A quick search online can yield numerous websites that offer start-up investing help, ranging from venture capital investors to online commercial lenders. These commercial lending specialists are usually formed through pools of capital from institutions that are used for business they see as high-yielding. Angel investors, on the other hand, belong in an entirely different group because of what they can offer. These are private investors who use their own money and savings to fund your business endeavors.

Before you begin your search for the filthy rich and compassionate, however, remember that statistically, angel investors make up only a very small percentage (1%) of funding for start up businesses. It can also help to note that of all the businesses that are successful in receiving funding from angels, the majority tend to be companies with very high estimates of immediate ROI.

Examples of successful businesses that started with high-rolling angel investors are Subway, Alienware, and also Bodyshop. Apart from finding niche markets that (at the time) yielded lesser competition, these companies all focused on relying on generous funding as well as a frugal approach to opening up shop in the beginning.

Today, in order to attract an angel investor, your business should have an already established identity, as well as high level of technology based credentials in order to ensure you have done the legwork yourself. The reason for this is angels tend to be non-industry affiliated financiers who expect a quick profit from a quick investment. They aren’t debt consolidation lead companies; instead, they are trying to help you before going into debt. Working with someone with high-yielding potential is in their best business interests, as sticking around and helping to develop your brand or your culture wasn’t in their plans.

In many cases, you will have to invest quite a lot of your own money to at least prove you believe in your success. The general idea is that angels will only help if they are the last step needed to propel your business into the forefront, and not during the beginning, where they will need to invest as well as wait for your operations to take off. Angel groups are typically full of accredited investors, or individuals making at least $200,000 yearly, looking to capitalize on opportunities, so be prepared to treat these deals like trade-offs. They aren’t in the business of debt consolidation.

It’s pretty rare that a startup secures significant seed funding from “outside investors” unless one of two things are true:

1) You’re part of “the network”: This doesn’t just mean that you know someone who can introduce you to a top angel or a VC. Really being in the in-crowd so to speak means that you might be a former PayPal employee and built a strong network there, or have lived in San Francisco for years and have become buddies with investors in your space that believe in you as a person.

2) For everyone else, it’s all about traction. Investors want to see that you have a working product you can show them, and even more importantly, that you have people using it and even paying you money for what you have created. Sounds simple, but in reality most startups take a significant investment of time and money before they get to this stage. And even once you get there, it is still an uphill battle demonstrating enough “proof” that you can scale your idea from 1,000 users to 1,000,000.

For young entrepreneurs, another way to try and tackle this problem is to check out seed development programs like YCombinator, TechStars and others. They’re a great way to get in the network and get a small amount of cash to get going. Whether you go this route or not, keep working your butt off, plan for the future and always do everything you can to keep your company afloat while you walk through the fire to the other side!

About the author

Corey Kossack is a Managing Partner at Game Change Ventures, focusing on partnering and consulting with startups in the areas of social media, consumer Internet and e-commerce. Corey is also an Operating Partner at Game Change Ventures’ first Internet startup, Addoway, a social marketplace that helps you buy and sell with your friends and the people they know. Formerly Corey was one of the world’s largest retailers on eBay, built a $1M company from scratch at age 23, has led multiple startups and received numerous awards for his entrepreneurial achievements.

Franchising, like starting any small business, requires a financial investment and risk. I like to use the old adage … if it were easy, everyone would do it. With a large small business lender struggling, franchisors are getting more creative with their ability to help franchisees and others use a proven business model to own their own business. A good example of that is Marco’s Pizza.

Marco’s has decided to take the issue of financing into their own hands. According to a press release, to help current and potential franchisees overcome the credit crunch, Marco’s Pizza has created several innovative financing tools.

To help with store down payments, Marco’s introduced a private equity fund that can invest $50,000 to $100,000 per store. The company is also developing a $50,000,000 private equity fund that would finance up to $250,000 of a new store’s costs, depending upon the franchisee’s investment. Those eligible for both programs must either have proven experience in the franchised food service industry or be current Marco’s Pizza franchisees.

“Marco’s Pizza’s year-to-date growth is outstanding given the tight credit environment,” said Marco’s CEO Jack Butorac. The company achieved more than ten percent chain growth in the first half of 2009. “These financing tools were recently introduced to help increase Marco’s growth rate through franchisee candidates and expanding franchisees facing credit challenges.”

“The due diligence of our credit providers is impressive and, I believe, a major validation of Marco’s business,” CFO Ken Switzer added.

Marco’s also offers franchisees the opportunity to lease complete stores through its captive leasing company. The program can provide up to $200,000 in financing for a new store. Marco’s is also developing a new leasing program that can provide up to $125,000 of equipment-only financing per store.

