FundingGame

Money-saving resources for start-ups

03/12/2012

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Bootstrapping is all about creatively using the resources that you have.

Entrepreneurs who attend my seminars are helping me to compile a list of great money-saving resources for start-ups – some are completely free and some are cost-effective for new businesses.

Below are ten of them. For another 100 click here.

And if you come across any great resources that you'd like to share with other entrepreneurs, please let me know!

Thanks, Paul | pgrant@thefundinggame.co.uk
1. www.bl.uk/bipc  British Library IP & Business Centre. A fantastic resource. Tons of free information, low-cost training and three hours of a professional researcher’s time
2. www.mymas.org  Manufacturing advisory service – free advice, contacts and even grants available
3. http://99designs.co.uk post a competition with prize which you award to the best design
4. www.fiverr.com finds someone to do a special task or skilled work for about £3.50
5. www.hardtofindseminars.com free audio training for marketing your company
6. http://seedrs.com for businesses looking to raise up to £100k in seed capital
7. http://westminster.the-hub.net cool and cost-effective workspace a stone’s throw from the Institute of Directors
8.  www.womenlikeus.org.uk very effective for recruiting part-time staff
9. http://sketchup.google.com for modeling an idea without using CAD
10. www.meetup.com/londonocc Open Coffee meet-up group for networking and advice
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For the full 110 money-saving resources for start-ups list enter your email here.

If you come across any great free or cost-effective resources that you'd like to share with other entrepreneurs, please let me know.

Thanks, Paul | pgrant@thefundinggame.co.uk
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Seven More Tips on Financing Your Start-up 

25/08/2012

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Last month I attended an event with Escape the City's founders Dom Jackman and Rob Symington, and their brilliant team, on 'How to fund a start-up'. Some of those who attended the event sent questions in afterwards and I've answered these below and on the Esc blog here. Thanks again to those who came along to what was a lively and inspiring event for everyone.

1. Get interest free loans where possible
How do companies go about raising initial family/friends funding and what type of share issuance do you usually issue for these initial investors (i.e. preferred shares, common shares, etc.)?

If it's a family and friends round it's most likely to be in very early seed stage. Put together a slide-deck backed up by a few financial forecasts (take no more than a week working on this though) and offer “ordinary” shares with no voting rights. If possible try to get interest free loans – much simpler. Whatever you agree to, make sure you get any agreements in writing and be sure to warn them of all the risks involved.

2. Prove the concept before raising capital
In addition, how do you as the owner protect yourself from dilution during all financing rounds? Do you issue new shares that are non-dilutable?

As a founder, dilution will be part of the game and unless you are able to put in cash to match the investors at each round you will have less of a percentage than when you start – but hopefully a much bigger company! Just be sure you get as much “proof of concept” as possible before raising capital, otherwise you will give away too much too soon.

3. Reduce equity split in three ways
When you are an unproven start-up that needs to raise money, how will an investor value your company and which steps should a start-up take to minimise the equity stake required to secure investment?

An investor will value your company based on your future promise and commitment. If it looks as if a 20% stake (for example) will make 10x return in five years then it's a fair valuation. In general a pre-sales start-up is unlikely to be over £500k. There are three ways to reduce equity given away – firstly, by bootstrapping; secondly, by leveraging equity cash with debt; thirdly, by ratcheting down – having options to buy back shares at a nominal value when achieving pre-set milestones.

4. Value your investor wisely
When an investor brings more than money to the table, how should this experience, advice and contacts be valued?

There is no structured way to evaluate this – typically you can add 2-5% for experience and advice. The “contacts” element could be measured though and it's an option that could be realised if certain doors were made open by the shareholder i.e. an extra 5% if an introduction to a Sainsburys buyer resulted in an order for example.

5. Patents are often a bonus
Do investors look for certain technologies or patentable ideas for their investments?

Yes. If at all possible investors prefer technologies that are patented or have a commercial advantage that is difficult to duplicate. However this is often a bonus. More importantly it is about the team, the idea, the market and the scalability.

6. Keep share structure simple
How should the share structure of the company be set up to allow investment? Should there be a certain number of shares in the company?

Just keep things open and simple – where no existing shareholders hold preference shares. When setting up a company allow for a large “authorised share capital” for flexibility and issue 100 or more allotted shares between founders before more shares are issued.

