Funding Your Business
So let's, talk about the different types of of funding available. So there's um, venture capital crowdfunding like kickstarter oh, go fund me, angel investors, banks. The cool thing about banks is that right now we're estimating that there are three trillion dollars waiting to be loaned again because when the economy went down the drain the bank's just weren't lending anymore. So this money this cash is sitting there ready to be handed out in business loans when the bank's at some unknown criteria at some unknown moment in time when something unknown happens there finally start lending again. That's a lot of money becoming available there's gonna be micro loans and small business loans and all kinds of stuff. There's, of course family and friends not my favorite and there's bootstrapping, which is, you know, basically using your mice let me just go through those venture capital is, um let's start it. Maybe I should have done this the other way, angel investors that start with angel inv...
estors the angel investors it's and called an angel for a reason. So an angel investor comes in and they just love you. They love you idea. I could imagine that somebody from russia that's been here who's gone through, you know, making his american or her american dream happen the hard way see issue and you enthusiasm about helping the community was this you know what I'm going to give you fifty thousand dollars I'm going to be one hundred thousand dollars to help you with a start up I'm going to be your angel and what do I have to then there is a venture capital angel investor usually gets a percentage off your business and they have a vested interest so they're really here to help you fight that's why they call it angel they're like hovering over you heavily then we have the uh venture capital venture capital comes after angel investors so after um venture capital this is the part where we talk about the business where you really have to know how the business is going to be making money because venture capital is interested in one and one thing only profit they're not investing because they think you're cute they investing because they think you can generate money for them so venture capital and they want a portion of your business and venture capital now here's your number right they venture capitalists usually hope that within three years that they can turn the business around and sell it at a multiple which is why the lender the expertise and they're really after you to grow this for profits so that you can sell it and then they they cash out then they go off to the next business so if you if you ever watched you know, some of these reality shows like shark tanks, you know, giving up equity is always a questionable is always a tough, tough thing to do. You know, if you have a great partner can propel your business with their expertise to the next level. It's a great idea, but a lot of businesses just be, you know, just be really mindful about that crowd funding my kickstarter and go fund me. I've seen a lot of this, especially for artists, and I love I love these websites, I actually use it for some shopping believe it or not so I you know, I saw this incredible design off this lamp and it's like a book and then you open it and has a magnet and you charge it on your computer and it's called gloomy know and it's the coolest lamb I use it as a centerpiece for my dinner parties and everybody goes like, wow, this is the coolest thing and as a kick start, you know, thunder, you know, pay a certain amount of money, and I got one of them, you know, as the prototypes because he needed to raise the money to manufacture these things, but because it was so amazing, I wanted not just a funded to fund it, I wanted I wanted one so a lot of these projects are for people that really believe in it but it has to be well defined it has to be you know, usually kick started type things have to have a community kind of feeling you know has to be something in it for everybody and then they do different packages so it's about five dollars you get ah handwritten thank you note or a sticker and a twenty five dollars you get maybe the book if you are an author and you're looking for money to print your book you know you get your hands on book in the first edition and then one hundred dollars you get the book and the sticker and a t shirt and uh whatever uh an invitation to the opening event type of things so you used hagrid and you know, go and look at those web sites of what those packages I was kind of cool then I like banks because banks fair straightforward you need to have your act together like what we doing here you take this to the bank and the bank says looks good hopefully and then you have proven to them how much money you need and then they give you the money usually give you a little bit less and then and then you go off and you're doing everything but the bank wants to see that and how you going to pay it back so big part off the off the growth process has to be because even though you're getting money to start your business now you need to add more money to that which is the money have to pay back because you have to start paying back money even if you don't make any money it so you have to prove to them on how in all of that you're starting to kick on the machines so you can pay for you start up expenses, pay for the people that put it through and then somehow figure out a way on how to pay that loan back on time I'm proud to say that my s b a loan that I got I paid back eight years earlier I got a ten year loan and I paid it back age yes early that was a great day that was a great day and bootstrapping means um using our own money ah let me talk about family in france first if you can avoid it because this has family feud written all over it goes for some reason family and friends never can remember the exact amount and if you don't have if and if you do it please do yourself a favor treated like a bank loan say do a written piece of paper this is how much money I'm going to get this is how I'm gonna pay you back this is the percentage or no uh, no percentage loan that I'm going to pay you for lending me the money so that it's all in writing and if you do