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Episode 4: Finding Money on the Web

Air Date: May 20, 1998

 

The money is out there...

 

Design by Crystal

Things are not so hectic at the Toronto Fashion Incubator (TFI) this week, but still the pressure is on for the budding young designers there. Several designers are coming out with new collections, and Susan Langdon, the Executive Director of the TFI, is at a loss for sources of financing for these collections. She has tried to attract the banks, corporate sponsors, and venture capitalists to the TFI cause, but to no avail. For example, banks will not loan money to fashion designers until after they have become well-established, and venture capitalists are only interested in investing large amounts.

IBM's Tom Vassos drops in for his weekly visit and suggests that Susan use the Internet to find financing for the designers. Susan has already searched the Internet and was overwhelmed by the thousands of 'hits', many of which were irrelevant, such as sources of financing in foreign countries. Tom suggests that Susan search the Internet again, only this time with the Yahoo Canada search engine, which lists Canadian web content first. Furthermore, the directories of Yahoo Canada can zero in on specific geographic regions, whether it is a specific province or a specific city.

Finding sources of financing with the Internet is not simply restricted to finding people willing to lend you the money-- financing via the Internet also involves:

Using the research tools available on the Internet, it is possible to narrow down the search to find the companies and institutions that can meet your small business needs.

 

Financing 101

 

Sooner or later, as the owner of your own small business, you are going to need money, whether it is start-up capital to get the company off the ground, or money for expanding the business. You've got your business plan (hopefully after watching Episode 3), and you have a pretty good idea, based on your financial statements (you did do them, didn't you?), how much money you will need to carry your business through the difficult start-up phase. Now your job is to get your hands on this money. In the vast world of financial instruments, you basically have three choices:

The easiest source of funding for the new business (presumably if you have it) is your own money. Often this is necessary to create some deliverables with which to attract other investors, such as the prototype for your new invention, or carrying out marketing research. Or this funding may simply be going towards covering your living expenses, so that you can quit your 'day job' and devote all your time to the new business. If you don't have wads of cash stuffed underneath the sofa, there are other sources of seed capital you can pursue. You can generate the needed funds by mortgaging personal assets (such as the house or car), borrowing from friends or relatives, using personal bank loans, or maxxing out the credit card-- one savvy group of entrepreneurs finance a yearly art exhibition completely on their credit cards!

The cheapest and most obvious source of outside financing is your local bank. However, the banks generally prefer to lend to businesses with very little debt and a high cash flow-- so if you are already saddled with loans or your business is not generating a steady stream of revenues, you may be out of luck. Those companies that do qualify for loans will often use short-term debt, which must be paid back in less than one year (on average within 30 to 40 days), or a line-of-credit, which can be drawn upon as needed, as long as regular interest payments are made on the principal outstanding balance. However, the companies that do qualify may have restrictions, or covenants, placed upon them in order to remain eligible for the loans, such as minimum cash balances, restrictions on issuing equity to outside investors, or the filing of monthly financial documents. Another financing option from banks and financial institutions would be asset-based financing. In this scheme, the business would pledge its accounts receivable (money owed the company from its customers) or inventory in exchange for financing-- a small Toronto-based Christmas ornament manufacturer finances its seasonal labour requirements with its confirmed orders as collateral.

One popular source of outside financing is wealthy individuals, whether it is your wealthy Aunt in Florida, your family doctor, or millionaires in the neighbourhood. You may even know some of these people indirectly through your friends and acquaintances. To approach these people, you will definitely require a well-written business plan, as well as legal counsel for drafting up the proper paperwork. Furthermore, these wealthy individuals may want a say in the business, which may be good or bad depending on their level of expertise, and often are unable to come up with additional funds when needed for unexpected contingencies. On the other hand, these wealthy individuals are often willing to invest in new businesses too small for venture capitalists to bother with (investments less than $500,000), or unable to meet the rigid requirements at the bank.

Venture capitalists invest in many different businesses and look for companies capable of delivering high returns (50-60%). The financing that they provide can be in the form of pure debt (loans), equity, or a mixture of both. But because of the risk, the cost of this financing will be higher to you. However, they often provide advice to the companies they invest in, and because of their extensive experience in start-ups, they can be of tremendous help in overcoming the growing pains of your new business. On the other hand, venture capitalists prefer to make larger investments, in excess of $500,000, and may specialize in certain areas or industries, such as high tech or biotechnology, which may not be applicable to your start-up.

This list is by no means exhaustive. There are government programs available to provide loans for the new entrepreneur, in addition to training and other resources. And if your venture has the potential to be seen by many people and attract media attention, such as an arts & crafts show or concert, it may be possible to find corporate sponsors, who will offer financial assistance for certain aspects of your business (such as advertising), in exchange for logo or product placement. The money is out there... you just have to know where to look.

