How to Decide Between Venture Capital or a Small Business Loan

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

In what situations should I pursue either a small business loan or venture capital?

 

1. You Need Help Through Rough Times

Adam SteeleI look at VC funding if I have solid plans for development and growth and I have projections available already that suggest that’s a profitable option. Generally, I don’t go for business loans unless the opposite is true. Business loans for me are about riding through the rough spots. For that reason, I tend to borrow much less money in loans than I might try to raise as capital.

– Adam SteeleThe Magistrate

 

2. You Aren’t in a Hurry to Grow

Aaron SchwartzTaking venture capital is a slippery slope. You get cash quickly, but then your interests in possibly selling the company for a nice “personal win” need to disappear. If you want to retain ownership and grow slowly, take out a loan. If your goal is to build something huge, bring on the capital, expertise and network of a VC firm.

– Aaron SchwartzModify

 

3. You’re Expanding Rapidly

Manick BhanVenture capital is extremely helpful if you need to move fast, whether you’re developing a new product, scaling your company, or increasing the size of your staff. Venture capital can be a great for an influx of cash, but it often comes with clear expectations of where the company will go with the money. However, if you’re looking to bridge a small gap, loans can be a great way to stabilize cash flow.

– Manick BhanRukkus

 

4. You Already Have Steady Revenue

Brandon StapperProfits don’t come from growth; they come from efficiency. With that in mind, if you already have a revenue stream, why would you sell equity to a venture capitalist? You’re just giving away a share of your success. Venture capitalists are designed to help companies with major research and development needs — taking a gamble before revenues are in place. If revenues are solid, go for a loan.

– Brandon Stapper858 Graphics

 

5. You’ve Weighed Risk and Reward

Corey NorthcuttAs a three-time bootstrapped founder, I hate unnecessary risk. But I respect that some businesses can’t be profitable enough at every stage. There’s always a weighing of risk/reward with financing. Does the loan require a personal guarantee? How much equity and “breathing room” do the VC’s terms leave you? The answer falls entirely on the specifics, so read the fine print.

– Corey NorthcuttNorthcutt Inbound Marketing

 

6. You Aren’t Planning to Grow Very Big

Cynthia JohnsonSmall business loans are designed for those small business owners and freelancers who are not planning on growing very large but could use the capital to set up an office and cover expenses until they get some clients and revenue coming in. VC is really for those startups that are looking at a much bigger scale.

– Cynthia JohnsonAmerican Addiction Centers

 

7. You Need $1 Million or More

Daniele GallardoIf you have committed customers but you require cash to purchase materials to fulfill the orders, then go for a business loan. You know you are going to get your money back, and you know when. I see the loan as an instrument to give you some elasticity in short terms. For anything else, especially if the sum is the scale of $1 million and higher or longer time scale, I would look into VC firms.

– Daniele GallardoActasys

 

8. You Want Someone to Guide You

Jayna CookeThis decision ultimately depends on if you want additional resources or not, and if you do need additional resources, make sure you are connecting with a venture capitalist that is able to provide this. You have the opportunity to get investors that have invested in similar industries, they know the struggles and can from there connect and help guide you. Business loans are more hands off.

– Jayna CookeEVENTup

 

9. You Expect to See a Large Return

Chris BrissonIt’s all the rage to get a VC firm to back you, when in most cases you just need capital to grow your business. Keep in mind that most VCs will want to see a 10 times return on their investment. So unless you have a business or startup that will see large returns, don’t even waste your time. We got a loan from American Express and a line of credit from the SBA to grow our business.

– Chris BrissonKickaConference

 

10. You’re in a Hurry

Anthony PezzottiRaising money from VCs can take months, sometimes years with strenuous efforts. Small business owners with poor or non-existent credit can have a very difficult time obtaining a loan from a bank, and may even have to give collateral in order to secure the business loan. With Kabbage, you’ll find out instantly if you’re approved. They offer flexible funding, and have fewer requirements than a bank.

– Anthony PezzottiKnowzo.com

 

11. You Want the Less Expensive Option

Mark CenicolaWhen cash flow is sufficient to cover loan payments and repayment in full is likely, a loan is going to be a much less expensive option. If you borrow $1 million, you may pay 10 percent per annum. With venture capital, you’re going to give up a minimum of 10 percent equity in your business. If you increase the value of your business tenfold, you’ve effectively given up $10 million in value to a VC.

– Mark CenicolaBannerView.com

 

12. You Want Full Control

Andrew SchrageThe biggest factor would be the amount of control you want regarding how the money is used. A bank will let you spend the money basically as you wish, whereas a venture capitalist may have certain conditions. Plus, a VC will probably want or have a say in the growth and direction of your operation. If you want to be the sole influencer, choose a small business loan.

– Andrew SchrageMoney Crashers Personal Finance

15 Unusual Ways to Find an Investor

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

Name one unusual way I might find an investor.

1. Your Former Boss

Brian PallasHaving known you professionally from a previous work experience, your former boss might be the best person to invest in your company in case he or she likes the idea.

– Brian PallasOpportunity Network

 

2. An Angel Group

Nick ChasinovThere are angel investing groups all throughout the United States that are actively seeking prospective new members. One unusual way to find an investor is to attend an angel group meeting as a guest to evaluate the opportunity as a prospective member. You will have full access to all attendees and an opportunity to network with a potential future investor in your company.

– Nick ChasinovTeknicks

 

3. Friends and Family

Nicole MunozThose closest to you might be more inclined to invest in you. Offer them a fair return on their investment, and make sure you stick to it. When you start small with those you know and who know you, you can fine-tune your process so that when it’s time to reach out to larger investors, you’re confident, professional, and well aware of what it takes to do business.

– Nicole MunozStart Ranking Now

 

4. An Adventurous Hobby

Adam SteeleFinding an investor who is passionate about your work is the holy grail, and finding them is easier when you already share a passion. Active hobbies like skiing have made it easy for me to meet people who work as hard as they play, and some of them have been in a good position to invest if I wanted to pursue that.

