0:33 good afternoon and welcome to the way to wow show people making money I am your host Kevin bemel and we are here every Wednesday afternoon 12 30 Pacific Time 3 30 Eastern time and as we say an hour in for uh mountain and central time and we talk about all the various aspects of basically Building Wealth I mean when it comes right down to it um it takes money to live these days we're not going to wander off into the
1:08 forest with our um you know our trusty rifle and live off the land anymore and so we need resources to to live a life and how much you need is is really part of your definition of success and uh so that's also that's part of what we're here to um talk about and and come to understand um each week so sometimes we have uh guests who talk about their interesting ways of making a living I've got some some guests coming up booked or booked coming up
1:43 um in the next uh several weeks other times I talk about various topics that are are relevant to gaining financial success so for example last week I talked about two of the fastest ways to get started in your own business and and uh just just to recap real quickly you can go back and watch the whole show um on our our YouTube channel the way to wow show on YouTube um but uh there there were two ways one is to take an existing skill or interest
2:20 um uh that you or hobby that you already have and develop that into some kind of business that will earn you money and another is to become involved in some sort of License to profession whether it's real estate Financial Services Insurance whatever it is Building Trades all of these things give you a relatively low-cost way of getting started in your own business there's there I put a couple of links into the show notes for last week's show
2:55 on uh on the licensed profession and the things that you might want to check out um companies that I that I know of and know people who are involved in um and uh and that might be an entree for you to starting your own business even part-time okay you don't necessarily have to start uh full-time you don't have to give up your so-called day job in order to start your own business you can start something part-time and then uh eventually take it full time hopefully so the topic for today are the types and
3:30 sources of money that are available for you to start a business now in the in the case of the businesses I talked about last week in many cases there's not a lot of money necessary to get started in the case of a licensed profession you may just need anywhere from uh depending on what state you live in a couple of hundred to maybe a thousand dollars at most between the exam preparation courses the exam fees the license fees Etc um and and I I don't want to say that that's no
4:06 money at all of course um especially if you're on a tight budget that can be very significant but compared to starting something like a retail store where you need to rent a space you need to build it out you need to equip it you need to get inventory Etc these businesses are relatively low cost nonetheless you may still need a source of capital in order to get started in them or you may have your your thoughts focused on another type of business that does require a larger capital investment and so that's what I'm going to talk about
4:42 today and what I'm going to do is uh I'm going to try something I don't know a little bit daring here maybe I'm going to try doing a a white board um I didn't I didn't prepare a um uh a uh what do you call it um uh you know a PowerPoint in advance I thought it might be more interesting just to kind of uh talk about these things as we go so I'm going to talk I'm going to initially say that there are basically three types of funding
5:19 for businesses okay or or sort of three stage let's call it three stages of funding for businesses so the first one is called angel the second is called seed and the third one is called Venture oops and now see let's see if this okay here we go okay so each one of these represents a different stage in the uh term of a business if you will okay so and I've
5:54 put them in order kind of in order of how you would encounter them so um an angel angel capital is is for a new or startup business oops see and there you go see I'm already not spelling correctly a newer startup business okay seed capital is is is this sort of middle tranche if you will it's it's between startup and the next phase which is venture capital
6:30 okay it's it's sometimes called a a bridge phase and then venture capital is is the sort of later round and often it's it precedes I don't think that's spelled right precedes okay I hope that's right precedes either a uh a public offering or uh sale of the business okay
7:05 um and then maybe now once once a building uh what's a building once a business is um goes public of course so then that's a whole separate thing I'm not going to get into um you know raising money in in the capital markets uh in the public Capital markets things like um you know um uh initial public offerings and that kind of stuff that that's that's way way down the road and that's maybe we'll talk about that at some point but but for our purposes these are the three stages of capital that uh that that you
7:45 know most business most business startups go through okay so that's that's kind of one part of of the the the puzzle here now another part of the puzzle is uh sources okay so sources can be um foreign family and friends they can be Banks and uh other lenders lenders okay and they can be
8:21 um sort of private sources and I'll I'll explain I'll explain what I mean by that in a minute come on extend there you go okay great so in most cases um when you first start a business and again by the way I put these kind of in order of the uh of of how they will they're typically approached from a startup uh situation so let's let's take
8:57 a situation let's say you're going to start a um uh oh gosh uh uh a plumbing business you're going to start a plumbing business okay uh we talked about starting a business based on a trade uh construction trade last week so and and let's say you know you've been doing Plumbing for a while but the truck you've been using belongs to your employer the tools that you've been using belong to your employer or at least most of them do maybe the most expensive ones do anyway okay now you're
9:32 thinking about starting your own business and so you're going to need your own truck you're going to need your own Roto-Rooter you're going to need your own uh you know tools and equipment okay all of that costs money um to be honest with you I I don't know what it would cost you know when it would imagine a truck is going to cost you by the time you put the um the cabinets on it that will lock so your tools can't be stolen and that sort of thing I think it could easily cost you what fifty sixty thousand dollars would that be uh would that be a reasonable estimate uh you know for
