Expert: Paul Henneman - 1/6/2008

Question
Hi Paul, Thank you for taking the time to assist me in this matter. I have incorporated my company and would now like to seek investors. Could you please explain to me the different options of investing that I can offer to a potential ivestor along with the definition/steps of each option. Your assistance in this matter would be greatly appreciated. Thank You & Happy New Year,  Keith

Answer
Keith,
     Thank you for your question! It is a very broad question, so I will offer some initial thoughts here, and please do not hesitate to follow up with me for more details on anything if needed.
      There are really two ways to seek investors. 1. This will be more relevant for you. The main way that small businesses find funding is through private investors. This is where you give up a percentage of ownership to one or more business partners. That business partner may or may not want to actually participate in running the business. The role of your private investor(s) can vary, and should be carefully outlined before accepting their participation.
   Keep in mind that a corporation is run by its shareholders. So, if you do take on investors, they will have a say in how the company is run. They may not agree with you all of the time, but it somehow has to be worked out. It is important to find out as specifically as possible how your potential investors see your business and its growth. You can avoid alot of future problems by looking for investors that see things the way you do, this is not easy to determine in advance without spending some time together to discuss things in detail.
   2. The second way to raise capital is to make a public offering of some of the corporations stock.  I will not go into this now, as it is most likely not practical for you to do this right away. You need some sort of history, revenues, and growth to be able to make a public offering. It is possible to go public 'over the counter' rather than on a main exchange, and a company can do this while still very small. But again, it sounds like you are in the very early stages and may not even be operating yet, so a discussion on this would be premature. But keep it in mind, if your company does well and you want to raise additional capital to grow faster in the future, this would become an option for you.
   Regarding the first suggestion to find a private partner or partners: these can be friends, family, or private investors. There are investors out there who seek out start up businesses. It is risky, many new businesses do not do well. So, these types of investors are looking for indications that your efforts are worthwhile for them to invest in. This means you must be organized. A detailed business plan is essential. This is a document that fully outlines your business, goals, projected revenues, costs, products, compares your business to competition, and summarizes the overall industry in which your business will participate.   I can't stress enough how important this document will be, it should take several months of detailed research and writing to complete. If you google 'Business Plans' you will find numerous sources that will help you determine what should go into a good business plan. Additionally, a business plan is never really complete. As your business grows and you learn more, the plan should be continually revised. The business plan should absolutely include information regarding how much money you need access to make the business successful, and how much ownership you are willing to give up for that money.  A full bio of yourself and anyone else involved with the company is also essential.
      The biggest mistake many people in your situation make is not offering enough to potential investors. It is very true that this is your idea, and even with investors you will do the vast majority of work. You may very will end up with investors who simply give you money in exchange for ownership. But do not underestimate the importance of this. For example, if you need to raise 100% of the funds you need to get the business off the ground, and offer an investor 20% of the business for this, almost no one will be interested. It is too much risk for too little return. The final numbers are up to you, but if you absolutely cannot get your business started without additional funds, then be generous.
   You also want to make a professional impression at all times. Dress appropriately, meaning a suit and tie, for meetings with potential investors. Get professional business cards and letter head. You should at least have an informational website about your business, and it should be professionally done. It may cost a few hundred dollars, but again you want to appear professional at all times. You need a professional mailing address, perhaps you already have an office. If not, I would suggest taking a look at the services provided by www.Regus.com  they can handle mail for you, have beautiful buildings in most major cities, and have conference rooms that you can rent by the hour. This is perfect for important meetings to make that impression that you really mean business.

To sum up: really two things need to happen. The creation of a full business plan document, and the creation of your professional business identity.

I hope that this helps gets you started. Please do not  hesitate to follow up with me if I can be of any additional service.

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com