– Adam SteeleThe Magistrate

 

5. Customers

Nicolas GremionThey know your products and/or services. Hopefully they also enjoy using them, and they have some money to spend. So who better to ask? Done the right way, your customers should also appreciate that you’re trying to grow and offer better products/services. By demonstrating you have their best interest at heart it’s a win-win.

– Nicolas GremionFree-eBooks.net

 

6. Thought Leadership Articles

Brittany HodakI write regularly for Forbes — and semi-regularly for several other outlets — and although I’m not explicitly writing about my company, every piece is a reflection of it. I’ve had multiple VCs inquire about ZinePak because they landed on an article I wrote and saw that I have a marketing company. Writing is a wonderful way to boost your profile and reputation as an expert in your field.

– Brittany HodakZinePak

 

7. Social Clubs

Peter DaisymeSocial clubs are reemerging in major cities around the country and world for professionals and entrepreneurs to meet up and socialize. This offers a more low-key way to network that could potentially connect you to an investor over a social event, game of tennis or round of golf.

– Peter DaisymeInvoicing

 

8. First Class

Carter ThomasWhile this isn’t groundbreaking, it’s definitely not an actively pursued strategy for startups and founders. I’ve met some of the most influential people in first class simply because I have no competition for attention and the environment is self-qualifying. They know I’m legit because I’m there and I have to time to build a relationship before the pitch because I have more time than others would.

– Carter ThomasBluecloud Solutions

 

9. Someone You Don’t Expect

Christopher KellyTreat every person that you meet as being, at most, one degree removed from being your future investor, because they probably are. Next time someone asks, “What do you do?” answer as if they asked, “How can I help you?” This format works for investment, but it is just as applicable to business development or any other thing that you are trying to develop.

– Christopher KellyConvene

 

10. Vendors

Piyush JainWe are an IT services company and work for lots of startups. Sometimes, when a project is really good and our client lacks some funding, we also take some equity in the project. Lots of IT (also non-IT) vendors provide this option. Talk to your vendors and see if they would be interested in investing. It not only brings you money, but can reduce your cost.

– Piyush JainSIMpalm

 

11. Local Business Owners

Ismael WrixenIt might seem counterintuitive if they have a brick-and-mortar store and you’re starting a business in the online space, but you might be surprised to find that there are owners out there with enough capital and enough interest in modern business to want to invest in a startup.

– Ismael WrixenFE International

 

12. Meet Walter

Brian David CraneI really like Meet Walter, which is a powerful data-backed tool to help narrow down whom you should be pitching to. This is an “unusual” way to find an investor in that the tool can present people you’ve never heard of and who’ve invested in companies like yours.

– Brian David CraneCaller Smart Inc.

 

13. School

Drew HendricksIn more universities and colleges, there are programs and seminars led by investors and business people interested in moving into the investment world. As a student with a potentially good business idea, this is a good place to connect as the instructor may want to mentor and fund you after working with you over the course of a semester or other program.

– Drew HendricksButtercup

 

14. Outdated Advertising Platforms

Nathan HaleWith all the new ways we can get and stay in touch, we often forget there are still other avenues of communication. There are investors who aren’t on LinkedIn, Twitter or Facebook, who still read the local paper, and who may know how to use Craigslist but have never been on Instagram. Use those odd channels to fish out potential investors; you’ll be surprised with what you find.

– Nathan HaleFirst American Merchant

 

15. Your Parents’ Circle

Alexandra Levit 2Millennial business owners often have high-performing parents. These parents and their friends, who are usually members of the Baby Boomer generation, are retiring from traditional work and looking for smart and intriguing places to invest their time, expertise and money. Work with your parents to host a party or outing where you share information about your business without a hard sell.

– Alexandra LevitInspiration at Work

11 Reasons Crowdfunding Campaigns Fail

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What’s one reason why a crowdfunding campaign fails?

1. There’s Not Enough Buzz

Drew HendricksWhen it comes to a crowdfunding campaign, you have to hustle to create the buzz around it, convincing others that people are really “hot” on your idea. Once investors start rolling in, the momentum can take over, although you still need to continually leverage social platforms, influencers and all types of channels to remind people of your campaign. Talk about it continually.

– Drew HendricksButtercup

2. There’s Not Enough Incentive

Miles JenningsNo matter what your crowdfunding campaign is focused on, those contributing need some kind of incentive to give their money — product and/or service. They need to know that they will get something out of the deal.

– Miles JenningsRecruiter.com

 

3. You’re Not Understanding Your Target Audience

Stanley MeytinOften companies feel they have a great idea but fail to test it out before creating a crowdfunding campaign. It is important to first put in the research and understand who your target audience is. Create value, educate people and be sure your product or service is something people are really interested in, and market to them in the right way.

– Stanley MeytinTrue Film Production

4. You Have No Proof of Concept

Corey NorthcuttNot having a concise pitch can kill a campaign. So can a poor proof of concept. Before you ask for money, make sure you can demonstrate the value of your creation; not just talk. Even better, demonstrate its viability in the marketplace by drumming up demand and presenting evidence of as a part of the pitch.

– Corey NorthcuttNorthcutt Inbound Marketing

 

5. You’re Not Showing Your Audience How They’re Connected

Angela RuthBeyond the list of takeaways for certain contribution amounts, most campaigns don’t really connect with their audience of potential investors because they never say what the product or service will do for them. It may give a list of benefits, but there is no connection to an issue or problem the audience has or relates to. This connection would get them to invest or attract more people.

– Angela RutheCash

6. You’re Using Low Quality Video

Kristopher JonesIn most instances, I think it’s OK to pull out your iPhone, shoot some video, and post it to your Facebook page or YouTube channel. However, when it comes to launches a successful crowdfunding campaign, I don’t believe you should skimp on video production. In fact, I think you should invest several hundred dollars in making sure your video is shot professionally edited and polished.