  

Hot Links

 

Want to learn more about the topics covered this week? Then check out these great web sites and resources:

 

Canadian Sources of Financing

 

Yahoo Canada Financing Resource Pages

www.yahoo.ca/Regional/Countries/Canada/Business_and_Economy/Companies/Financial_Services/Financing/Venture_Capital

www.yahoo.ca/Regional/Countries/Canada/Provinces_and_Territories/British_Columbia/Cities/Vancouver/Business/Financial_Services

 

MoneyHunter

www.moneyhunter.com/htm/btemp.htm

Claims their business plan template has helped a quarter million entrepreneurs raise funds from banks and venture capital firms.

CIBC

www.cibc.com/bin/nj.dll/SmallBusiness/MainDisplay?page=EN34&stream=Entrepreneur&province=ON

Has free templates and other resources for entrepreneurs at their web site

The Big Idea

www.royalbank.com/english/bus/bigidea/

An interactive application that you can download from the Royal Bank web site that will help you write a business plan and create the forms you need to apply for a loan.

TD Bank

www.tdbank.ca/tdbank/Small_Business/BUSPLANDOS.HTML

Also offers free software for business plans and loan application

Canada Youth Business Foundation

www.cybf.ca

Offers mentoring, business support, and lending services to young entrepreneurs

Calmeadow Metro Fund

 

Offers small business loans to individuals who want to invest in home-based businesses in the Metro Toronto area and can be reached at 416362-9670

Angel Capital Electronic Network ACE-Net

Ace-net.sr.unh.edu

 

Working Ventures Canadian Fund

www.workingventures.ca

 Canada's leading labour sponsored investment fund which provides $250,000-$10,000,000 in venture capital financing to high growth small and medium-sized Canadian companies

The Equicom Group Inc.

www.equicomgroup.com

Invests in small and medium-sized Canadian businesses, particularly in the high technology, manufacturing and bio-technology industries.

Priveq Financial Corporation

www3.sympatico.ca/priveq

 Another Canadian venture capital firm, offering $500,000 to $3,000,000 of financing.

The Business Place

www.thebusinessplace.com

Matches small businesses with financing sources, including banks, venture capitalists, private investors, and insurance companies.

Middlefield Group

www.middlefield.com

Another Canadian venture capital firm

Interface International

www.interfaceweb.com

Specializes in providing financing for businesses in high technology

Retrocom

www.rgfjobs.com

Offers debt financing for Ontario companies involved in construction, retrofit, environmental recovery, and energy conservation industries.

Feldman & Rolland

www.generation.net/fr

A firm in Quebec that offers legal assistance for small businesses in the area of financing.

 

And for those thinking of expanding into the United States and abroad, here are some more sources of financing...

 

Location NJ

www.locationnj.com/welcome.html

 Is a web site dedicated to helping you find sources of venture capital in New Jersey

CONNECTNet

http://darwin1.ucsd.edu:8000/

The UCSD Program in Technology and Entrepreneurship fostering relationships between entrepreneurs and the resources they need for success, include venture capital, pr/advertising, legal, and accounting firms.

The Federal Marketplace

www.fedmarket.com

Lists all United States government contracts available and offers advice on how a company can land them.

Department of Defense Small Business Innovation Research Program

www.acq.osd.mil/sadbu/sbir

 is the largest source for early-technology funding in the United States, with special programs targeted at small businesses 

Venture Capital Database

http://www.financingsources.com/venture/capital/mortgages/IPO/venturecapital.html

Free Downloads plus free financing feasibility search, 75 business financing alternatives, information on the SEC's new IPO for small businesses, financing "how to" articles and financing links.

Commercial Finance Online

http://www.cfol.com/default.htm

Commercial Finance Online - providing commercial finance education, resources, and sources in banking, leasing, financing, factoring.

SBA Loan Programs For Small Businesses

http://www.sba.gov/financing/7aloan.html

 

VentureTrack 2000

http://www.datamerge.com/venturetrack.html

"Insider" information on 500 US venture capital firms - how to "get in" with them and secure financing. Advice from those who've already done it.

The Venture Site

http://www.venturesite.co.uk

Advertising resource and introduction service for small and growing companies seeking equity capital, private investors (Business Angels) and consultants in the UK and beyond.

 

Cast

 

Mark Schneider		CTV - Host of "Digital Desktop"
Tom Vassos		IBM e-business Advisor and Host of "This New SoHo"
Susan Langdon		Executive Director, Toronto Fashion Incubator

  

Production Credits

 

Ross Macintosh		Camera
Rod Ellis		Sound technician
Anthony Leong		Senior Web Editor


All episode summaries and supplemental information written by Anthony Leong, with material and assistance from Tom Vassos, his book Strategic Internet Marketing, and Mark Schneider.


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