Radio Free Enterprise

In this 3:11 video executives from Microsoft talk about how to raise capital to start or grow your business. Topics discussed include sweat equity, debt capital, friends and family money, angel investors, receivables factoring and venture capital, all as part of an ad for the Microsoft Small Business Server. A great example of Education-Based Marketing!

Just came across this comprehensive list of terms used in private equity and venture capital transactions.

It covers everything from Accredited Investor to Weighted Average Antidilution.

This document is another excellent example of Education-Based Marketing from a site called VCExperts.com You can download the glossary as a Word or html document or refer to it online.

VCExperts.com makes their money by providing information, training and publications targeting people on every side of a private equity transaction. They claim to have over 50,000 users per month.

I can tell you from my own experience that being able to speak the language of private equity is critical for anyone “venturing” into the world of venture capital. You don’t want to find yourself across the table from a Type A investment banker or VC, not being able to track what they are saying. With that having been said, understanding their lexicon is only your first challenge!

Nonetheless, this glossary and VCExperts.com appear to be great resources for you to tap into.

It’s how much you keep.

Just ask David Hayden. At one time this serial entrepreneur’s net worth (on paper) exceeded $200 million. Today his stock portfolio has evaporated, he is having a hard time finding V.C. funding for his latest start-up, he’s selling many of his most prized possessions and is being sued for $24 million by Bank of America.

Like many “idea guys” in the late 1990s, Hayden created multiple business concepts which were embraced passionately by the investment community, but less so by the marketplace at large. During those go-go days, he would have been well served to take some of his profits of the table. Liquify as it were. But he didn’t. Nor did he pay close enough attention to the fine print of many of the contracts he was signing.

He also made the common mistake of accumulating possessions which were way out of line with his true needs, or actual cash flow. Now, the 52 year-old Hayden is licking his wounds and banking on his next big deal.

I recommend every entrepreneur read this cautionary tale at CNET (originally published in the New York Times) and then come back and post a comment with your reactions. What should Hayden have done differently? What would you have done differently?

Give it a read and give it some thought. Then come back here and share with the crowd.

Entrepreneurs take risks, right?

But the question of how much risk to take always hangs in the air. The answer depends on the calendar, the business model, the competitive landscape, the resources being put into play (and at risk) and the risk tolerance of the entrpreneur in question.

Would you invest in an entrepreneur whose risk tolerance was sufficient to allow him to negotiate his own ransom with armed kidnappers - and then renege on the deal?

If you’re a stockholder in the venerable 121-year old retailer Sears, that’s just what you’re doing.

Edward S. Lampert has never been one to shy away from risk - if he’s convince the potential payoff adds up. He left Goldman Sachs at age 26 to start his own hedge fund. Now 45, worth an estimated $4.5 billion and Chairman of Sears Holdings, he is using his considerable business savvy, experience, war chest and moxy to transform Sears and Kmart into properties which can compete with the 800-pound gorilla of global retailing, Wal-Mart.

According to this article in the Washington Post he appears to be succeeding - at least on Wall Street if not on Main Street.

I don’t know about you but I like this guy Lampert. He’d make for one heck of an Entepreneurial Success Story Interview!

Every business owner knows that ready access to cash can mean the difference between success and failure at critical points in their firm’s life cycle.

Generally speaking, these critical needs come in two forms: start-up capital and working capital. Start-up capital is self-explanatory but can be very hard to come by, particularly if both the company and the entrepreneur have no track record of success to point to.

Working capital is required during those inevitable times when you run out of money before you run out of month. You may have tens of thousands of dollars in accounts receivable that will show up in the mail any day now, but that won’t do you much good meeting payroll tomorrow.

This article posted on SmartMoney.com offers a quick overview of Six Source of Capital for Small Business:

1. Grants
2. SBA Loans
3. Banks
4. Credit Cards
5. Angel Investors
6. Venture Capitalists

If you’re weighing your options regarding “Sufficient Capitalization,” this article is a good place to start.

Every business owner and salesperson has been told to perfect an “Elevator Speech” - 30 or 60 seconds of pith that succinctly explains what they do and why it’s great.

Entrepreneurs hoping to raise capital have been similarly encouraged to distill down the essence of their offering to just a minute or two if they hope to successfully connect with the short attention spans of venture capitalists and other investors.

But is that realistic? Can you really pitch an investor in 100 seconds or less?