– Kristopher JonesLSEO.com

7. You Fail to Build Trust

Andrew ThomasMost crowdfunding projects fail to deliver to their customers. Over two years later, our campaign is still one of very few crowdfunded hardware projects that fulfilled its orders. Visitors are aware of this, and crowdfunding projects fail because the campaign doesn’t build enough trust. Be trustworthy in your video, be realistic with your claims, and make a quality campaign page with good images.

– Andrew ThomasSkyBell Video Doorbell

8. Your Video Doesn’t Tell a Story

Derek CapoStories are the best way to sell anything and the only way you can effectively do that on crowdfunding campaigns is to have the right video to deliver the message effectively. Your video has to connect with the audience and has to feel genuine. If it doesn’t, then it will be difficult to get anyone to follow you or buy into your story.

– Derek CapoeFin

 

9. Your Product Doesn’t Solve a Problem

Obinna EkezieLet’s start with the No. 1 reason that crowdfunding campaigns succeed — your product solves a problem. If your product doesn’t solve a problem, you likely won’t succeed. Before you post your product, test it out on people who will give you honest feedback. If you’re leveraging crowdfunding to build a prototype, make sure to outline the product as much as possible and seek as much feedback as possible.

– Obinna EkezieWakanow.com

10. You Set the Wrong Goal Amount
Ayelet NoffIn crowdfunding campaigns, image is everything. If, within the first few days, your campaign is not able to achieve its funding goal, reporters coming to your page won’t write about it because it will appear like a doomed campaign, and backers won’t back you for the same reason. That’s why it’s better to set a conservative goal that you can actually succeed in raising. Once achieved, the sky is the limit.

– Ayelet NoffBlonde 2.0

11. You’re Relying Too Much on the Crowdfunding Platform

Fan BiNew entrepreneurs often tell me they’re going to launch their product on a crowdfunding platform — great. So I ask them how big their email list is, how many bloggers and publishers are ready to write about the launch. Huh? They think if they get traction on the platform, crowds will rush to their campaign. Even though that’s true, you need to first solve for the initial traction part.

– Fan BiBlank Label

14 Pros and Cons of Having a More Involved Relationship With Your Investor

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What is one pro (or con) of having a more involved relationship with your investor where you actively seek or get advice?

1. You Get Brutal Honesty

Angela RuthWhile this can be a pro or con, a person who knows you better will tend to be more brutally honest about how they see things. The advice will hit at a much more personal level for this reason. While it may not always be something you want to hear, it is most likely something you need to hear. The tough love of a closer relationship with an investor can be what helps create change.

– Angela RutheCash

2. They Have Seen It Before

jeff epsteinGreat investors are happy to share advice from other portfolio companies. We’re fortunate to have a great relationship with our lead investors and provide insights from experiencing many of the issues we face. From high-level strategy to tactics, we can leverage to push forward as fast as possible.

– Jeff EpsteinAmbassador

3. They Want to Run Your Business

Blair ThomasInvestor advice is almost always welcome; so long as there’s a boundary between what is acceptable and what is not. It is important that an investor offers you advice in his or her area of expertise, but sometimes an investor can mistakenly feel that they know how to run your business, offering insight where it’s not needed, which could be detrimental to your operations.

– Blair ThomasFirst American Merchant

4. They Can Help You Network

Adam SteeleInvolved investors are probably the kind who have been working in your industry for a while. Their experience may have involved working with some of the biggest leaders in your field, and it’s possible that they’re willing to help put you in touch with them. The most experienced investors are often networking goldmines, and if you don’t know who you need to talk to, they likely do.

– Adam SteeleThe Magistrate

5. You Can Overshare

Miles JenningsAlthough its great to have a close relationship with your investor, you want to try and be sure not to overshare too much while seeking advice and being open with this individual. This doesn’t mean you need to hide things from them, but you shouldn’t be stressing your investors out with every little detail and up and down within your business. Keep conversation focused on your relationship.

– Miles JenningsRecruiter.com

6. They Support You During Tough Times

Nicolas GremionWe keep our investors updated in both the good and the not-so-good times. And while I was anxious to report bad news at first, I’ve learned that our investors are truly supportive. So don’t be shy to reach out to them in tough times. They may prove to be the help you need.

– Nicolas GremionFree-eBooks.net

7. You Might Take the Wrong Advice

Brian SmithSome advice you pay for, and some advice you’re paid to take. Taking good advice from an investor may make the next round easier to raise. But take the wrong advice and the next round may not happen. There’s a reason you have (or should!) set aside equity for advisors and board members. Surround yourself with smart guidance, not just rich advice.

– Brian SmithS Brian Smith Group

8. They May Know Too Much

Derek CapoSometimes it may be best that they don’t know everything. For example, if they get a sense that you aren’t getting along with your co-founders that may scare them from investing in the next round, especially if that said co-founder was a major reason for investing in the company. In a case like this, if they already know the issue, be transparent and ask for advice on what you’re struggling with.

– Derek CapoeFin

9. They Can Provide an Outside Perspective

Corey NorthcuttWe tend to be blind to ourselves. Nobody ever thinks they have an ugly baby. More than just an investor, any outside perspective helps, and getting feedback on how you’re doing from more angles is always a good thing.

– Corey NorthcuttNorthcutt Inbound Marketing

 

10. They Think About You in Their Off-Hours

Brennan WhiteGetting investor feedback is usually a great thing. However, the more powerful thing about a close relationship with an investor is that they are more actively thinking about you in their off-hours. For us, the investors we talk to most are constantly bringing leads, making introductions, and helping move the mission forward. They’re subconsciously working on the project at all times.

– Brennan WhiteCortex

11. They Help You Stay Focused

Brandon StapperI want investors to know that I do not operate in a vacuum and that seeking advice is part of my job. However, I tend to stay more focused dealing with investor input. I know what I want, get my questions answered, and then go back to work.