Many other franchisors assist in financing. Some home-based franchise opportunities will help finance the franchise fee and others will provide short term loans to help you get your business off the ground. As the credit markets continue to evolve and as people continue starting new businesses, be sure you thoroughly investigate financing options to give yourself the lowest interest rate and the best opportunity for success!

Links

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/20/AR2009072000962.html?nav=rss_business

http://www.pmq.com/news/news.php?id=13166

I just moderated an expert panel on video as part of the Wells Fargo Webcast Series on this very topic and believe it’s a great way to get a snapshot of residential and commercial real estate realities and strategies. The program discusses how real estate can be a tool for reducing expenses as well as generating revenue. It also sheds light on the new rules of the road, including federal initiatives that impact us. Learn about:

• Lowering monthly payments by refinancing or renegotiating
• Mitigating commercial property tenant vacancies
• Reducing overall operating expenses and discovering true cost savings for your business
• Adapting to the current residential and commercial property markets

Do you have the next great moneymaking idea?

StartupNation is working closely with the wonderful folks at Mark Burnett Productions/ABC to help them in their search for entrepreneurs, inventors, businesspersons, dreamers, promoters, creators, innovators, etc. We hope is to find someone – maybe you – who can be part of the soon-to-be-released show called, “Shark Tank”. If you feel you have a lucrative business idea but just can’t seem to secure the financial backing to get it off the ground, then “Shark Tank” may be just what the doctor ordered. Each episode features aspiring entrepreneurs pitching their business ideas to moguls in hopes of landing investment funds.

How to apply to appear

In order to have a chance to enter the “Shark Tank” and see if your idea causes a feeding frenzy, here’s what you do: Send an email to this email address at Mark Burnett Productions: dpo.casting@gmail.com.  Address your email to Mr. David Polanzak and be sure to include the following information: Name:

• Age:
• Hometown:
• Best Phone Number:
• Photo of You:

* Be sure to put in the Subject Line of your email the name, “StartupNation”, and whether you are an Inventor, Entrepreneur or both.

To survive you’ll have to make the most of your time (which you likely have more of as a result of less customer activity) and take into account the impact of your business bolstering efforts today as well as in the long term.

Here are tried and true survival strategies used by successful entrepreneurs:

1. Cozy up with Customers. They’re your lifeblood. But much like you, your customers are under duress. Take them to lunch and commiserate. Provide a giveaway recognizing their past patronage using inventory that’s collecting dust. If you take the time to listen to customers’ needs and show them you genuinely care about their welfare and success, you’ll likely uncover immediate business opportunities as well as engender future loyalty.

2. Experiment. The worst thing to do during tough times is lose your entrepreneurial spirit. Use the extra time on hand to conduct otherwise too time-consuming ideas you’ve always wanted to explore. For example, it could be a strategic alliance with a complementary business or a special buy-one-get-one-free email marketing campaign (we recommend VerticalResponse), just about anything product-, operational- or marketing-related that you’ve simply never had the time to try because you were too busy.

3. Loop in Financiers. With the overall economy in a recession, it’s likely your business is taking a hit, too. Rather than recoiling into the shadows, proactively share exactly what’s happening and what your plan is with your banker or other capital sources. Ensuring that they understand your business and are well attuned to your future plans will help you avoid financial surprises that often occur when parties aren’t well informed.

4. Trim Hours Not Staff. If lower revenue is a reality, consider cutting hours of your employees rather than firing them outright. It not only shows you care about their welfare, but strategically it also helps you retain your most valuable asset – your people – for when the economy inevitably turns around and you need 100%+ hours from them. Firing is difficult, but hiring quality people and training them is a huge burden on a business you should avoid if you can.

5. Stretch Your Spend. To make every dollar go as far as possible, review all of your vendor contracts. Where reasonable ask for breaks on pricing. Everyone’s in this together and though your heroics have made you the leader of your company, and a shining example of an American entrepreneur, don’t let your pride keep you from taking advantage of these potential savings. Every dollar saved will be critical during the down year to come.

Time to practice.

Recessions are the pre-season: Do you think Kobe Bryant starts hitting the gym in October?  Business, like basketball, takes preparation, training, and practice.

Method Products, a household products company founded during the dot-com boom of the late nineties, found itself in need of financing right around the time the Silicon Valley bubble burst.  Founders Adam Lowry and Eric Ryan perfected sales techniques after being turned down by the same stores over and over again.  In November 2001 (right after 9/11), with hundreds of thousands of dollars in debt and an economy where no one seemed to be buying anything, their last hope was a dinner meeting to secure venture capital funding.  When they tried to pay, both of their credit cards were declined.  But the sales pitch was so good- because they had so much practice- that they got the funding anyway.

Gary Erickson also made a household brand during a recession when he developed the Clif Bar in 1990-1991.

