Deseret News Archives,
Sunday, May 12, 2002

Edition: All
Section: Money
Page: M01
Length: 67 lines

Raising startup funds is doable

With financial and political uncertainty throughout the world, investors hold tightly to their wallets, from your Uncle John to your favorite venture capitalist.

So how does a startup raise funds in such an environment?

Here are a few strategies that aggressive entrepreneurs are using successfully.

-- Get credit cards with low beginning interest rates, then roll the balances to other low-interest cards as the rate changes. Usually there is a new application for a card every week in the mail. You don't have to look far to find a bank that will approve about anyone who can chew gum and walk at the same time.

-- Apply for a Utah Microenterprise Loan. The maximum amount is $10,000, with a five-year term. Ten grand isn't much, but it is something that will get you started and provide proof to other investors that someone believes in you enough to think about investing in you themselves.

-- Check with the hard-money lenders -- you can find their ads in the newspaper classifieds. Expect to pay up to 10 points and 18 percent to get capital, and there usually has to be some sort of collateral.

-- Get a relative, friend or someone who completely believes in you and/or the concept you have to put up their home and get a home equity line of credit against the real estate. It is easy, there are no fees and the introductory rate is prime or less. It is cheap money, fully tax deductible to the person putting up the real estate and very fast. Many have interest-only payments.

-- Offering an investor common stock shares these days will probably generate a big laugh. Everyone who has any money has a death grip on the funds, even if they are only getting 2.5 percent in a money market.

What IS working is offering an investor convertible notes in your company with a 12 percent APR interest rate, paid monthly, with a two-year due date on the note. This along with a conversion rate into common shares will allow the investor to hit a home run if you have a harvest in the next couple of years. You may have to personally guarantee the note, but if you believe in your company heart and soul, you should be willing to do so.

-- As a last resort, go down and give blood and keep a copy of the check as evidence to show potential investors. It is a hard-hearted investor who won't think about investing or lending you some funds if they know you are willing to give your life's blood for money to make your company go.

As with all business cycles, the ease or difficulty of raising capital will change as the economy changes, but right now those who are successful are doing so by being creative and aggressive.

Joe Ollivier is a founding member of the Utah Angels Venture Group and is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu.

© 2001 Deseret News Publishing Co.