– Brandon Stapper858 Graphics

 

12. They Feel More Ownership Over the Investment

Andy KaruzaOne good reason to involve your investor by seeking advice is that they feel more ownership over their investment. This is one of the top two most important concepts for any investor. If they feel more involved, they will be more at ease and will trust you to make the right decisions. They will also be more likely to help you lead on your next round if they have a personal stake in the company.

– Andy KaruzaFenSens

13. They Don’t Have All the Context

Matt DoyleAn investor, as close as they may be, is still someone who has their livelihood to protect. You need to be very, very careful about venting about things that they may not be able to put in the proper context. You could accidentally leave them feeling threatened or conflicted about their investment even if there isn’t a real danger.

– Matt DoyleExcel Builders

14. They Share More of the Experience

Obinna EkezieChances are your investor has experience in many aspects of building a successful business. Therefore, it makes sense to keep your investor as close as possible at all times, and actively seek advice when his or her experience can help you make the best decision. Building a business should not be a test. You should do everything within your power to succeed, and one way is to keep investors close.

– Obinna EkezieWakanow.com

14 Experts Explain the Difference Between a Good Pitch Deck and a Great One

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What is one thing that distinguishes good pitch decks from great ones?

 

1. The Right Amount of Information

Kevin HenriksonIncluding too much information in your initial pitch can be counterproductive. Leave some questions unanswered and avoid over-sharing. It also helps keep the meeting focus on you and not reading slides.

– Kevin HenriksonOutlook iOS & Android @ Microsoft

 

2. The Presenter

Douglas HutchingsA good presenter can be more effective with blank slides than a bad presenter with the best slides. Make sure that you know your stuff, breathe, and focus on engaging your audience rather than pitching them. Having a conversation is the best outcome you could hope for, so encourage interruptions.

– Douglas HutchingsPicasolar

 

3. A Competitive Landscape Graph

Doug BendA compelling competitive landscape graph can effectively show investors how your product is distinct from others in the space. In a few seconds, it effectively conveys what makes your company unique and why they should get out their checkbooks to help take it to the next level.

– Doug BendBend Law Group, PC

 

4. Growth Curves That Demonstrate Traction

David CiccarelliAt the seed stage, investors invest in ideas that are explained through compelling stories. But once you’ve raised a few million, investors will want to see how efficiently you used the proceeds from your previous round. Demonstrate your traction by showing growth curves for your key performance indicators. Good traction is hard to ignore and will make them want to invest again.

– David CiccarelliVoices.com

 

5. Graphic Design

Brandon StapperI see so many pitch decks with horrible graphic design and I immediately lose all respect for the presenter. It is so easy to improve a design these days. You can get it professionally designed on 99Designs.com for a few hundred bucks or download a template from Themeforest.net. Make sure your presentation is 10/10 quality and people will take you seriously.

– Brandon Stapper858 Graphics

 

6. Clarity

Trevor SummersSo often I see pitch decks that have proprietary concepts, unnecessary technical jargon or overly obscure ideas. Investors are looking for simple things in a pitch deck. What is the problem, what is your solution, who is your team, what’s the size of market, and how much money do you need to prove the opportunity? Don’t get too caught in overly intricate, vague or highly technical concepts.

– Trevor SumnerLocalVox

 

7. Brevity

Ben LangI find the shorter you can make the deck, the better. If you can explain everything concisely and efficiently that’s a good sign that you understand what you’re doing.

– Ben LangMapme

 

 

8. Past Strategic Plans and Real Data

Brandon DempseyA great pitch deck will include a company’s past strategic plan, complete with dates, and will have data demonstrating how the company did achieving the milestones they set out to achieve.

– Brandon DempseygoBRANDgo!

 

9. Focus

Andrew SchrageA good pitch deck hits all of the major points needed to secure investors. A great one does this while remaining focused and brief. It includes a maximum of 10 slides (if you’re using that format), and is no longer than 20 minutes. If you take the time to pare down your pitch deck, you should enjoy more success.

– Andrew SchrageMoney Crashers Personal Finance

 

10. The Right Amount of the Right Data

Nafus ZebarjadiInvestors want to see a solid command of the metrics that are important to your business. This includes a solid reading of key industry data supporting your hypotheses and an articulation of how your success should be measured (not vanity metrics). The best pitch decks are those that can clearly show your traction and the market potential through a few key data points.

– Nafis ZebarjadiMedicast

 

11. The Benefits to the Investor

Peter DaisymeA good pitch deck tells you about the business model and why it is different from the rest. However, a great pitch deck speaks directly to the investor in terms of what their involvement will do for them, especially how much money they will make through their investment and how long it will take to get that return. A great pitch deck also includes how that investor can participate in the success.

– Peter DaisymeHosting

 

12. Well-Organized Information Flow

dave-nevogtIf you can understand (and are inspired by) a pitch deck even without its presenter, it’s a great one. To make a pitch deck easy to understand, make sure it has all the needed components, answers all the important questions, and orders everything into a sensible flow of information. Limit one slide to one big idea, and hyperlink key sections to your references and other resources to learn more.

– Dave NevogtHubstaff.com

 

13. Visual Communication

Amy BallietAs attention spans have continued to dwindle, savvy professionals have turned to visual communication tools like infographics and animated video to get their message across. Visuals get to the brain faster than any other form of communication and are retained 90 percent more often. When competing for money, powerful visuals will connect with your audience faster and ensure your pitch isn’t forgotten.

– Amy BalliettKiller Infographics

 

14. Metrics on Competitors and Market Share

Shawn SchulzeDoes the deck contain industry and competitor research? I want to know that the business plan has a solid understanding of the market it is in, the competitors, their market share, market growth, pricing and/or monetization strategies. I want a deck to demonstrate that the company has a general idea of the market it’s after and who it must compete with or create a better service than.