Starting your business during a recession forces you to practice sales pitches (because no one is buying anything), venture capital requests (because no one has tons of spare money to give you), and hone your skills in a way that will pay off once the economy picks up.

Cheaper start-up costs.

Starting a business in a booming economy is a little like trying to order a dozen roses on Mother’s Day, where a rising demand tends to raise all prices.  In a recession, businesses cut prices, offer specials, and craft deals to lure new customers.  Services that might have been out of your price range a few years ago, like professional web design or online marketing services, can now be had at a cost more in line with a start-up’s lean budget. 

In the early 1920’s, two young artists in Kansas City produced short cartoon movies using borrowed equipment, and talked the owner of a successful local theater into showing them.  During better economictimes, Walt Disney might not have been able to secure time at such a popular venue.  GE got its start in 1873 which was a six-year recession and is now considered the world’s tenth largest company. Microsoft, and Hewlett Packard also got their big breaks during recessions.  Taking advantage of cheap services and promotional opportunities is a good way to curb spending from the very beginning and start your business on a solid financial foundation.

Work smarter.

Getting by on meager rations forces a business to be lean, evaluate strategies better, and squeeze the most use out of every dollar.  One way to work smarter is to recruit knowledgeable partners and employees.  Economic downturns often produce an oversupply of talent, many of whom go on to work for start-up small businesses.  Within the eight months after 9/11, 11.4% of jobless managers and executives had started their own companies, according to the outplacement firm Challenger, Gray & Christmas. 

Research has also shown that people who work for start-ups, whether as a co-owner, partner, or employee, are motivated more by company mission and passion for the work than by a dollar amount or a big payout later. 

Working smarter doesn’t just mean collaborating with the best- it can also mean budgeting better, evaluating expenses more carefully, and cutting extraneous costs.  A recession forces you to streamline your business from the very beginning, a trait that will help it survive in slow times and thrive in the future.

No excuses.

Whether you were laid off or your company folded, you’ve probably been harboring that dream of starting your own business for some time now.  An economic downturn provides that nudge (or push, or even kick) you’ve been waiting for to strike out on your own.  Six million small businesses were launched in 2006.  Recent available statistics indicate that of the 2.6 million Americans who lost their jobs in 2008, only a small fraction of those plans to start their own company. 

If you’re out of work, maybe you’re dreading the possibility of resume writing, interviews, and training only to go back to doing the same boring thing you did before- and making money for someone else to boot.   If you’ve always wanted to open a website for new dads or an online bakery - do it now.  Seriously, what are you waiting for? 

Now we’re taking that legacy of sometimes good, sometimes awful, but always courageous pitches and turning it into an online contest at StartupNation.

After March 2oth, the Top 100 highest vote getters from among all contestants will be judged by a panel of professional investors who sit on a mountain of cash just waiting to be invested into the right deals.

GAME ON! That’s what we say.

Starting today, you can submit your  60-second video or audio elevator pitch. If you must, it can be up to two minutes in length, but preferably, folks, closer to 60 seconds.

Your pitch will be voted on by viewers who scrutinize you just like Mr. Money Bags would. Can you handle the pressure? Can you deliver the goods? Can you hook your dream investor? If you’ve got the right pitch and the right deal, you may be selected as one of the Top 5 Winners by the judge-investors.

The Top 5 Winners will each be given an hour that could be worth millions. They’ll each be given one-hour of dedicated presentation time with the panel of investors. They will also receive a brand new laptop. (See more on this below.)

We’re extremely excited to kick off this contest, especially given the tough financial environment for startups and existing companies alike.

We certainly couldn’t have launched the contest without the sponsorship of GoToMeeting, the online presentation service, and Toshiba, maker of the new Satellite Pro S300 laptop. Their teams have worked closely with us to ensure that entrepreneurs get inspired and informed and that winners receive invaluable prizes to help them achieve success.

Here’s a link to the StartupNation Elevator Pitch Contest:

http://www.startupnation.com/elevator-pitch-2009

Are you going up or going down?

According to the analysis, “Angel Investors Steady But More Cautious in First Half of 2008,” total investments in the first and second quarters of 2008 were $12.4 billion, an increase of 4.2 percent over the same period last year. A total of 23,100 entrepreneurial ventures received angel funding in the first half of 2008, a slight decrease of 3.8 percent from the same period last year, and the number of active investors was 143,000 individuals, an increase of 2.1 percent over the same period in 2007.

“The modest increase in total dollars and angel investors, coupled with the decrease in investments resulted in a larger deal size for the first half of 2008 (8 percent)., These data indicate that angels are exhibiting a cautious approach to investing in light of the recent volatility in the economy and reducing their individual risk exposure by including more angels in each deal,” said Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics.