7. Don’t pay yourself over £30k
As part of any proposal made, should or how should salaries be included? That is to allow founders to go into the business on a full time basis.

Salaries are a touchy point but the profit and loss, cashflow and service agreements should show intended salaries over the next year or two. Most investors frown on anything over £30k a year. They want the entrepreneur to be focused on the big pay day at the exit point – just as the investor is.
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For some great tools, tips and advice on starting a new business or finding work that matters to you visit:

http://www.escapethecity.org
http://blog.escapethecity.org
http://www.facebook.com/EscapetheCity
http://twitter.com/escthecity
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Escape the City - Insights on Funding Start-Ups

10/07/2012

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Rob Symington and Paul Grant shared war stories around business funding
The great team at Escape the City kindly invited me to speak at the first event of their summer series last night (more announced shortly).

In the packed Rehearsal Room at Adam Street Club, Rob Symington (co-founder of Escape the City) and I spoke to a group of more than 80 people about ‘How to fund a start-up‘.

There was a great atmosphere and lots of good questions and lively discussion. The Esc team has written up an excellent summary of the event which covers everything from Angel Investing and Bootstrapping to Crowdfunding and VC Pitching, supported by plenty of personal stories and insights to learn from. If you're an entrepreneur looking for funding you'll find some invaluable advice here: Insights and Advice about Funding Start-Ups.

Thanks to Rob, Dom, Adele and the Esc team for inviting me to speak - I really enjoyed the event - and thanks to all who came along. Thanks also to Beverley Hamilton of one step further who has shared some of the things she learned at the event (below).

View photos from the evening here: http://on.fb.me/PLbsNK
Join Escape the City here: http://escapethecity.org
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More on Esc: Escape the City (Esc) is a global community of 70,000+ talented professionals who want to ‘do something different’. The idea for Esc was born in London by Dom Jackman and Rob Symington who were working as management consultants in the heart of the corporate world - ‘the City'. They wanted to move on from their jobs but were struck by how hard it was to make that leap. Esc is their solution and they are now on an unstoppable mission to help talented people escape from unfulfilling corporate jobs. Read the Esc story on their blog here - Our story and keep an eye out for more Esc events over summer: http://escapeco.eventbrite.com/
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How NOT to waste £50k on patents

18/04/2012

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I met an entrepreneur recently who had spent £50k on legal fees to protect his idea with patents. As a result he is broke and has no prototype, no customers and no investors willing to invest. He also doesn’t really know if his protected (not-yet existent) product is even something that anyone is ever likely to buy!

Unfortunately, this story is not unusual. In truth, only 5% of all patents manage to return the investment made in them.

I’m not suggesting for one minute that you neglect to protect your ideas. Not at all. However, I am going to suggest three things you must do BEFORE deciding to make a patent application.

1. Produce some visuals or a rough mock-up of your prototype, or create a demonstration website. At the earliest stage, there is no need to get an expensive prototype made up. Just use your imagination and make use of the existing materials you have available to produce something that helps a person understand the benefits that your product or service offers.

2. Get out and talk to potential customers about what you want to produce or offer. Ideally, many, many customers. This removes the guesswork and will help you find out a lot about the pricing, design packaging and changes to your product that will satisfy your customers.  Now you know what your customer REALLY wants and you have something that you can sell.

3. Speak to independent technical advisors such as engineers, programmers, other inventors, suppliers – even Universities and the team at the British Library IP Centre, but NOT patent lawyers at this stage. Ask them how feasible it is to produce and scale your idea. Also ask them how easy it would be to copy your idea. Often, one small change in the look, size or mechanism of an invention is enough for someone to copy your idea WITHOUT infringing the patent. Many ideas that get patented at huge cost are quickly copied with just a slight adjustment to the patent application, making the original patent worthless.

When you’ve covered these steps, think again. Do you still want to go for IP (Intellectual Property) protection? Is your idea worth thousands of pounds and months or years of personal commitment – or would it just be better to get your product to market quickly and start building your business? Securing patents is not the only way to protect an idea. Sometimes a quick route to market is enough.

Finally, if you decide you really need a patent and only remember one thing from reading this post – make sure you get a FIXED FEE agreement with your lawyer. If you pay by the hour it can be one of the quickest ways to burn through £50k. Always set a limit on the amount you’re prepared to spend.

Fortunately, the entrepreneur I met is pursuing a better opportunity with a brand new idea – and you can bet he’ll be protecting it differently this time.