– Shawn SchulzeSeniorCare.com

14 Red Flags an Investor Is Not a Good Fit for You

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What is one red flag that tells you an investor is not a good fit for you?

1. A Lack of Preparation

Luigi WewegeA dismissive attitude towards reviewing vital documents, such as an agreement proposal or strategic plans, is a red flag. After the initial due diligence, I like to have a one-on-one meeting scheduled with the investor to discuss the investment in depth, its financials, its motivation, and our company philosophy. Then I can be certain we’re a good fit and clarify any misunderstandings before moving forward.

– Luigi WewegeVivier Group

2. A Weak Network

Cody McLainWhen you partner up with an investor, you’re not just relying on their guidance and expertise. In many cases, you are also counting on having  some level of access to their network that will allow you to bring a superior product to the fore. If your investor is all money and no network, that’s a huge red flag. It means to me that we both won’t have a clue what do with his/her money.

– Cody McLainSupportNinja

3. Wanting to Change Who You Are

Laura LandIt constantly amazes me how many people will take a look an already successful business that is looking to grow and tell them to change the core of who they are or what their brand is. It’s a big red flag if the investor doesn’t understand and appreciate what is it that you already produce versus throwing out a million ways you could be a different company.

– Laura LandEMPIRE Cell Phone Accessories

4. Being Overly Emotional

Ty MorseBusiness can be stressful. When you see someone completely lose it — get emotional, upset, disturbed, or angry — during negotiations, you know that person does not have the maturity and professionalism you want in an investor. We’ve found people we thought were a good fit, but when we got into negotiations, they acted out. That’s when we knew we needed to get them out.

– Ty MorseSongwhale

5. A Lack of Niche-Experience

Adam SteeleIf you’ve never worked in/have no experience with my industry and niche, I can’t be sure of what your motivations are. What I am pretty sure of though, is that you didn’t pick us out of a fundamental understanding of what we do. Assuming that, I will be uncomfortable with almost any level of influence you want to exert over our operations.

– Adam SteeleThe Magistrate

6. Focusing Too Heavily on the Exit

Travis HoltWhen the first question out of their mouth is about the exit, I know it’s time to run for the hills. The exit is the product of many long hours, tough decisions and wrong turns. If the investor isn’t interested in being there for the process, they’re going to grow impatient and be a drain on your most valuable resource — your time!

– Travis HoltBrush Creek Partners

7. Not Understanding the Stage You’re In

Omer TrajmanEvery stage of growth needs a different kind of investor. Early on, look for an investor who thinks like a business partner. As you grow, ideal investors are on the same page as you are in terms of target customers, model for the business, and eventually look to invest based on your financials. At each stage, the red flag is different. Overall the biggest red flag is a mismatch in expectations.

– Omer TrajmanRocana

8. Asking About Becoming a Board Member Too Soon

Afif KhouryAll money is not the same. Investors can make or break your business. One red flag you definitely need to be aware of is the investor asking about being a board member early in your talks. This is a reasonable question, but should come later in the process. If you’re asked this at your first meeting, you are probably dealing with someone who is going to try to micromanage you and your team.

– Afif KhourySOCi, Inc

9. Wanting You to Fill a Quota

Brittany HodakZinePak is self-funded, but I’m constantly shocked by how many would-be investors approach me and say things like, “We’re looking for more women-led companies in our portfolio,” or “I like that you guys aren’t tech-first. I need five non-tech companies this year.” If/when we take on investors, it will be because they believe in our company and mission — not because they want to check a box off for their portfolio.

– Brittany HodakZinePak

10. Having Unrealistic Expectations

Nicolas GremionIt’s okay to take on an investor with limited investment or industry experience.  But be careful when it comes to taking one on with unrealistic expectations. For example, becoming an overnight sensation, or wondering why Warren Buffett hasn’t asked how many zeros your acquisition check should contain. Make sure they either understand the investment landscape or can be realistic about it. .

– Nicolas GremionFree-eBooks.net

11. Not Respecting Your Time

jeff epsteinInvestors are busy. The fastest way to get on their bad side is to waste their time. The same should be true for you. I’ve found that the best investors respect my time as much as their own. If they don’t during the ‘courting’ process, you better believe they won’t when they are on your board (or have rights).

– Jeff EpsteinAmbassador

12. Dwelling on Mistakes

Jayna CookeRed flags depend on what you are looking for. Are you looking for additional resources or just money? We’re looking for investors who approach things as opportunities for improvement rather than dwelling on mistakes. At the end of the day, if you can’t see yourself having a beer with them, then I don’t suggest doing business with them.

– Jayna CookeEVENTup

13. Wanting Too Much Control

Shawn PoratWhen I’m looking for investors, I want someone who believes in my company and who also trusts me to continue to make the major decisions. If I want to relinquish control, I’ll just sell the business. But it’s a red flag if an investor expects his investment to give him the right to start making all the decisions. So I prefer investors who believe in my vision and doesn’t want too much influence.

– Shawn PoratFortune Cookie Advertising

14. Poor References

Jonny SimkinMost companies go through at least one rough period. You need an investor that will support you through the good times, but even more so during the bad times. The best way to find out if an investor is supportive during the bad times is to talk with founders who have raised money from the investor you’re speaking with.

– Jonny SimkinSwyft

9 Questions That Will Determine Whether Your Startup Idea Is Worth Pursuing

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What is one important question I can ask to evaluate whether a startup idea I have is worth pursuing?

1. How Much Time and Financial Investment Will It Take?

Jeff JahnHow much time and financial investment will it take to get the idea to an MVP (minimum viable product) stage? Generally speaking, I only pursue a concept if it can reach an MVP stage within three weeks of development time. That may seem short, but taking much longer puts you at risk of making too many assumptions. That can result in a product or idea that doesn’t come close to hitting the mark.