Well, a couple of venture funds in New England have created Peak Pitch, to give the entrepreneurs trying to pitch them a few minutes of their undivided attention riding together on a ski lift or gondola during a couple of days on the slopes.

Sounds good to me! Just be sure you’ve caught your breath before you get on the lift!

The Small Business Administration (SBA) has gotten onboard the podcast train.

Their Small Business Resource Library now includes nine downloadable audio seminars and interviews (along with their transcripts) on topics ranging from Check List for Starting a Business to Selecting a Business That Fits and even Disaster Preparedness for Business Owners.

Most are relatively short overviews of the topics addressed, targeted at folks just starting out or just thinking about starting a business. But they still give you plenty of food for thought and may well make for instructive listening for those whose business isn’t serving them personally the way they thought it would.

Give a listen and let me know what you think.

Many entrepreneurs dream of raising millions of dollars in venture capital.

What most don’t realize is that achieving that dream may actually mean creating their own nightmare. You see, closing a VC deal for millions of dollars is not a destination at the end of a long hard journey. It’s the beginning of an even tougher road that most business owners have never traveled before.

If you are an entrepreneur dreaming of raising your first round of venture capital, let me give you five reasons you don’t want to see your dreams come true.

1. You don’t know what you’re doing: Raising venture capital is a difficult, complex, time-consuming process best left to those with years of experience. You need to find investors who specialize in your industry and your stage of development. They are going to want to see tightly-written business plan with credible, detailed financial projections that tell a tale of 10x ROI along with a believable exit strategy. They want you and your management team to have a great depth and breadth of experience in your industry and be willing to hang in there through thick and thin until the company either folds or achieves a liquidity event.

2. Things will never be the same: As soon as the deal is struck - but before the money hits your bank account - you have just switched into overdrive. Expectations will skyrocket and failure will not be an option. What may have been a very profitable lifestyle business is now a fast-track growth business at its earliest stage of development with no guarantee of success.

3. You just lost control of your business: You will now report to a board of directors which will probably be dominated by your new partners, the VCs. Your vision and direction may well be altered along the way or thrown out altogether when and if the board feels a change needs to be made. How you react will be up to you.

4. Everything you do will be scrutinized and second-guessed: While your investors won’t be there working shoulder-to-shoulder with you, making critical decisions and ensuring that the trains run on time, they will be reviewing every action, expenditure and hire, asking questions that you may feel have no real bearing on the success factors underlying your business model.

5. They want the money back: Landing millions of dollars in venture capital means you have a big problem on your hands: how are you going to pay it back? While a huge infusion of capital does present a wonderful opportunity, it also represents an enormous responsibility. The VCs and their investors want the money back - in spades. They are looking for ten times their investment in just a few years. So along with a $10 million asset, you’ve just created a $100 million liability.

Obviously, many companies have done very well by working with venture capitalists, creating billions of dollars of wealth for everyone around the table. Unfortunately, many more have seen their dreams crash and burn by getting in bed with outside investors.

Here’s the bottom line: don’t even consider raising outside capital - from VCs or anyone else - until you have thoroughly thought the process through to all of its possible ends. And understand that by bringing in ambitious, high-maintenance investors, you may lose - or at least lose control of - a great business that took you years to build.

One of the biggest problems facing every business owner is capitalization.

Where can I find start-up capital? How can I be sure to always have enough working capital?

Bank loans are much more difficult to secure than most new business owners realize. Without a decent track record of growth and profitability, no bank is going to give you a loan without requiring you to post collateral such as your house.

Securing venture capital is also very difficult. In fact it’s pretty much impossible if you have no experience in the process and/or your business model doesn’t fit with what VCs look for in terms of growth and the probability of a significant future liquidity event.

So, what’s Johnny Entrepreneur to do when he needs to get his hands on some cash to grow his business? For many people, the answer may be Prosper.com.

Prosper.com bills itself as “The online marketplace for people-to-people lending.” In effect, it’s kind of like an eBay for personal loans. If you need money, you anonymously post your story, how much money you need and the maximum percentage interest rate you’re willing to pay. The site checks your credit score and assigns you a Credit Grade and a Debt To Income percentage. Lenders then post bids of fractions of the total you’re looking to borrow at varying percentage rates not to exceed the maximum threshold you’ve set.

There are too many details and case histories to cover in a blog posting so I recommend you visit the Prosper.com yourself. While you’re at it, you should also visit one of the many piggyback sites which have popped up like EricsCC.com, which chronicles the lending and borrowing statistics of Prosper.com members. Truly fascinating stuff.