The life-line for creating a successful start-up entails securing capital. Be it your money or someone else’s, the financing of your big idea or dream translates into cash flow-in and out. Maybe you have been saving for this new venture or you are enlisting financial support from venture capitalists or angel investors. Another alternative funding source could derive from a financial institution. Any external funding support will require that you prove your ability to be trusted in order for risk to be taken by others. You can risk your own money at your expense, but when you enlist the help of others, your dream becomes their expense or profit.
You, the entrepreneur are the key factor for debt or equity financing. What makes an entrepreneur attractive for risk? “Ideally, investors prefer people who have both entrepreneurial and specific industry experience.” (Rogers and Makonnen, 2014, pg. 2) Investors are more comfortable with those who have the know–how to make it work. It is similar to applying for a job. The employer may require a certain degree level and years of experience or the years of experience in lieu of the degree. They want to see a proven track record of success.
|A||Entrepreneurship and industry|
|B||Entrepreneurship or industry|
|C||No entrepreneurship or industry|
Table 1-1 (pg. 2)
Investors rate entrepreneurs with an A, B, or C depending on experience. The table above taken shows how these ratings are determined. An A rating is given to a person who has “…experience as an owner or even an employee of an entrepreneurial firm and also experience in the industry that the company will compete in.” B rated entrepreneurs “…have experience either in entrepreneurship or in industry, but not both.” (pg. 2) The C rating, which is least desirable, with no entrepreneurial or industry experience, sends a red-flag to investors. No history in business says that you are still a dreamer.
Position yourself for favorable outcomes. The life of your business depends on your expertise. A race car only experiences the checkered flag because of the driver’s practice, passion, and pursuit. Even though a race car only has a seat for one, the help of the pit crew (management team) creates a winning situation for everyone. But it is you, the driver, which everyone is banking on to come across the finish line first. Bank on you to make the business successful and others will bank on you too.
Rogers, S., & Makonnen, R. (2014). Entrepreneurial finance: finance and business strategies for the serious entrepreneur. New York, NY: McGraw-Hill.