– Jeff JahnDynamiX

2. Will You Be Excited About It in 5 Years?

Ross ResnickWithout unrelenting passion and deep enthusiasm for the venture, it will fail. It doesn’t matter how solid the idea sounds on paper. Without an emotionally invested leader committed to succeeding at all costs over a lengthy period of time, it will fail. Starting a company becomes your life when you start a new venture — you have to want to live the life the new venture will bring along with it.

– Ross ResnickRoaming Hunger

3. How Big of a Pain Point is This Problem?

Tim JahnYou need to determine how big of a pain point your solution solves. If the pain point isn’t big enough, your customers won’t care enough to pay you for it. If the point paint is huge, your customers will be shoving money down your throat to get their problem fixed. If it’s truly a huge pain, then pursue it.

– Tim Jahnmatchist

4. Would You Be OK if It Didn’t Work Out?

Faraz KhanWould you be willing to risk the time, money and energy even if the idea didn’t come to fruition? If your answer is yes, then you’ll have enough energy to push through the inevitable hard times, both personal and financial. On top of validating the idea, attaining financing, acquiring customers and delivering the product, you will have to deal with your personal stress and life — so brace yourself.

– Faraz KhanGo Direct Lead Generation

5. Does Your Product Create a New Habit or Improve an Old One?

Nick ReeseIt’s no secret that habits are both hard to start and stop. Anytime I hear a startup idea that requires the user creating a new habit, I’m always concerned. On the other hand, any time a new product or service is capitalizing on an existing habit and making it better, I know the adoption phase won’t be an uphill battle.

– Nick ReeseBroadbandNow

 

6. Would You Use It if It Had Terrible UX?

adam_RoozenValuable tools are valuable tools. If you strip away all of the glitz and glamour and it’s still something you would use (not “want to” use), then the idea has potential. Great UXs and positive PR help scale a user base, but it doesn’t define whether a tool is essential or not.

– Adam RoozenEchidna, Inc.

 

7. What’s Wrong With the Idea?

Andrew KucheriavyEven the world’s best ideas have flaws. You just need to identify them and understand how serious they are. Have an unbiased person play devil’s advocate and poke holes in your idea. Once you uncover potential problems, determine whether you can prevent or overcome them by patching the idea or finding a suitable workaround.

– Andrew KucheriavyIntechnic

8. Is It a Product or Only a Feature?

David CiccarelliIt’s hard to build a sustainable business around a feature. People buy solutions to their problems, defined as benefits and packaged as a well-rounded product offering. They don’t use single features for very long. Why? Because the startup that offers a better product will soon include your break-through feature. Double check that you’re building a product, not just a nice-to-have feature.

– David CiccarelliVoices.com

9. How Much of the Market Can You Capture?

Jayna CookeYou first need to understand the overall market size. Next, decide what you think you can realistically do to capture that market. Most people are confident they can capture at least 10 percent, but in reality they only get about one percent. Ten percent is a lot more than it looks like on paper.

– Jayna CookeEVENTup

13 Tips for Determining Your Company’s Valuation Prior to Starting Fundraising

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What top tip do you have for determining your company’s valuation prior to starting fundraising?

1. Determine How Much Cash You Need Over the Next 18 Months

Mark CenicolaTry to raise money at a valuation that will leave you and your founders in control and provide you with enough cash to execute your plan over the next 18 months. If you can’t do that, then either change your plan or seek other investors. It may take a lot of no’s before you find investors who say yes.

– Mark CenicolaBannerView.com

 

2. Look at Comparables

Jonny SimkinThe easiest thing to do is find comparable companies, see how much they raised and what their valuations were. A great resource is angel.co for tech companies. Once you have a sense of what the market will value your company at, start talking with investors and test that valuation. If they think it’s reasonable, proceed. If they laugh at your valuation, revise and try again.

– Jonny SimkinSwyft

3. Find Balance

Omer TrajmanThere’s no hard and fast rule for setting valuation. It’s a negotiation between the company and investor. The company needs to have several interested investors (multiple term sheets really) in order to negotiate. Most important is finding a balance between cash needs and the implicit expectations that come with the valuation. The non-financial terms of an investment are often just as important.

– Omer TrajmanRocana

4. Ignore Industry Buzzwords

Matthew MoisanValuation of a pre-revenue company will always be tricky. Avoid the industry pitfalls of focusing on buzzwords like “traction” or “hotness,” and instead consider the following: Calculate how much you need for 18 months of growth. Then, figure out how much of the company you are willing to give in exchange. Let’s say you want $200,000 for 20 percent — then the range of valuation will be around $1 million.

– Matthew MoisanMoisan Legal, P.C.

5. Have as Many “Friendly” Meetings as Possible

Aaron SchwartzEarly on, there is no easy way for you to independently set valuation. You might be profitable, or you might be growing, but there are no companies on your same trajectory. Before any formal fundraiser, I spend a few weeks with investors and founders whom I know will not invest. Multiple viewpoints will help you narrow in on value, and friends tearing apart your pitch makes you better for primetime!

– Aaron SchwartzModify Watches

6. Do Your Homework

Zohar SteinbergEarly on, valuations are a function of the impression you make on your investors. Investors are looking to make as much money as they can and reduce the risk they are taking. Showing examples of similar companies’ valuations in different stages will do just that. Show your investors that you did you homework and that you’re basing your valuation on a proven model.

– Zohar Steinbergtoken

7. Know What Details Are Important

Jordan FliegelRely on your investor to make an offer and place a value on your company. You don’t need to mention or hint at what you expect the valuation to be. You do, however, need to be prepared to say how much money you are raising, and what you plan to do with the new funding to grow your business. Once you have a lead investor, it’s easier to fill out the rest of the round on the same terms.

– Jordan FliegelCoachUp, Inc.

8. Focus on Growth Potential

Obinna EkezieWhen raising capital, focus on growth potential versus how your business is currently performing. If you are going to raise money from a VC, you’ll want to put together, at a minimum, 24-month revenue projections. If your business will take longer to develop into a revenue producing machine, you may want to project out 3-5 years. Leverage revenue growth to shoot for highest valuation possible.

