Bank On You

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.

RATING EXPEREINCE
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.

RESOURCE

Rogers, S., & Makonnen, R. (2014). Entrepreneurial finance: finance and business strategies for the serious entrepreneur. New York, NY: McGraw-Hill.

4 thoughts on “Bank On You”

  1. Hi Michelle,
    I enjoyed reading your blog and yes, I agree that experience is so important. I love the reference if you do not have experience than your just a dreamer. I agree with that statement. I have also met people that speak like they know it all about a business just to find out they never got out of the dreamer stage.
    Mary

  2. Hi Michelle,
    It makes perfect sense investors would prefer the entrepreneur with industry experience and previous ownership before investing. Perhaps as Mackensie wrote in one of her posts that is why 80% of all start ups come from the entrepreneurs personal finances. It does seem like a bit of a catch 22. If a person has a great idea, good management team, fills a need in the marketplace but no one will invest, how does the new entrepreneur get their foot in the door?
    Cece

  3. Great Post! You have to believe in yourself first, before anyone else sees it and believes in you too! I agree with Cece’s comment. I’m sure we have all heard at some point in our lives, that we don’t have enough experience. But, what if we have everything else, then what? How do we prove our selves to an investor?

  4. Hi Michelle,

    I liked your analogy about the success of a race car driver – it fits the subject well. It seems that most becoming a “grade A” entrepreneur is something that can be reached in steps. Before we can be an A, we have to achieve B – because to start with, most of us are C’s. It’s a journey though, and just like the racer, we have to use the people around us if we are to move forward.

    Great job!
    Austin

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