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A friend and I have a brilliant idea for a start-up business. The business model is pretty straightforward, which I will soon explain, but I have some other issues I was hoping to get everyone's input on.
We are trying to raise capital for financing, in the range of $500k to $2million dollars. With this money from investors, we will leverage it with a bank loan and try to get an amount in the range of $2 to $6million dollars.
The way we are hoping to structure financing, is to offer coupon bonds that would offer a certain rate of return each year, paying the investor off in 5 years. We would be paying both the interest rate each year to investors and the monthly small business loan. We think this would be the best financing option without having to give away equity. (given that we are able to find the initial investors)
My question is: What other financing options would be viable for raising the amount of money we need? Both debt and equity ideas are being considered at this point.
PERSONALLY speaking: I think its best to avoid giving away any equity. You want to hold 100% equity. With that being said stick with bank loans or other forms of loans. If your business goes bust then you can always file bankruptcy. Of course getting bank loans or others to invest will be difficult especially if your business is still on the drawing board. Banks run off hard numbers and if you have no numbers then they won't lend to you.
The other form of raising financing is venture capital or angel investors (wealthy investors). All of them will want equity in the business. From my experience VCs/angels are incredibly difficult to get financing from especially if you don't have the connections.
I've self-financed all of my businesses and reinvested the profits to make the company grow. The business will grow slower than VC/angel backed businesses but at the end of the day you own 100%.
Its also important to mention that banks and VCs (most) are parasites and should be avoided at all costs. Self-financing is the best route in the long term.
The way we are hoping to structure financing, is to offer coupon bonds that would offer a certain rate of return each year, paying the investor off in 5 years.
You would of course need to talk personally with every investor to be sure. But, I think angel/seed investors want to get back at minimum 10 times what they invested and they want that back within the first 3 years.
Billion dollar ideas are worth no more/no less in present value than what you've got for real assets or a functional productive start-up company at this time.
No bank or legitimate lender is going to give you a dime on nothing but blue sky and promises of a big business. You've either got assets to pledge or a secured means to repay the lender.
If you're thinking about bonds, what rating will you expect for a company with no tangible assets or proven means to repay the notes?
If you're thinking about angel investors, what have you got to secure their interest in the idea? Anybody I know with the scope of money to play around with that you're seeking will want a majority ownership position. Absent a going business, most will relegate you to a miniscule percentage ownership and royalties on your idea.
Is your business idea able to be protected? Or can somebody else come along and replicate, perhaps improve your concept and shut you out or limit your business in the marketplace?
It's OK to dream, but it's a lot of hard work to get from idea/concept to profits.
Alright, I agree with all of you that giving away equity is the most realistic way of getting financed. If anybody has alternative ideas or suggestions on financing it would be great to hear them.
Quote:
Originally Posted by Rich_CD
You would of course need to talk personally with every investor to be sure. But, I think angel/seed investors want to get back at minimum 10 times what they invested and they want that back within the first 3 years.
Rich and others... Do you really think they would require that high an amount of return? I think with the level of risk they are taking and the high probability of return on their investment, they should be able to take a much lower rate of return i.e. around 20%.
Quote:
Originally Posted by sunsprit
Billion dollar ideas are worth no more/no less in present value than what you've got for real assets or a functional productive start-up company at this time.
No bank or legitimate lender is going to give you a dime on nothing but blue sky and promises of a big business. You've either got assets to pledge or a secured means to repay the lender.
If you're thinking about bonds, what rating will you expect for a company with no tangible assets or proven means to repay the notes?
If you're thinking about angel investors, what have you got to secure their interest in the idea? Anybody I know with the scope of money to play around with that you're seeking will want a majority ownership position. Absent a going business, most will relegate you to a miniscule percentage ownership and royalties on your idea.
Is your business idea able to be protected? Or can somebody else come along and replicate, perhaps improve your concept and shut you out or limit your business in the marketplace?
It's OK to dream, but it's a lot of hard work to get from idea/concept to profits.
Sunsprit, I think you may have misinterpreted my meaning of an "idea". It is more than just a dream with no thought behind business models or financial calculations. Right from the start we will be investing the loaned capital into assets with cashflow streams that will have proven sustainability and growth. The business does not require a physical office, or any sort of machinery. There isn't really any serious start up costs that I can think of - please enlighten me if you can think of any. Lastly, I believe this is a niche market, with little or no competition other than less savvy investors, and large corporations that will be uninterested in the scale of deals we are making in their market.
Sunsprit, I think you may have misinterpreted my meaning of an "idea". It is more than just a dream with no thought behind business models or financial calculations. Right from the start we will be investing the loaned capital into assets with cashflow streams that will have proven sustainability and growth. The business does not require a physical office, or any sort of machinery. There isn't really any serious start up costs that I can think of - please enlighten me if you can think of any. Lastly, I believe this is a niche market, with little or no competition other than less savvy investors, and large corporations that will be uninterested in the scale of deals we are making in their market.