Trademarks? Copyright? Patents? What is intellectual property?
The British Library has produced this useful introduction:
http://www.bl.uk/bipc/dbandpubs/intpropres/index.html

Follow Intellectual Property Expert Steve Van Dulken's blog at The British Library:
http://britishlibrary.typepad.co.uk/patentsblog/

Paul Grant is founder of The Funding Game and is running a series of workshops on the topic of raising capital for start-up. The next workshop, 'How to Bootstrap a Start-Up', will be held at the Queen Mary Innovation Centre on Thursday, 26th April 2012 from 1pm-5pm. For discounts and special offers on all Funding Game events subscribe to our mailing list.
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Six Funding Alternatives for Bootstrappers

25/02/2012

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I estimate that in 80% of cases an entrepreneur is just not ready to seek investment capital. Why? There is too much risk in the business still.

How do you reduce that risk without pitching for bank loans or investment from angels and VCs? It seems like a Catch-22 situation and many entrepreneurs give up despite having a viable idea.

There is, however, always a way to grow a good idea if the team is skilled and action-focused. There are many approaches to launching a business on limited resources, but here are six quick alternatives to explore:
 
1. Family and Friends
Pretty obvious, but worth mentioning. Don’t be shy about asking for the easiest money there is. But remember there is always a price to pay. It could be that you get a loan from a family member, a friend or associate. But whatever type of loan it is, make sure you get it in writing and be prepared for it to impact the relationship. You also need to be honest with those who loan you money about the risks involved. Be sure they would not be devastated by a complete loss of their investment. You don’t want to live with that kind of pressure every day. Overall though, this kind of loan may be just the start you need to get going.

2. Vendor Funding
This is where you use your supplier’s cash as an interest-free loan. To start with you should get at least a 30-day payment period. If your business model allows you to receive cash from the sales you make up-front, use that to the hilt. Extend that supplier payment period to 90 days if you can. In the meantime, as long as you are profitable you can use the cash to create more sales and still be able to pay the supplier back in time. Be straight with your supplier though – they may have to wait longer for payment but if you stick to your word you should have no problems.

3. Invoice discounting
If however you are the one waiting to get paid 90 days later, you can turn your invoices into cash immediately by selling an invoice to an 'invoice discounting' company. This means you will get approximately 90% of the money within the week. Depending on the credit-worthiness of your customer, you could pay around 2% of the invoice value. Better still, make use of a site like www.marketinvoice.com and try open-bidding on the invoice to get the best deal possible with the minimum of red tape.

4. Corporate credit cards
Not to be confused with your own personal credit cards, which I would not recommend using for business finance. Whichever bank you are with, get a corporate credit card. Use it as frequently as needed up to the initial small limit you’ll be given, and always pay it back in full and promptly. Ask for gradual increases in the credit limit and continue to pay on time. Within a relatively short period you can gain quite a substantial corporate credit limit. You can now use this to create more sales and to develop your proof-of-concept.

5. Asset finance
In bootstrapping mode the last thing you need is a big capital outlay. Do you need equipment or vehicles to start or grow your small business? If so, look at ways to avoid having your capital tied up in a depreciating asset. Instead keep outlay to a minimum by looking at renting. Failing that, look at leasing and then (HP) hire purchase. Remember that in the long run this works out as a more expensive approach, but in the short term you can use the cash you make to generate more profit and, again, develop your proof-of-concept.

6. Trade shares for services
What is stopping you getting started? Do you need £50k to pay a software developer? Do you need £70k to tool-up for a new product? Most entrepreneurs will go all out to try and raise that capital. But why not go straight to the developer or manufacturer and offer them a 5-10% stake in your business rather than cash in return for their services – or perhaps a mix of both? It’s not only quicker than seeking angel investment, but also much cheaper in terms of equity released. There are many developers, website designers and, yes, even UK-based manufacturers who will agree to this approach if the idea and team are credible.

Paul Grant is founder of The Funding Game and is running a series of workshops on the topic of raising capital for start-up. The next workshop, 'How to Fund a Start-up', will be held at the British Library Business and IP Centre on Thursday, 15th March 2012 from 1.30pm-6pm. For discounts and special offers on all Funding Game events subscribe to our mailing list. This article first appeared at MarketInvoice.com, an online marketplace for companies to sell their invoices to raise cash quickly.
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