that, please treat your family and friends like you would treat the bank, but usually what happens is that family and friends get paid back last because the bank issue no meaner than the family and friends in the bank can shut you down whereas you know, family friends cannot so it just be prepared? If you ask family and friends, it can get a little bit messy like that. It's not many happy stories with family and friends money that I know bootstrapping is in my world. The ideal case is that you use your own money and you activate that but that's often not possible specially when you produce something because manufacturing have a you'll be meeting hurley brandon she is a is an inventor, and she'll tell her unbelievable story on how she knows she holds a bunch of different patents and her staying power on staying focused and making sort of things happen. But when you have a patent and you need to manufacturer devices that help people's lives, you know you need you need one hundred thousand hundred fifty thousand dollars at a time to manufacture large chunks off product, right? So that kind of money sometimes very rarely you can make happen on your own unless you have rich friends or you know somehow other access to money all right let's see what else we have. So here are some of the numbers it's really kind of encouraging what's going out in the market I found you know and I travel a fair amount you know, especially in san francisco, especially in seattle especially new york, especially in los angeles in all over the world in the big cities there's a huge buzz going on right now I have not seen so many startups and so many exciting new things happen as I have been lately, you know, and it's the greatest idea and stuff that I couldn't even phantom. So you know, this is a great time for starting a new business. It really is a ninety nine point seven percent off employer firms of small businesses. That means that almost all people that make money somewhere and generated income of being employed by small business that's a huge huge number and small businesses provide sixty four percent of the entire private sector jobs. So not just are you doing yourself a favor, but you also contributing to a much larger picture right and uh a total off forty three percent small business contribute to the private sector payroll let's talk about some resource is for you the s p a has resource centers of the s p s a small business administration so the in the united states, we have the s pay it's s p a dud gove, and they are also so called small business resource centers. I don't know specifically what those resource ennis are called or the equivalent in other countries, but I am absolutely certain that every country, probably every city, every you know district has called economic development. Uh, resource is so this is always a great way to start because it's their job to help you, and they will help you with figuring out access to money because they actually hold a lot of the relationships of the banks. So when I got this letter from the white house and you saw it on the letter, it says, we put you in touch with the small business administration that was the ticket because I met the deputy chief director off the small business administration in the district of los angeles county, because when a letter from the white house comes and says, you know, you gotta beat this business owner that's bold enough to write a letter to the white house, you bet that I'm going in at the top and not at the bottom. I didn't really write the letter for that, but, you know, now it's, of course, logical when I think about this, so I walked in with my business plan which I'll show you in aa future segment when we talk about at the business business plan, I walked on with my business plan, which I had written, and it looked not not very different from this. This is why you have to get the work book if you don't have it, and so I walked it with my business plan, and I walked in with my portfolio with all those great photos and the books that we've done with all the celebrity homes, and I sat down with the deputy chief director off the small business administration and, you know, I remember his name and lorenzo floors looked at me, and he said, I'm going to put in what you put in, and I knew it was going to be okay and that's how it happened and then he helped me put the business plan together, you know, to find tune it according to what their cry tears were and then, you know, and we we we figured out how we how we were going to ask for money and then, you know, he helped me find a bank and then one day, you know, got so many nose and one day the bank with the best name off all banks, vinyard bank, we just sew better name for a bank, they called me and I said says we got your business plan and I'm ready you know for the no and she says we got your business plan and we like and I'm like you d'oh ah because you know we would like to underwrite the loan and so the s p a backed my loan but I think it's by seventy percent so they guaranteed the spd guaranteed that if I were to default that they would pay seventy percent of the risk for the bank was spendable right it was only thirty percent but you know I paid back eight years early so it's it's it's all real life stuff so there are certain programs that some cities offer and when I was in new york and I'm in the subway I see the sign it says ah start up dod end y dot gav and what that program is is for qualifying businesses that start up in new york you get ten years off no state and local taxes incentive hello so there are programs out there because everybody every country in the world every city in the world is interested in getting new ideas new businesses going because we are you saw the numbers we are the numbers one provider for employment small businesses are the backbone ofthe any economy that's what the first letter in my first sentence my letter to the president's it said you always say that small businesses are the backbone of the american economy prove it and you know I talk like that okay? So more resource is so um this is what he small business learning center looks like and they actually have additional workshops they have um you know, they