“How To Finance a 5 Million Dollar Start-Up”

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in Articles and Thoughts

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If you have everything you need you aren’t an Entrepreneur.

Entrepreneurs are always building something bigger.  It’s the nature of the beast.

If you are Bill Gates or Warren Buffet you don’t have to worry about putting food on the table, but the idea of having everything that you need to accomplish whatever you want to do is just garbage for a creative thinker.

If you have everything  you need, you aren’t thinking big enough.

Bill Gates certainly doesn’t have everything that he needs to cure AIDS, but he’s working on it.  In order to achieve his goals he needs to own or control resources someone else controls right now.

Your situation is much the same.

Successful Entrepreneurs Leverage Resources They Don’t Have.

You need assets you don’t have, which is why you run into the question that plagues all founders of start-ups …

How do you get the assets you need and what do you have to give up to get them?  Some people say the question becomes …

Which Do YOU Want Money or Control?

Two of the key motivations for starting a business are to generate profits or to control your own life and business.  The dream of the entrepreneur is to have it all.

But can you have both?

Noam Wasserman of Harvard Business School conducted a study of 457 private technology companies that found that:

  1. If the entrepreneur still holds the CEO position the value of the entrepreneur’s equity is lower.
  2. If the entrepreneur still controls the board of directors, the value of the entrepreneur’s stake is lower.
  3. If the entrepreneur has been replaced as CEO or if outsiders control the board of directors, the company’s valuation will be higher.

In other words, HARD DATA says …

The more the entrepreneur controls his business the less money he makes.

Why is that?

Because if you have more assets you tend to be able to make more money and people rarely give up assets without looking for some kind of control over them.

If you want to be rich …

You generate more assets by giving up equity  to co-founders, key executives and investors.

That means that you give away more control of the key decision making processes.

You get a smaller piece of a bigger pie.

As investors make your pie bigger your job as CEO may be at risk, you may not be able to control your board or the business may outpace your abilities to manage it.

That means you need to:

  • Know when it’s time to get out
  • Be continually looking for ways to expand external financing

If you want to be in control …

You may want to bootstrap your start-up.

That means you won’t have as many resources to work with and your company won’t grow as quickly or as large as it might if you were bringing in more outside resources.

You definitely want to focus on a business where start-up costs are not extensive.

But what if you want to change the game ..

I’m in the process of funding a start-up right now. Like most start-ups, I’m raising money in stages.

  • Stage One – Prototype – $75K
  • Stage Two – Launch – $200K
  • Stage Three –  Expansion – $2-5 Million

I want to create something of solid value while exchanging control for needed resources at the appropriate times.

The key is … At the right time.

For the last five years, I’ve been working on my “project of a life-time.”  I’ve made amazing progress and finally the timing is perfect.

I have the solid business relationships, the technology, the experience, the team and everything else I need to build a world-class, cutting-edge web service that is in the perfect triangle of social media, real-time and mobile technology for a HUGE launch.

I’ve done my homework on startup financing.  I know most of the issues and many of the players and – even though the venture capital money is available to me …

I realize that there is a BETTER CHOICE .

This project is definitely attractive to venture capitalists, but money always comes with strings attached when you are dealing with the venture capital community.

Plus …

I’d rather reward the members of the Impact and jvAlert Live family.  After all, I’ve been encouraging you to create profitable joint ventures for years and this is a unique opportunity for us to do exactly that.

Here’s what Seth Godin said about this issue …

If your business needs money, it seems as though you have two choices:

  • Get a loan from a bank
  • Raise equity from an investor, giving up part of your company in exchange

Banks are everywhere, so the idea that they can loan us money seems obvious. And venture capitalists and the companies they fund are in the news all the time… and making a billion dollars sounds like fun.

For most businesses, most of the time, neither is a realistic option.

Banks aren’t in the business of taking risk. Which means that they make boring loans to boring companies for boring purposes. They do everything they can to be riskless. Which means you need to guarantee the loan with your house or with assets worth far more than the loan. Which means that a good idea is not a sufficiently good reason for a loan.

