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In years past, the most obvious answer for small business funding was a bank loan. But as the saying goes, a banker is someone who lends you an umbrella when it's not raining. Luckily, today's startups have a lot more options in finding first-round financing or even pre-first round.

In an ideal world, the shortest timeframe for securing financing would be three to six months before you need it. Have a shorter window? Read on, dear debtor, and be amazed at the wealth of early financing options that are yours for the taking.

Venture capital
Don't think you have to want at least a million dollars in order to be interesting to venture capital groups. "One-third of the funds being raised now are for $50K or less," says John Taylor, research director at the National Venture Capital Association (NVCA) based in Arlington, VA. NVCA represents over 360 venture capital and private equity firms, amounting to approximately 85% of all venture capital invested in the United States.

"There are VCs that are very willing to talk to [those seeking small amounts]. Others say even if you're a year away, we'll give a quick look."

It makes sense. Venture capital funds increased 150% in 1999, topping out at $48 billion from $19.2 billion in 1998. It follows that as deals get bigger (Zhone Technology's $500 million infusion last year in Oakland is the record) they will also trickle down to every garage cum research lab in the nation. Look up NVCA members (see Resources), especially Edison Venture Partners and Arch Venture Partners.

Angel investors
Just like venture capital, many individual investors are flush with gains from equity markets. They're eager to plow earnings back in and are willing to wait a little longer than VCs for the typical 25-50% return, hence their "angelic" status. They got their divine name from early Broadway days when an investor would rescue a flailing production, often with no profit when a show closed.

Some figures estimate that there are as many as 250,000 angels investing up to $25-30 billion a year in the U.S. According to the NCVA, there are no statistics on this type of investment, but they say it could be double the venture capital market.

"The difference between angels and venture capital is huge -- it's like the difference between going to your Uncle Harry for $100 thousand or to your bank for $10 million," says John Burke of ABS Ventures from Baltimore, MD, a venture group that typically invests $3 to 15 million in IT or healthcare startups. Though he admits that you can't group all angels together, "99% of the time, the typical route of funding a startup is friends and family, angels, and then institutions [such as VC]." Only when things go awry, does the order go backwards. How to get started with an angel? Keep reading.

Don't think that your company has to be ultra-sexy or frenetically ambitious to get into a business incubator. Only 8% of incubators are for-profit. These homes for potential golden eggs exist in almost every state and have a multitude of sponsorship arrangements, often with educational institutions, or with local governments whose main goal is to create new jobs in their communities.

Twenty years ago, there were only 10 or 15 incubators nationwide. Last year, there were 585, and there are more on the way, offering startups a variety of help, such as discounted rent in exchange for shares in the hatchling company, access to government funding and resources, as well as private sector expertise and financing (namely, angels).

Three years ago, Ed Palmer, CEO of SolarAttic, moved from his garage into the Elk River Business Center, an incubator sponsored by Genesis, which houses a myriad of other baby businesses in Minneapolis, MN. He plans on moving out in a year due to lack of room and docks required for his inventory at the center.

"Otherwise, I would stay as long as I could," he says. "They took stock [in exchange] for 80% of rent, which dramatically helped my cash flow." The synergy of working with another business at the incubator improved his own technology for converting the heat in attics to energy. Most of all, moving into the incubator helped his credibility to attract financing.

"It takes you out of the garage. Many people have come to see our facilities, and it's a lot different driving up to this building than to a house," Palmer adds.

Trusted advisors
Asking your professional services people, such as lawyers, accountants, and consultants, about financing is a great way to get the right introductions to private investors and VC as well. If your idea is viable enough, they might even invest themselves.

"When we like a client, we make sure that cash is not an issue; we try to take compensation off the table," says John Hilgenberg of The Eager Street Group, a consulting company in Baltimore, MD. Most of the companies they mentor are in the pre-venture stage.

They aren't "money-finders" he says, but they know the people who are. "Don't be afraid of your investors," Hilgenberg points out. "It's surprising how many companies are afraid of losing control. They approach the process in a semi-adversarial way and investors can sense that." That's the point at which many investors walk out. "The company which is not willing to say everything, the positive and the negative, is not going to be perceived as trustworthy."

Mine the Web
Don't be incomplete when filling out extensive forms at Web sites geared to link up money with opportunity. You've got to give an impression of confidence and thoroughness in all written communication since that's the beginning of this kind of relationship. When a site also requires you to post your business plan, be proud of it. Make sure everything's perfect.

Check out the three-year-old ACE-Net (see Resources), the U.S. Small Business Administration's Internet-based listing service for securities offerings of small, growing companies. Accredited investors view listings anonymously, and the government makes sure that entrepreneurs are meeting all the legal requirements of federal and state securities regulators: a win-win situation all around.

Of course, the private sector has its many counterparts. One of the first of its kind was DataMerge, Inc. (see Resources), which has offered a national database of alternative lenders and equity investors since 1989. It's an easy way for someone in Cincinnati to find money in Atlanta. Detailed profiles of investment criteria accompany hundreds of listings, and active financiers reach into the thousands.

Don't skip the promising (see Resources), launched just this year. They offer a variety of debt and equity financing options to apply for online. You can also post your business plan for browsing investors. It could be interesting: in their first month of operation, they claim to have processed a billion dollars' worth of financing. (see Resources) is a also a great site for companies looking for seed-level financing. Investors are listed in the section of the site called Heaven, where they peruse pre-screened entrepreneurs -- investment opportunities -- that match their interests. If no angel comes knocking on your door, at least you can get some excellent advice here.

