The Five Questions You Must Answer to Get Financing HelpBy William CatePublished November 1999[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvill...
The Five Questions You Must Answer to Get Financing Help By William Cate Published November 1999 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
1. What do you have? Is your company making money? If you are a startup company, you will find it hard to raise money. The industry in which your company operates is important. If you are in a fad industry, your odds of finding money are better. Where are you selling your product or service? The larger your market, the better your odds of finding money.
2. How is the company structured? You must be incorporated somewhere. I think that a company with an international market for its products or services should incorporate in a tax haven. Your management team must have a relevant education and work experience to make your company succeed.
3. What do you want? You want money. How much money? Do you need all the money now or can the investment be spread over time. You are more likely to find money if the investment can be spread over time. The reason is the investors have the opportunity to see their initial investment produce positive results before they risk more money on your company.
4. If you had what you wanted, what would you do? Expanding the company's market is your best answer. Poor answers are R&D, raise managements' salaries, or paying down debt. If your company isn't growing, why should anyone invest?
5. What are you willing to pay for help? Concisely answer what you are offering an investor to risk their money on your company. Do you intend to rely on professional help in raising the money? Then, concisely answer what you are willing to pay the professionals for their help. If you are unwilling to pay the current cost of investment, you won't find an investor. If you aren't willing to pay for professional help, you won't find professional help.
The trick is to summarize your answers into a 300-350 word email message. I'm willing to read your summary without charge. Most people in the finance business will review a clear, concise, and short email and reply with a "yes" or "no." Please don't send me your investment package unless I indicate an interest in your company. -----
If your potential investors can't sell their stock, they won't invest. You have better odds of beating the Bank at Monte Carlo than finding serious money for a private company. In Monte Carlo, your odds of winning at Roulette are 1-in-36. In Vegas, they are 1-in-37.
Your odds of finding a Venture Capitalist are 1-in-2,500. Your odds of finding a Vulture Capitalist are about 1-in-100. My best guess is that your odds of finding an Angel are about 1-in-300. It will cost $30,000 to $100,000 to prepare a business plan and present it to these groups. Is it worth the risk?
According to Money (1/1/98), your odds of raising $200,000 for a SCOR company are about 1-in-4. The costs of raising this money will be between $15,000 and $100,000. If the potential costs are over $50,000, it's a losing bet. You are making the same statistical mistake that a poker player makes drawing to an inside straight.
With liquidity, your odds improve. It may cost $1.25 million to do an IPO (Initial Public Offer). However, it's an even money bet that the underwriter will do the IPO. If your IPO financing exceeds $2.5 million, you've made a statistically sound bet.
Your odds of succeeding with a Spinoff/Offshore Private Placement exceed 9-to-1. This means the odds are over 90% in your favor. The reason that the spinoff works is the 1934 U. S. Securities Act is clear that any company with 500 American resident shareholders must be a reporting (public) company. While the U. S. Securities and Exchange Commission (SEC) can delay the review process, they can't stop a public company from paying a stock dividend to their shareholders. The reason the European Fund Managers risk money on spinoffs is that they are buying the stock at a substantial discount to the trading price. They can't lose because they are assured liquidity.
It's your money. You can risk it on an IPO. You can risk it on a spinoff. You can waste it trying to find an Angel or VC. If you want to risk it on a spinoff, contact me.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]