OK, let's qualify what you've got to sell to an investor right now that is anything more than your "idea".
You claim no physical assets. No office, no machinery. No start up cost that you can think of. No inventory. No costs of sales.
Just gonna' put your orders in to some other work product provider and the sales will happen all by themselves so that you get all the big money in return.
But you're going to do a "billion dollars" of sales to who, having invested the loaned capital into what assets? How are you going to reach those customers that are paying for your product? How will they obtain your product or services? How will they pay for them? How will you keep track of the sales and the revenues?
Are you claiming that you'll be selling somebody else's work product for a huge mark-up? Why aren't they capturing these billion dollar sales now with what they produce?
Your assertion that a billion dollar business won't attract the attention of other competitors doesn't sound very convincing. I've seen way too many businesses in the hundred thousand dollar range attract a lot of interest and competition. And you're promoting one that has no overhead, no operating expenses ... just invest a couple million bucks in your idea and we're gonna' watch the account balances on the computer screen rack up a billion bucks? Take a billion dollars in sales volume away from a large corp and I'll bet you'll get their attention. They watch just about everything, right down to someone infringing upon their logo's and trademarked stuff.
What's really frightening on your alleged business plan is that you're projecting a profit margin of astronomical proportions. Most businesses are happy to see 10-12% profits, not returns in the thousands of times investment. Please .... you haven't even suggested that you'd put any of your own money into this ... you know "skin in the game". If this business idea was so good, you could bum $20 from your Mom and turn it into that 1st million bucks in the till in just a few months, right? Then you could pull yourself up by your bootstraps and turn that into a half-billion in what, a year? Why do you need any investors at all if it's as easy and surefire as you claim?
At this point, all you've asserted is having a hypothetical billion dollar business idea that has absolutely nothing to sell except blue sky. It's still worth nothing until you've gone out and made it work, if even only on a small scale. Unless you can convince an angel investor that you've got a real potential net return with this business and have something more than this concept in your head (or even written down on paper), you've got nothing to sell to investors or your prospective clients. I'm one of them, and you sure haven't sold me on anything of value yet as an investor or customer.
OK, let's qualify what you've got to sell to an investor right now that is anything more than your "idea".
You claim no physical assets. No office, no machinery. No start up cost that you can think of. No inventory. No costs of sales.
Just gonna' put your orders in to some other work product provider and the sales will happen all by themselves so that you get all the big money in return.
But you're going to do a "billion dollars" of sales to who, having invested the loaned capital into what assets? How are you going to reach those customers that are paying for your product? How will they obtain your product or services? How will they pay for them? How will you keep track of the sales and the revenues?
Are you claiming that you'll be selling somebody else's work product for a huge mark-up? Why aren't they capturing these billion dollar sales now with what they produce?
Your assertion that a billion dollar business won't attract the attention of other competitors doesn't sound very convincing. I've seen way too many businesses in the hundred thousand dollar range attract a lot of interest and competition. And you're promoting one that has no overhead, no operating expenses ... just invest a couple million bucks in your idea and we're gonna' watch the account balances on the computer screen rack up a billion bucks? Take a billion dollars in sales volume away from a large corp and I'll bet you'll get their attention. They watch just about everything, right down to someone infringing upon their logo's and trademarked stuff.
What's really frightening on your alleged business plan is that you're projecting a profit margin of astronomical proportions. Most businesses are happy to see 10-12% profits, not returns in the thousands of times investment. Please .... you haven't even suggested that you'd put any of your own money into this ... you know "skin in the game". If this business idea was so good, you could bum $20 from your Mom and turn it into that 1st million bucks in the till in just a few months, right? Then you could pull yourself up by your bootstraps and turn that into a half-billion in what, a year? Why do you need any investors at all if it's as easy and surefire as you claim?
At this point, all you've asserted is having a hypothetical billion dollar business idea that has absolutely nothing to sell except blue sky. It's still worth nothing until you've gone out and made it work, if even only on a small scale. Unless you can convince an angel investor that you've got a real potential net return with this business and have something more than this concept in your head (or even written down on paper), you've got nothing to sell to investors or your prospective clients. I'm one of them, and you sure haven't sold me on anything of value yet as an investor or customer.
First of all sunsprit, I think you have been very cynical about anything and everything that I have mentioned in these posts. I have not given you any concrete information about what I actually plan on doing. I've asked questions about certain aspects that I was unsure about - financing options, rate of return, and other questions related to financing.
I am not asking you to knock down my idea, or tell me why it won't work, or to give me your opinion on why you would or would not invest in this venture.