More of these services are showing up online every day -- so unless you are dealing with a quantity that is well known to you, be sure to check them out, and call references before you send them anything or post any information about your company.

Floating and factoring
Don't overlook the strength of credit cards, says economist and investment newsletter author Mark Skousen. "They've become a viable source of funding for small businesses," he says. The trick, he says, is to not apply for more cards when you are maxed out on the others. Instead, apply for several at one time. "Although it's risky," he admits, "you can use advances from one credit card to pay the minimum on other cards."

Skousen used the floating concept when he started his own publishing business 20 years ago. He was able to place ads for his book and pay for them a month or two later when revenue was coming in, he says. His latest publication is The New Scrooge Investing.

A cousin to floating is factoring: selling your accounts receivable invoices in advance of payment. There are many companies that will buy your future earnings now, just when you need the money most. There are even brokers and referral agents out there to help you find the right buyer. You can find them on the Web, such as AMJ Factoring, or in the newspaper. Your best chances for selling accounts receivable are with invoices to the government, or a customer who has a track record of paying.

One way to solve the money crisis is to not pay cash for anything, says Alan Zimmelman, president of the National Association of Trade Exchanges. Even when you do have cash, it still makes sense to barter.

Years ago, with little or no experience in baking, he started a cookie business in Palm Springs, "before there was Mrs. Fields or Amos." He figured that since the next closest place that people could buy fresh cookies was at a mall, three miles away, he could be successful. Trouble was, he didn't have the money to advertise. So, like a good neighbor, he took cookies in to the radio station, whose airtime also goes stale if it doesn't sell. And, for the first time in his business life, he made a barter.

Soon Zimmelman's cookies were all over the airwaves, making him look like the most successful company in town, he says. "People stopped in just out of curiosity." You say you've never heard of Zimmelman's Cookies? Little wonder: Mr Zimmelman became so enamored of bartering that he sold his successful cookie business, and eventually bought a bartering company.

Bartering has become quite sophisticated since those first transactions involving livestock and bushels aeons ago. With programs that allow you to convert your goods or time into points that you "spend" in trading networks, you can barter your way to almost anything and save up to 80% on retail prices. That's a lot better than cash, especially when you don't have it. You do, however, have to pay taxes on the value of barters.

If you think you don't have a network, maybe all you need to do is join one. There's bound to be a group out there with interests common to yours: look for professional leagues in your area where you can mingle with your own kind, trade tips, and find potential funding. Many groups offer seminars or lectures, so if small talk is your problem, just go and take notes. See
Resources for some examples.

By showing their wares at a local entrepreneur council event in North Carolina, Scot Wingo of AuctionRover attracted the interest of a visiting VC group. At the time, his company was only three months old. "We were funding it ourselves," he says, "Once they talked to us, it was pretty exciting." Two weeks and $3 million in seed later, they got a big office space "and started hiring like crazy."

Another take on this idea is to borrow someone else's network by signing up for help by the Service Corps of Retired Executives Association (SCORE). Sponsored by the SBA, it has nearly 400 locations across the country so there should be one close to you. They've assisted almost four million people since starting in 1964.

Sponsorships and partnerships
Don't think you're too little to be of interest to big shots with deep pockets. Sponsorship is a $22 billion dollar industry and growing as the next medium of choice in advertising. The best way to get your foot in the door at a corporation for sponsorship is to plan an industry meeting or event that they "help" pay for.

Dave Starr, VP of business operations at, an ambitious one-year-old referral service for entrepreneurs and venture capitalists, agrees: "It's good for both sides. For fledgling companies, alliances and partnerships are the best ways to get a leg up. There are many benefits other than cash that they can bring."

Arthur Andersen is one of's sponsors, contributing content and expertise to its Web resource center. "Though they are not an equity holder, they provide us with credibility and value." Starr points out that when making sponsorship deals, "it's very important to understand what [the potential sponsor's] motivations are. Make sure you know what their long term goals are."

Government grants
The best way to get government money is to go meet it in person. There are faces behind programs awarding thousands of R&D grants to high-tech companies, such as the Small Business Innovation Research (SBIR) Program. Ask the people who make decisions how your proposal can be the most attractive. See
Resources for a list of SBIR conferences.

Total SBIR funding is expected to exceed $1.2 billion in fiscal year 2000. The program funds U.S.-owned firms with 500 employees or less to conduct cutting-edge, innovative R&D that addresses the government's mission objectives while also promising commercial payoffs in new products. Ten federal departments from DOT to NASA take part in SBIR, so you can imagine the range of technology projects they solicit.

Projects are high-risk and typically at the earliest stages of development, before companies can attract private capital. Terms are good and you don't have to worry about selling copyrights or patents either. Each project may be awarded up to $850,000 over a 2-1/2 year period.

Final tips
Promote all you've got, whether it be a minority or woman president, or the social cause your spouse insisted be a part of your Web site. Many funding sources, especially the government, incubators, and angels, focus on these set-apart qualities, which when added to a great idea and business plan, may nudge you above others clamoring for attention and funds.

And, above all, make sure to get more money than you think you need. You don't want to be in a cash-strapped position when you set out on your second round of financing. Not only will it lessen your value, you won't be able to shop for the best terms possible, which is what financing is all about.

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