Entrepreneurship: How to Raise Money for a New Business

By Nathan Denny and Scott Axelrod

This Private Advisory Board session on Entrepreneurship yielded just a single issue. But that issue — how to raise capital for a new business that’s barely gotten off the ground — is pretty close to the hearts of many CEOs.

Issue No. 1

This CEO is creating a service solutions business. The issue is, “How do I get my list of things done without breaking the bank?”

Re-Stated Issue

How can I create sufficient resources to cover all the bases and get my service solution launched, with me (so far) as the only employee?

Why It’s Important

  • The CEO is the only employee at this stage, but anticipates ramping things up to the extent of having as many as 27 employees by the end of 2012.
  • She estimates the financial impact at $10,000,000.
  • The two biggest concerns are over-obligating the CEO’s time and controlling costs.

Clarifying Questions (Background/Understanding)

  • How have you collected your contractors?
  • Who does the customer pay?
  • What percentage does the contractor pay you?
  • What does your company look like in 6 months?
  • How much revenue do you plan on making in year one?
  • If you can’t find investors, how much can you invest yourself before you’d make a decision?
  • How much freedom are you willing to give up (related to investors)?
  • What’s in it for the customer? (You are competing with contractors.)

Suggestions (Solutions)

  • Obtain business development people that can sell the product — no one will invest prior to seeing sales.
  • Keep the company virtual as much as possible to keep costs down.
  • Hire private contractors, not employees (to keep costs of benefits down).
  • Book recommendation: “Rework” by Jason Fried (the story of a virtual, $50m company with 16 employees)

Action Plan

The CEO will run a test for sales and then explore alternative ways to raise capital with the goal of “not losing much control.”
Session date: Dec 14, 2011
Originally published: Dec 14, 2011

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