have classes, they have meetings, they have all kind of different things. So I want you to really go and look this up for the equivalent either in your region or in your city or in your state or in your country but there is help out there and they all they do is help you and they have networking events and they have um and they have training and so you see this this, uh, along you earl, I probably should have done in a short short linked to it. Okay, let's see, what else do we have? Um now I want to just sort of put it out there for you and ask you a couple questions, we're going to be work shopping a little bit. So for all of you watching out there life in, uh on the stream audience tell me, where would you go right now with information I've just given you and I don't care v in venezuela in mexico, maybe you just do a really quick google search and tell us like one thing we could start to find an additional resource center it could be, um you know retired executives that could be mentorship it could be a government program a city program I'd love to hear from you what the different programs are all over the world or you can always use our our twitter handle at hashtag be out alive and just shared on the twitter feed on what you're finding out because I think it's really important to get this buzz going is like yes thes programs to exist and there is money out there your dream doesn't have to be just a dream in your in your home but your dream is a dream that's sort of out there okay we do have a question though if that's all right uh this chatter says I have a potential business partner who wants to split equity with me he says he can do the marketing and provide the seed capital that will need for the business should I give him that much equity or should I try to talk him down like does it sound like a square deal or how do you think they should play it good a good question so hard about giving away equity well, first of all somebody says to me I'm going to want a part of your business the first question I'm going to say prove it that you can actually provide something that's equally valuable for my business somebody wants money for me I'm the first thing I say is like why why do you want this money? And what are you willing to give me in return? You always want to keep the majority of equity in your own hands because once you're fifty fifty, his or her interest is equally to yours. That's never a good idea for decision making because if there's two partners and they're both equal this, you know who has the majority because it cook it to the point where this person says, you know what? We need to sell the business, but you don't want to, but you're fifty fifty, so you may be in a stalemate, so it's always better to have at least fifty one percent. I always think that giving up this little equity is possible most people when they're going and asking you to become an equity partner and again, you know, I'm addicted to shark tank is you always see that they're asking for us, much as it possibly can until they find a business where the guy is so knowledgeable that they are actually that some of the deals are really fair, but I find that a lot of the deals where the equity is just astronomic is when when they smell blood, so you never will let your insecurity after this course because remember, we're still on ly four segments and we still have a whole bunch to go you know, this is only what you know now imagine what you know you know, eight more segments down the road um but you want to keep a tight you want to give up this little is possible you want to have them proved to you in writing what they're willing to contribute and what happens when they don't contribute what they've promised because if somebody says I'm going to do all the marketing and my marketing is going to help you double the business you say put it in writing what marketing by when and what's the value that you bring that qualifies you for fifty percent off forty nine percent caveat if you don't provide the marketing that creates this at this time you equity drops after a year down to express e which is the equivalent ofthe what I value your contribution which is not as much as what you said it was going to be excellent interesting coming from the one is saying talking about the numbers in this way has made the numbers sound they don't sound so daunting as a result I could see what I need to do and I know I need to raise my numbers get interesting so thank you for that love that all right go ahead what about uh investor sites? Crowdfunding investor sites like angel list those those sites where you're actually selling equity to investors up front? How does that all work I am not really all that familiar with that with that portion quite yet because to me personally I always felt that I like to get money in the traditional ways because I really don't like giving up equity to my businesses, especially as the way I run my business is is, you know, when when my money comes in and comes in and pick chunks, I learned that because I built him on a very substantial significant glad form because I go for setting it up so when he takes off it really can take off and then you know, the chunks coming most investors don't like that and I don't want to answer to anybody like that so that's me so I really urge you to you know, while looking into that, I would have to make myself smart on that honestly, but angels and adventure capitals probably for almost everybody who is on this call unless you have an existing business or proven idea and you know, and I recommend you listen to lee when we when we get to her and we talked about her story, this really will change everything it's it's you know, unless you have the proven idea and some of these things on places just to early just to really have to prove concept first that it can make money before nobody's going to give you any money anyway karen and is asking they're saying they did some research and they check in the bank said they wouldn't lend them money unless they have the same level in their account already shorts? No, is that really true? Say that one more time she checked with the bank and they wouldn't lend the money unless she had the same level in the