And just because I title a post "billion" dollar idea, does not mean I am claiming that I am going to make a BILLION dollars off of it. It is figurative in meaning, and even though I hope that my business venture gets to that point, I do not under any circumstances explicitly say that I am going to be making 1000% returns to my investors.
What I know is:
I will be buying 'X' assets for 'Y' dollars
'X' assets will produce cashflows
The asset will pay for itself after a certain number of pay periods
I will make my money by capitalizing on the profit after the assets are paid off
Others will not be able to easily predict the amount of profit they will be able to make on each asset without substantial knowledge in the industry we are dealing with.
I don't think you really want to help or answer any of my questions
First of all sunsprit, I think you have been very cynical about anything and everything that I have mentioned in these posts. I have not given you any concrete information about what I actually plan on doing. I've asked questions about certain aspects that I was unsure about - financing options, rate of return, and other questions related to financing.
I am not asking you to knock down my idea, or tell me why it won't work, or to give me your opinion on why you would or would not invest in this venture.
And just because I title a post "billion" dollar idea, does not mean I am claiming that I am going to make a BILLION dollars off of it. It is figurative in meaning, and even though I hope that my business venture gets to that point, I do not under any circumstances explicitly say that I am going to be making 1000% returns to my investors.
What I know is:
I will be buying 'X' assets for 'Y' dollars
'X' assets will produce cashflows
The asset will pay for itself after a certain number of pay periods
I will make my money by capitalizing on the profit after the assets are paid off
Others will not be able to easily predict the amount of profit they will be able to make on each asset without substantial knowledge in the industry we are dealing with.
I don't think you really want to help or answer any of my questions
The fact is that you're in denial about what it takes to bring a business concept or idea to fruition. I'm trying to point up to you that whatever your scheme is, you're not making sense to a potential investor in your concept.
You don't have to be specific here about your business plan, but you've got to be realistic in your costs and projections of ROI to attract any investor ... and as I've pointed out, you have nothing of substance at this time to secure an investment. You've not indicated any investment or tangible work product on your part to bring to the table.
Please, don't take my word for this ...
Go visit your friendly local banker, and ask for a commercial loan application. Find out what their guidelines are to lend you any money. Or, go visit folk who are in the business of issuing corporate bonds; ask what their guidelines are to issue bonds. Find out what they expect you to have for assets and a means to repay the principal and interest on a bond ... and find out what their fees are to perform for you. Neither is in the business of working for free, and neither will raise or loan any money without some assurance of a return ... which at this point, you've got nothing but a "billion dollar idea". Your concept and a couple of bucks will buy a cup of coffee, as opposed to a "proof of concept" business launch with some success which is at least a demonstrable effort upon your part to bring your idea to fruition.
Try talking to venture investors, there's folk who advertise they're seeking opportunities to place their money. See what they want to secure their investment.
You assert you want to put borrowed capital to work, but are going to do it without any overhead or expense for operations or management ... and are going to make an exceptional profit, "after a certain number of pay periods".
The difference here between you and potential investors:
1) They've taken business ideas from conception to a successful profit producing operation.
2) They understand that it takes a support structure to put capital to work, and that it has overhead and expenses to do so.
3) You've not demonstrated that you have any concept of day to day overhead and expenses to run a business.
So, instead of being dissatisfied with my responses here because they're not the magic answers you want to hear for the access to cheap capital for your venture so you can play around with other people's money without risk of your own capital ...
Ask yourself what it is that you're really offering that would attract a capable, willing investor into your business.
Ask what it is you really have to sell ...
Do you have:
1) Any hard assets in the business?
2) Any proof of successful business or capital management?
3) Anything of value to secure an investment?
4) Any capital investment of your own at risk in the business?
Unless and until you can put some positive value into these types of questions ... and they're only the beginning of a business foundation ... you've got nothing of value to sell to an investor, do you?
Your "blue sky" without any track record has no value, so it doesn't count ... no matter how wonderful you think your concept may be, brilliant business ideas aren't worth a dime a dozen until there's a proof of concept actualized somewhere.
I'm not trying to knock your specific insight into whatever it is you're thinking you are going to turn a profit from scheme, I'm trying to get you to understand that capable business investors have hard questions to answer before you'll see any money from them. So far, all you've presented is a desire to go play with other people's money, which isn't going to sell well to them. Put some real value into your business and then it's a different story. You must look at what you're offering through the eyes of the people you want to invest with you. You must offer value to them for their money to be at risk. What sets you apart from others to qualify you to better put an investor's money to work? Your dream of success isn't an answer that will yield money in hand.
Some how -- Madoff presented absolutely nothing real, but he seemed to appeal to well to folks with money, and had them lined up to give it to them.
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