– Obinna EkezieWakanow.com

9. Use a Third Party

Adam RootIt will have more credibility than pulling a number at random. Early Growth Financial is great for very early stage companies and Silicon Valley Bank is helpful after you have received funding and want a 409A valuation or deep analysis on what other startups similar to yours are worth.

– Adam RootSocialCentiv

10. Listen to the Market

Mattan GriffelIn the early stages, determining a valuation for fundraising is more of an art than a science. It’s more about what you can convince investors you’re worth than about applying a multiple or doing a discounted cash flow analysis. Start out with a fairly conservative number based on comparable valuations, and don’t be afraid to adjust it based on how the investors you talk to respond.

– Mattan GriffelOne Month

11. Seek Input From Peers

Douglas BaldasareIf this is your first round, get input from peers about what you can realistically raise based on your industry and stage. Then soft circle to a few friendly investors (friends and family) with your desired terms. It’s harder for new investors to change the terms once you have already raised some of the round. I also recommend Fenwick & West’s venture surveys. They offer data on average valuations.

– Douglas BaldasareChargeItSpot

12. Don’t Get Caught Up

Katrina LakeMost outcomes are binary. You’re going to make money, or you’re going to make none. I see a lot of entrepreneurs nickel and dime valuations and focus on dilution at the expense of a quality investor. You should focus on what is most likely to get you on the successful side. Valuation and dilution are only one element of the decision you are making and I encourage people to have a long-term approach.

– Katrina LakeStitch Fix

13. Know the Demand and Longevity

Fam MirzaCompany valuation should be determined by demand and longevity of a business. Most tech company valuation is built off the growth of a user database. The goal is to build up a massive amount of users to monetize on them somewhere in the future, usually in the form of ads and data capitalization. However, for product based companies, it’s based off demand for the product and lifecycle of the brand.

– Fam Mirza1:Face

11 Ways to Practice for a Pitch Competition

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What’s the best way to practice for a pitch competition?

1. Record Yourself on Video and Watch It Back

Brittany HodakWhile practicing for “Shark Tank,” one of the most intimidating pitch competitions on the planet, I found it very helpful to video my pitch and watch it back until I was satisfied with my performance. Watching on video with another person for objective feedback, if possible, is a great way torecognize and correct any flaws in your speech, hand movements, posture and more.

– Brittany HodakZinePak

2. Practice With a Time Limit

Andrew ThomasThe hardest part of pitch competitions is the short time you have to make the pitch. Plan for success by timing yourself while youpractice. There are two benefits. First, you can alter the length to ensure you‘re as concise as possible. Second, you can create mental “markers” so you know where you are in your pitch for each minute of the pitch. This helps keep pace when you feel nervous.

– Andrew ThomasSkyBell Video Doorbell

3. Write and Rehearse

Corey BlakeAs a frequent presenter, I set up time blocks in my calendar — one hour per day, four days a week for two weeks. During that time, I rewrite my presentation from scratch each time. Writing it over and over helps solidify the key points in my mind. Then I set up time blocks to actually go through it out loud and I’m ready to rock. The key to this formula is keeping those appointments with yourself!

– Corey BlakeRound Table Companies

4. Don’t Have Too Many Notes

Kofi KankamMost slide presentations have too many notes. Try practicing your presentation with an increasingly fewer set of words each time untilyou can whittle it down to seven words or so and give a consistent presentation. Then, you are ready.

– Kofi KankamAdmit.me

 

5. Practice in Front of the Meanest Friends You Have

dave-nevogtGet people from your circle of friends who have the most difficult personalities and tell them you want them to be really mean to youwhile you present. Tell them that if they make you lose your cool, you‘ll buy them coffee or something similar. Then don’t stop practicing until you can get all the way through without losing focus. You‘ll go into the pitch competition with total confidence.

– Dave NevogtHubstaff.com

6. Practice Using a Microphone

David CiccarelliSo many entrepreneurs obsess over their slides but fail to grasp the basics of a good performance. Project your voice by speaking louder than you think is necessary. If you can, practice with a microphone. Hold the microphone right up to your chin, literally against your face. And never point the microphone at the speakers. That’s what causes that screeching feedback.

– David CiccarelliVoices.com

7. Forget That It’s a Competition

Blair ThomasRather than trying to “beat out” your competitor, remember that the point is to win the pitch for your business. If your pitch is off, it doesn’t matter who you‘re competing against, you will have lost an opportunity without any intervention from anyone else. Refine your language and messaging; be passionate about what it is you‘re trying to communicate. Lastly, be clear, concise and confident.

– Blair ThomasEMerchantBroker

8. Learn From Others

Cody McLainIn order to make it less intimidating for yourself, watch how someone else presents a pitch — there are plenty of TV shows dedicatedto this (“Dragon’s Den,” “Shark Tank”). If you can see what went wrong (or right) in someone else’s pitch, you can just as well incorporate those properties into your own.

– Cody McLainSupportNinja

9. Practice With Distractions

Afif KhouryHave your kids run in front of your screen, have your Internet go out — create imperfect scenarios. You know your pitch, and if everything runs smoothly, you’re fine. But this is the real world. It’s not going to go smoothly. Every time I help an entrepreneur practice for a pitch competition, I close his or her computer halfway through and say, “Your computer just died, but please continue.”

– Afif KhourySOCi, Inc

10. Make Your Own Slides

Andy KaruzaYou will be much more well-versed with your presentation if you actually make it. Surprisingly, some people have others make portions or even all of the presentation deck. Spend the time to make the content yourself, but have somebody else make it look nice if you need it. Your memory retention is higher for something you actually write or create.

