To create a successful business, an entrepreneur needs to identify an opportunity and execute. The first question to ask should be “Is it worth it?” If the answer is yes, create a detailed plan of attack. Focus on timing the necessary moves. Don’t rush, don’t wait. Create a financial schedule. Identify how much capital is needed and at what points it will be used. Then find the money to get the deal done and go after it.
Pick the right location. Fish where the fish are. Your ideas need to fit the region. Look at the regional growth sectors and the success of current industries and decide if your ideas mesh with what’s happening. Ask yourself if the region has the resources you need, and if there are investors who are interested in your line of work.
Before pursing funds, formulate the right team. Investors won’t finance any opportunity if they don’t believe the management team is capable of achieving what is necessary. The entrepreneur needs to recruit members to fill gaps and reflect the industry. The structure needs to be easy to understand. All members of the management team need to be driven by the entrepreneur and understand his or her philosophy. Make sure your team is on the same page.
Team members need to have some skin in the game. Early financing will come from personal funds or close friends and family. The business relationship should be formalized, and all financial data needs to be accurately tracked. It is also important to accurately value the company. Go outside for these services if necessary because you could lose out on a deal without them.
Next Steps in Financing
After launching the business and reaching necessary levels of sales or growth, it’s appropriate to pursue more sophisticated avenues of financing. Banks offer loans and lines of credit; to effectively utilize banks and mitigate risk, maintain strong relationships with them. It can be difficult to secure the first loan. Here in central Illinois, the Heartland Finance Network was established to identify initial contacts for businesses looking for traditional lender-based financing. At a certain point, borrowing may become too expensive or risky, so it will be necessary to find equity investors.
Angel investors are individuals or groups of individuals looking to invest in growing companies and earn significant returns. Angels typically invest less than $1 million and are looking to achieve a return of three to five times their initial investment. A clear exit strategy within a few years is a necessity. Angels will often become involved in decision making and can provide valuable contacts and industry knowledge. They can be valuable assets to an entrepreneur by offering insights and lessons to help them navigate the world of start-up businesses. With an active presence in the area, Central Illinois Angels showcases an enthusiasm for small business development and a desire to help create jobs within the region.
Companies that require more capital than angel investors can provide need venture capital. Funds are pools of money managed by a core team. Management analyzes potential investments and selects companies that will provide significant returns. Like angel investors, venture capitalists will provide capital in exchange for equity. They will ask for operational control if they feel their investment is at risk. Large funds exist in our local marketplace. The Tri County Venture Capital Fund was created to invest in the region, while the Heartland Venture Capital Network connects local companies to funds around the Midwest.
In order to grow a company, an entrepreneur needs to follow the golden rule of sales—always be closing. Satisfy the necessary parties and make it work for everyone. Find where the money is located and get it. If the entrepreneurs in the region are successful, central Illinois will have a stronger, more diverse job base well into the future. iBi