11/17/2009
The other night I was at an RTC event about financing. Exciting, I know... but I came away with two nuggets I'd like to pass along:
1) JUST DO IT
Matt Engel from Prism Ventures brought up the old adage that venture capitalists (VCs) would rather fund "an A team with a B idea" than "a B team with an A idea." As he put it, every VC knows that the "plan" is going to fall apart, so they want to invest in people who will get through that, and still create a return on their investment.
I was chatting with Matt after the event about kids, saying that I just signed up to volunteer in my son's kindergarten classroom once a month. I didn't know how I was going to make the time, but I figured what the heck, if I don't try it, I'll never get there, so I just signed up and I'll make it happen. He got a little smile on his face and he said that was the "entrepreneur mentality" VCs look for in management teams in companies they fund.
Based on this, I'm going to propose that an "A team" has both "no" people (think financial advisors and lawyers, as well as the people who "keep the trains running on time") and "entrepreneurs" (think new product development and solving tricky problems). If you know of any entrepreneurs who aren't afraid to take risks, and are looking for work let me know. I could use one more. :)
Some other points I took home with me about VCs:
- VCs have lots of money they need to spend, but they're closing about 1/4 of the deals they were a couple of years ago.
- It takes longer to close a deal now. VCs will usually watch a company for 3-6 months before starting "diligence" for 1-2 months, and then legal takes another 1-2 months.
- Be persistent, if you can't close the VC, they won't believe that you care enough to make your business work.
2) THE SBA IS COOL, BUT THE SBA + THE STIMULUS = SUPER COOL FOR SMALL BUSINESSES (LIMITED TIME ONLY)
Bob Nelson (the head of the Massachusetts SBA) had a couple of cool eye-opening notes about SBA loans. We all laugh about how government workers don't care about their job, but I challenge you to find ANYONE who loves their job more than Bob Nelson. He's a great guy, and very passionate about what he does, and the people he helps.
I think the most interesting thing I learned from Bob is *why* banks don't use SBA loans as often as they can. Sure SBA loans are guaranteed, but if a bank can lend you money at 5.8% for commercial real estate, why would they lend you at 4.86% with the SBA? So you need to push for it and talk directly to the SBA officer at your bank.
TYPES OF SBA LOANS:
- Arc Loan - Up to $35,000, 5 year loan. SBA picks up interest for lifetime of loan (good deal). Used to refinance existing debt. Must show that you're a viable business, but struggling. 100% SBA guaranteed.
- 504 (Real Estate) - Commercial property loans at 4.86%, 20 year fixed. Can't be used to refinance, but can do a refinance as part of an upgrade, or bundled with a new commercial property. I think he said some special terms expire in Dec.
- 7(a) Loan - For people with a collateral gap (meaning that you need more money than your house and business together are worth). Government guarantees 90% of the loan. Up to $350,000. Fees waved to set up. Special terms expire in Dec.
- Express Loan (50/50) - Don't need collateral gap, but only 50% insured by bank. This is good because you don't have to put up your house if you want this. Special terms expire in Dec.
If you want any of these don't talk to your lender, talk to their SBA person directly. If they don't have one, find a new bank.
~Jason Mark
Gravity Switch President & Founder