– Andy Karuzabrandbuddee

11. Practice Like You Play

Eric MathewsDavid Cohen of TechStars fame said it best: “Practice Like You Play.” Put yourself into the same context and setup as you will find at the competition. That means standing up without notes, do-overs or looking at the screen. You stand and deliver a pitch in practice as if the judges and investors were standing right in front of you. Otherwise, you risk practicing in mistakes and crutches.

– Eric MathewsStart Co.

 

15 Smart Ways to Vet a Potential Investor Before Partnering

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What’s one smart way to vet a potential investor before sealing the deal?

1. Talk to Other Companies They Have Invested In

Diana GoodwinBy reaching out to Founders and executives at other companies that your potential investor has invested in, you’ll be able to get a sense of how hands on they will be, what type of advice or value-add they provide (aside from cash), and overall whether or not it was a good experience. This type of information will help you decide whether that particular investor will match what you are looking for.

– Diana GoodwinAquaMobile Swim School

2. Find Out What Value They Provide Beyond Money

Andrew ThomasAsk your investor to articulate exactly what value they will provide beyond writing a check.  If they can’t confidently and clearly articulate their value, you should not move forward in working toward terms. Ask them to explain how they delivered this value to other investments and how they can do the same specifically for your startup.

– Andrew ThomasSkyBell Video Doorbell

3. See How They Handle Negative News

Sean KellyThe only way to truly know a potential investor’s character is to go through tough times with him or her. To simulate that, strategically surface negative news and gauge their reaction. How they handle it will speak volumes.

– Sean KellySnackNation

 

4. Research the Investor Online

Shawn SchulzeIt’s amazing what you can find out about a person or entity by doing some thorough searches online. Research their background, prior investments, LinkedIn, business websites, online articles, press mentions, etc. Look for any red flags and validate any statements made. With social media and the amount of content published online, you can verify and uncover a lot about most individuals or entities.

– Shawn SchulzeSeniorCare.com

5. Break Bread Together

Nick BraunAlways meet in person before taking on a new investor. I recommend dinner or drinks to allow enough time for a thoughtful conversation. Too many entrepreneurs rely solely on email, social media and conference calls, but that will only tell you part of the story and can get you burned. I know it’s old school and a bit inconvenient, but all the research in the world can’t replace a handshake.

– Nick BraunPetInsuranceQuotes.com

6. Consider a Lawyer

Elle KaplanWhat many fail to realize is that you usually aren’t your own boss after getting funding. Investors can say that they’re on board with your company’s vision and core values, but might be singing a completely different tune after you sign the papers. That’s why I’m a huge fan of bootstrapping. If you really must get funding, do the research and consider a lawyer to make sure you retain control.

– Elle KaplanLexION Capital

7. Ask for References

Jordan FliegelIt’s important to ask for references of entrepreneurs the investor has previously backed. Set up calls with the founders to get the inside scoop on their experiences with the investor. A good investor will open up their Rolodex of contacts and offer to make an email introduction. If they are not willing to do so, it is a huge red flag.

– Jordan FliegelCoachUp, Inc.

8. Back Channel References

Joseph WallaAsk a lot of questions. If you really want to do a full vet, find out who they’ve invested in and do back channel references on them. You’d be surprised, not all VCs have sterling reputations within the community. Conversely, there are a lot of less well-known VCs who are both extremely helpful and have amazing reputations. The only way to find out is by doing back channel references.

– Joseph WallaHelloSign

9. Find Out if They Want to Learn From You

Julien PhamThere should be an obvious pattern. Look at their portfolio and the relationships they’ve maintained with the people they’ve invested in. A good investor is first and foremost a people person — someone with broad knowledge or experience and a thirst to learn through you. A good investor will trade their money and experience in exchange for an opportunity to grow and learn from you.

– Julien PhamRubiconMD

10. Discover if They Have a Willingness to Participate in Follow-on Rounds

Vishal ShahUnless your startup is witnessing hockey-stick growth, expect to raise multiple ‘bridge’ and/or ‘seed’ rounds before you raise Series A. If existing investors decide not to join a follow-on round, it sends a negative signal to other investors. Dig into the investor’s past track record and measure how often they have participated and/or led subsequent bridge rounds. Stay away from the one-timers.

– Vishal ShahNoPaperForms

11. Know Whether They Can Take on a Lead Role for You

Andy KaruzaInvestors typically know and work with other investors. Should you have to raise more money, they should be willing to take the lead on helping you raise. This type of investor is very important to have early on in your company as it will dictate success in future rounds.

– Andy Karuzabrandbuddee

12. Flip the Script

Aron SusmanAsk them how they view your company, what they see your company accomplishing, and their ultimate growth goal with your company. It’s ideal to find an active investor, instead of one who plans to put in some money and leave it at that.

– Aron SusmanTheSquareFoot

 

13. Talk to a Previous Company That Had A Period of Failure

Trevor SummersThe true test of a great investor is how they react when times are tough. Do they disengage? Provide helpful guidance and introductions? Do they redouble their efforts? Every investor has had struggling investments. Find out who in their portfolio went through tough times and getthe skinny about what it’s going to be like for you when you face your most important challenges.

– Trevor SumnerLocalVox

14. Focus on Investors Who Grasp Your Business Quickly

David CiccarelliHaving raised around $5,000,000 from a variety of investors, I’ve learned that those who grasp the business quickly will be the bestinvestors. Don’t waste time explaining your business model, including your value proposition, profit model, key resources and core processes to an uninformed investor. Instead, focus your time and energy with those who intuitively appreciate the opportunity.

– David CiccarelliVoices.com

15. Share Your Vision

Shilpi SharmaDo you share your vision with the VCs you are looking to get money from? Two things you would get to know: 1) Whether the VC would be a partner in your vision and help you refine it as you progress, and 2) If there is disagreement regarding the vision of the company, how would you two sort it out? It is very important for you to be open and transparent with VCs since you are looking for a partner for next three or four years with them.

– Shilpi SharmaKvantum Inc.