Software accounted for the largest share of investments, with 18 percent of total angel investments in Q1 and Q2 2008, followed by healthcare services/medical devices and equipment (17 percent) and industrial/energy (10 percent), potentially reflecting an increasing appetite for green technologies. Biotech has dropped from the top three sectors for the first time in several years while retail and media have solidified their previous presence in the top six preferred sectors.

Angels continue to be the largest source of seed and start-up capital, with 46 percent of first and second quarter angel investments in the seed and start-up stage, on par with the like period last year (42 percent). Angels also exhibited a decrease in post-seed/start-up (early stage) investing with 33 percent of investments in this stage, down from 48 percent in the first half of 2007. However, this was offset by an increase in expansion stage investing to 19 percent, up from 7 percent over the same period in 2007.

“While angels continue to represent the largest source of seed and start-up capital, market conditions and the capital gap are requiring angels to engage in more later-stage rounds. New, first sequence, investments represent 65 percent of angel activity in the first and second quarters of 2008, unchanged from the same period last year, indicating a continued preference for new, as opposed to follow-on, investments,” Sohl said.

According to Sohl, if the angel market is to achieve sustainable growth, there needs to be a reasonable augmentation in active investors, and thus, level of participation is an important consideration. While the number of angel organizations, and individuals that are members of organized angel groups, is increasing, there is a significant percentage of latent angels — individuals who have the necessary net worth, but have not made an investment.

“In the first half of 2008, 58 percent of the membership in angel groups was latent angels, which is the same as the first half of 2007. This significant percentage of latent investors indicates that while many high net worth individuals may be attracted to angel groups, they have not converted this interest into direct participation. Many angel groups are now beginning to recognize the more basic systemic need for educational programs and research to move the latent angel to the active investor, in addition to quality deal flow,” he said.

It’s a huge challenge to be in the hot seat and be ready to fire away with valuable advice. But it’s thrilling, too. Kind of addictive, actually. What a rush to know you HAVE to stick it. You CAN’T mess up. As the Eminem says in the son, “you only get one shot.”

I’m lucky to have gained a lot of experience behind the mic of the StartupNation Radio program. Years of the weekly shows and having to be ON and SHARP as callers call in with questions and request advice on an infinite variety of business topics have primed me somewhat for this kind of experience.

Still, it’s intense appearing on TV and wanting to be good.

Having waxed on about “the pressure,” now I’ll tell you a little trick. The show and advice given is not completely spontaneous. Each of the panelists are prepped with a “situation analysis” we know we’ll have to address on the show.

So here was the situation as presented to me prior to flying out to the CNBC studios:

Cedric and Kymberly run a barbecue featuring great family recipes in Chicago. Their sales have slowed to a trickle. Tough economy, tough neighborhood, and not a great location within that neighborhood. They’re up against the wall, falling short on paying the rent. What can they do? And here was my emailed comments back to the producers to get the my perspectives and talking points to them in advance:

Honestly, their numbers don’t work now that his operating expenses surpass his revenue.

At the most basic level, Cedric has these options:

• Reduce his operating costs
• Increase his revenue

To reduce operating costs, he could:

• Close the store and go mobile for event- and on-location sales of bbq or rent time/cooking facilities somewhere else and just focus on the catering aspect of his business.
• If he’s in a tough neighborhood, in this economy he may be able to negotiate with his landlord with the argument that nobody’s moving into the space anytime soon – cut a deal, create extended terms, negotiate down the rent.

To increase revenue, he could:

• Take his “shingle” to where the market is. Get a mobile unit and go to sports events to support tailgates. Go to parks, go to lunch hours near construction sites and corporations.
• Focus strictly on his catering business, which is more “build to sell” and doesn’t require fixed cost facilities
• Create a new product-line marketing the signature barbecue sauce.

But the problem is so immediate, that I think the today/tomorrow options are as follow:

• Call a meeting with the landlord, as difficult as it is, and show him your business plan. Present to him the specific extended plan for making him whole. Show him the path you believe can get you there. If he understands the plan, maybe he’ll cut you some slack!
• Parallel path: Immediately start networking with other restaurant or cooking facility owners you know of to inquire about using their under-utilized facilities or facilities in off hours.
• Stop looking for investors from the UK and start looking for a local angel investor. Some people love the food business, love BBQ, and would love to make a smallish—even “casual”—investment in a BBQ business. who’s a community leader that comes to mind whose office you could call. Give him/her a call immediately. Even if no money comes from it, ideas and other valuable connections may.
• Give your customers a “half-off” your next order offer to create more near-term sales.
• Communicate, communicate, communicate with all parties involved. Only then will you he have a chance to get some special consideration from landlords, customers, vendors, etc.

So there it is - my prep, advice, and an insight for you on how the shows come together. How would you have advised Cedric and his wife?