counter ready. So if you want to borrow thousand dollars, you have to have a thousand dollars in your bank already. Is that true? Ah, lot of times what happens with banks is they, you know, especially right now we have a very, very, very tough lending climate, and if it's of any consolation to you, I was refinancing my house and I was declined in the refinance, which is outrageous, but you know what? The banks were going by certain criteria right now, and they said, well, but you are not you're not making that income. I said, I don't need to be making that income because I already have the money in the bank said, well, that's ever eleven for us because we think you could lose it. I'm like, well, thank you for that vote of trust. Is that so? You know, so all of a sudden it's changed to while the cash is there, but they don't really worry about the cash that were about the cash flow, so this could be very easily changing. That's. Just one bank, you know, somebody out there will. The most important thing is I can only tell you, you know, get the workbook, have us at this minute. Enough, enough now. And you guys know how important it is? Because I see you guys writing down nonstop. So do the plan. Go through this, you know, fill all of this out and then on, you know, uh, on the third day, I will take you through how to put the business plan together and take that to a bank. And trust me, when it, when it shows exactly how everything is going to go, people will take you seriously when you take your business. Siri's, because of my former life, I was a banker. Oh, dealt with a lot of small business people. And that was exactly at the people who came into me. Regardless of what they were borrowing for, the people who were prepared, they had all their information, shin together, those of the people I took us credible, so whether they were, you know, bowing for uh, you know, to do a renovation on their home or whatever if they've done the work, I knew that they were prepared, especially from a small business perspective uh, you know, if you've got your business plan together, if you're going in to borrow the money, the bank is going to take you very seriously, I'm the ones that, you know, they're not is willing to put the money out, okay? Well, you've got this money here, we're going to hold that and, well, you know, lend you additional money so coarse the bank doesn't want the risk, but definitely yoo you have to be prepared and you can't just put fake numbers together, they're not going to lend you the money on that. You honestly, um and I can only speak from a canadian perspective being from canada, but there are many resources in canada where in each large city we have ah, small business resource it's like a library where we can go and see business actual business plans that were put together s so we can use that as a resources to how do I do my business plan, and they have it on all kinds of business, so there's lots of resources out there for people, there's, even great software packages for doing business plans that have a lot of the information in there and help you put it together but at the end of the day you still have to do the work yes if you want something for it thank you. They will take you serious yes, thank you for sharing that and this is you know, part why I talked about thie detachment from the business because you can't start crying when you go to the bank and they don't like your plan it's about you have to be objective and say, well, what don't you like about it when I went in with my business plan and they restructured the loan, it wasn't about me saying like, well, why don't you believe me? And look, I'm so trustworthy they said, well, you know, we like it, but, you know, we know what the banks are looking for, so we need to restructure it in such a way that we put in what they're looking for so that it's appealing for them because everybody has a different criteria it's just about learning what's out there. So you know to your point, yes, you absolutely I have to put the plan together if you're just going to a bank and say, listen, I want you to loan me money they say, yeah, well well, but you know, you're gonna have to give us the equivalent in cash, which it's so incredibly stupid from a bank to say, because if you have the money, you wouldn't be going for money, so one of the one of their criterias and getting money is make sure you get money when you can, before you totally broke, like you want to get money, while everything still looks good, because once you start a business, you have more expenses than income, you know, banks always sudden get very nervous, so you want to get the money a sort of ahead of time, so I just want to get one last thought from your biopsy before we start wrapping, but what is your what is your vision of the future of the lending market? How do you think it's going to change? I think it's going to be fabulous? I really do what I found is, and I give you just a quick background on this when we were having these troubles with all of the outsourcing going to china and asian countries, the reason we did this is because american companies thought that we were saving money, that we were making bigger profits by producing stuff for cheap, what most companies didn't think about it. If nobody produces them and everybody loses their job, it doesn't matter how cheap they are, people cannot afford them anymore, so their shift toward a going back to being produced locally, and I don't see this just in america, really see this happening is the trend anywhere in the world where people say, well, we need to produce and buy more local stuff is happening tremendously in this that's. Why there's so many initiatives out there right now? Where, where? I think it it's just gonna happen. And once that happens, the money he's gonna be available, and I see it in the tech market, in the internet market, the money's already flowing like crazy. And I think that it's going to open up anywhere else, and what differentiates us is our ability, think and innovate. So they're more innovative and the more interesting in the more unique your idea and product is. And the more you can prove the concept, the easier it will be for you to get money.