Grow At Your Own Risk
Deciding to expand your business in today's weak economy can be a risky proposition, and finding the money to do so is just downright difficult. With traditional bank financing taking longer these days, many businesses are seeking alternative sources of financial assistance. For instance, last year marked the launch of Lending Club (www.lendingclub.com), which has been called a 'social-lending network' and a 'peer-lending network.' The site touts itself as a way for members to borrow and lend money among themselves (i.e. bypassing banks) at better rates than banks. Between May 24, 2007 and March 28, 2008, Lending Club issued 1,577 loans totaling nearly $14.5 million.
While a source such as Lending Club may help with some of your smaller growth projects, it's likely your large, long-term expansion plans will require the assistance of some type of venture capitalist (VC) or investor. In recent years, many businesses have turned to angel investors (i.e. wealthy individuals who invest their own money in a business), who traditionally assist start-ups and often require, in return for their backing, some type of ownership equity. However, according to the Center For Venture Research at the University of New Hampshire, angel investors are becoming harder to find — obviously because of the risk related to our current shaky economy. The following are some questions Tim Keane, entrepreneur in residence at Marquette University's Golden Angels Network, recommends you should ask when interviewing an angel investor:
- How do you assess product value?
- What opportunity size makes sense?
- What would you like to know about the competition?
- What leadership issues will you look at?
- What factors will drive your particular investment structure?
- How will you validate all of this?
- Do you have expertise in the areas (e.g. financial management, distribution structuring, relationship management) in which I need help?
- Can I get the names of companies that you have invested in?
- Do you know any VC companies? Have you completed any deals with them? Can I talk to them?
- Do you have a unique plan for funding your future growth? Send me an e-mail, and tell me your story. Maybe you could be on the cover of a future issue of Business Solutions.