Small Business Funding

It has been my experience that Angel and VC investors have little interest in services companies as they are labor intensive and are hard to grow into a large firm capable of a highly profitable exit.

It is not the job of banks to lend "growth" capital unless there is clear cash flow from which to repay the loan. I would be reluctant to take funding from sources you do not know well, as you have to live with the investors, possibly on your board of directors. They may have agenda's different from yours.

I urge you to reach out from your family, network and friends to try to raise small amounts of capital from people that can see the vision in your business, but whom you can reliably count on to act in your best interest. Also consider customer funding by getting consulting clients to make up front payments from which you can hire the persons that will serve them.

My cloud IT services business is similarly looking for funding. We have approached several large banks but whilst they are interested in funding the business they require a lot of guarantees. In this economy it's just not something we can provide right now.

We have found that venture consortia are the best approach - we have had significant interest from local so-called "high tech" venture capitalists who are partnered with "high tech" universities (i.e. those Unis with a budget allocated to developing technology).

Additionally, we are lucky to be based in a region that is dedicated to growing the local economy through attracting high-tech businesses to the area. This helps enormously.

As a side note, if anyone has any contacts who may be interested in hearing about our commercial and/or technology model please don't hesitate to contact me, I'd be delighted to discuss partner/equity/reseller opportunities.

Rick is correct in noting the equity investment community has little appetite for small service based companies. The possibility of this type of business establishing a 10x exit event is minimal.

Therefore one of the better finance solutions for just this scenario is "accounts receivable financing." Also known as invoice factoring this allows a company to grow without worrying about waiting long periods for customers to pay invoices. Factoring companies rely on the strength of credit of the customer rather than the borrower which is a big benefit.

In simplest terms, you do the work and invoice the customer. The factor pays you and the customer repays the factor. This allows you to pay your staff regularly and take on bigger contracts. Given the current credit crunch and banks reluctance to take on risk, factoring has become a real alternative to assist as a working capital solution.

You should checkout www.40billion.com. Small businesses and startup entrepreneurs raise money through personal connections online (a.k.a person to person, peer to peer, social lending). This elevates access to funding, increases transparency, reduces costs, and lowers risk.
Entrepreneurs connect with their social networks (friends, family, friends of family, community members, colleagues, alumni and others) to raise up to $99,000 in funding by requesting loans and gift contributions. Funders can get product discounts and freebies, as well as the ability to track how the funding is spent.
Visit http://www.40billion.com for more info about people funding businesses.

Contact me at your convenience to discuss possible funding, I may have a funding program for you but I have many questions first. What exactly is being sold and how long is the fulfillment of all products and services? Who is being sold to, businesses or consumers? What are your sales terms? Plenty more for you when you call...
Thanks!

Eric Schoep
Marketing Director
The Conrad Companies
800-826-6723 x331
ESchoep@ConradCo.com