And equity? Well there are two problems. The first is that the number of investments that professional VCs can make is microscopically small compared to the number of businesses that want them. A bigger reason is that if there’s no obvious and reliable exit strategy (like going public or selling to a huge public company) then there’s no rational reason for someone to make an equity loan. The entire upside comes when you sell, and if you can’t easily sell (which is most businesses–they’re even harder to sell at a profit than a used car) then there’s no VC investment to be had.

But that doesn’t mean you’re stuck. I’d like you to consider the idea of selling part of your income.

It works like this: you have an idea, a fledgling business or a new market to enter. You find an amateur investor (a wealthy dentist, a retired executive) and raise the money to bring it to market. And in return?

The investor gets $xx for every unit you sell.

So instead of financing with the big boys I sold part of my income to some of my closest friends from the jvAlert Family…

Jane Mark and Phil Basten, my great friends and the founders of Sokule shared with me the great success of their use of limited founder’s positions to successfully fund Sokule‘s development.

That conversation got me to thinking about what I could package into a founder’s position for my new start-up that would make a founder’s position absolutely irresistible.

I fine-tuned my ideas by talking to my amazing friend and technical genius Chris Moos  which lead to a four day trip to the chilly wilds of Spokane, Washington to leverage the brain of the technical mastermind of Traffic Geyser my dear friend Frank Sousa.

Bottom-line instant funding …

In order to raise funds for the alpha development of my new start-up I made a private offer of a founding membership for the new site which caused Frank to write me a check for the first founding membership on the spot.  In fact he locked in a double membership for himself and within minutes called Jane Mark and when he told her about the private offer she instantly claimed the next membership.

I only made the offer to two people and both committed on the spot within minutes.

So what made them do that?

Yes, my new founding members are wonderful friends.  They trust me and they know my track record. That definitely makes a difference.

But if you think that Frank Sousa and Jane Mark aren’t serious business people, think again!

Both have build multi-million dollar businesses and they didn’t do that by making investments that weren’t very, very smart.

The deciding factor was the VALUE of the founding membership

What I really spent the last few weeks working on was building up the solid VALUE of the offer that I wanted to make.

When my friends saw that value, it didn’t take days, or months or years to decide.  They clearly saw the value on the spot.

That’s exactly what YOU can do to fund your own dreams.

First develop solid relationships and then deliver real value.

If you’ve build the relationship to the point where people KNOW they can trust you and you build the VALUE into the offers you make, the rest is simple.

People are starved for real value.

All you need to do is deliver it.

All the best,

Ken McArthur

SpeakUpSaveLives.org
TheImpactFactor.com
KenMcArthur.com
jvAlertLive.com

P.S. I know … I didn’t tell you what the founder’s membership offer was.

I wanted to share the funding strategy with EVERYONE, because I know that YOU can use this approach in your own projects.

On the other hand selling founder’s memberships to EVERYONE is NOT a good idea.

Right now I’m only looking for a maximum of 15 founders to fund the alpha development.

Why not just publish the offer to everyone and bring in as much as I can?

Because, I’m selling part of my income every time I let one of my founding memberships go.

The offer is that good.

Not only am I offering life-time founder’s memberships with all of the premium features and top-level commissions, I’m packaging in an advertising package that is worth the entire value of the investment and the real kicker — returning the entire investment as a percentage of GROSS sales PLUS a bonus.

That’s an offer with real VALUE  — and it comes out of my future earnings — so I can’t give it to everyone.

The founder’s membership is NOT appropriate if you are trying to earn a quick, risk-free income and it comes with a minimum $5,000 investment.

If you are more worried about having a solid future return on your current assets  than generating income today, then this could be an opportunity for you.

This is definitely a way for YOU to leverage everything that I’ve worked on for years, all the relationships that I’ve built up over time and the knowledge and experience that money can’t buy, without the hassle of having to put it all together and operate the business yourself.

If you think this is a fit for you, just send me an e-mail at ken AT jvAlert.com and let me know that you want to talk.

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