your own business than doing a deal with the devil -- even if he's worth billions.

8. BIG DEALS ARE EASIER TO FUND: Another rule of thumb that people overlook is that the higher up the money chain you go, the less interested people are for small deals, even if the terms you're offering are fabulous. The reason is simple: it costs just about as much to administer, investigate and monitor a $500,000 deal as it does a $25 million deal.

Add to the fact that bigger deals attract more experienced management, you can ask yourself: if you were a venture capital investor with a 60% interest in the deal, whose phone call would you return?

Hey, I could go on and on about this stuff, but you've got the bases covered. If you're going out on the internet to make your score, be prepared. Be well-capitalized. But be smart about it. After all, it's a long, rough back to corporate puckery.

Rob Frankel

 
 
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