10:07 those of you who are interested to have business you probably have a better handle on that than I do well let's just say in round numbers you need fifty thousand dollars for the truck let's say you need another I don't know twenty thousand dollars uh for the various tools and equipment that you're going to need and then you you plan to have another let's say uh oh twenty thousand dollars for things for just various startup things for your license fees for your business license for initial marketing costs for doing
10:42 some advertising perhaps okay so we're up to about ninety thousand dollars and you have another ten thousand for for miscellaneous whatever whatever else you need so let's say in round numbers you need a hundred thousand dollars okay and let's say you know you don't have a hundred thousand dollars well how are you going to get your business started so you're gonna and essentially you're gonna look initially for some Angel Capital so let's also assume by the way that you you don't have a house you don't have a lot of um assets built up that you can borrow
11:17 against I'll talk about that later if you do but for now let's just assume that you know you don't have equity in a house and and all that kind of stuff so if you go to the bank and the bank says you say hey I want a hundred thousand dollars to start my business and the bank says well what do you have for collateral the answer is I don't but I really know what I'm doing and the bank is gonna say hey yeah but we need collateral because that's you know we we need something we can sell in the event that uh you know you don't make any money and you go out of business and now we're left kind of holding the bag okay so in a situation
11:55 like that you're gonna be searching for essentially what falls into the category of Angel Capital now the reason it's called Angel capital I think is because really you got to be an angel to be willing to take you know that that kind of risk uh when when you consider the statistics and I don't remember off the top I had I think um what is it four out of five businesses um close within five years or something like that right so only twenty percent of businesses survive so if you're investing in the very early startup
12:33 stage of a business the reality is four out of five times you're probably not going to get your money back right so it's it's a very very high degree of risk so that being the case it can it's this is many times the hardest money to find okay and so when it comes to this sort of uh Angel capital or startup Capital sometimes it's called it usually comes from uh first of all family and friends and yourself presumably you're you know
13:08 you're you're a friend of yourself so if you have some money saved up and you know in a bank or whatever in a you know money market fund or whatever whatever it is um that might be you know one source of of startup funds another as I mentioned is family and friends they know you well they presumably trust you and so they may be willing to support you as you go off on this Venture and they're willing to take the risk and now unless you come from a pretty
13:44 extraordinary family they're probably you're probably not going to find someone who's going to give you that whole hundred thousand dollars to get started but you may be able to get three thousand dollars from this family member and a couple thousand from this friend and maybe five thousand dollars from this other friend and when you put it all together you've got you know 20 20 friends and family members and all together maybe you're able to raise about fifty thousand dollars um that that's not bad at all by the way okay um so that that would be a fairly typical way of of raising startup funds
14:20 another typical way as as uh you know frightening as this may sound perhaps is to use credit cards okay credit cards are an absolutely excellent way to start a small business okay now you may say wait the interest rate is so high yes that's true most credit cards carry very high interest on the other hand if you really believe that you're going to make a success of the business and then whatever interest you pay in the short term will get
14:57 spread out over the whole length of the business and it's not going to be that much relative to the amount of money you make in your business now in my case the first um two or three businesses I started I started using credit cards that's just what I did and and for the most part I didn't even take cash advances there I didn't have to do that it's just whatever I needed to buy I put on a credit card and uh for a while I carried the balance and I paid those you know 18 whatever they were 20 interest annual interest that's just what I had to do get started and then after a few years I
15:33 had them all paid off and and I was you know good to go so credit cards are another good place to find the money you need to get started so you might say you know Banks and other lenders kind of credit cards kind of fall into this Second Source here Banks and other lenders um you know uh now you know honestly in my day I think several times a week I would get what were called pre-approved credit cards where they would I would get a a letter
16:09 in the mail saying you're pre-approved for a you know ten thousand dollar Visa or uh fifteen thousand dollar MasterCard and they literally meant pre-approved so all I had to do was sign the form mail it back and maybe about a week later I would get the credit card they didn't they didn't you know require any information for me at all now I I think nowadays that's that's not they're not permitted to do that anymore because it did for some people it caused them to acquire much much more in credit card debt than they could ever have handled
16:44 um so my my I think I read somewhere that that's not permitted anymore having said that um you can you can still you know credit card um credit card uh access uh can be can be pretty easy and and you know if you look online you can find credit cards that have no annual fees you can find credit cards that have uh lower interest rates so look around to see what the best deal is you may even end up uh you know swapping out cards you may have
17:19 some card with really High annual fee and really high interest rate you may find something better and so you dump one of them and you get the new one or whatever so um and especially if you have a good credit score so if you have a credit score over you know probably I would say around 700 you're probably not going to have too much trouble getting getting a credit card okay um and or even getting another credit card now I will say this if you're going to start a business and you're going to use credit cards if you can I recognize
17:56 I recommend getting a credit card that's only for the business okay so you can keep keep your finances separate you don't have to worry about keeping a whole you know each month your credit card bill comes in is this for the business is this personal whatever just get separate credit cards uh for personal and for business that'll make your bookkeeping a lot easier but that's another very effective way of getting the money for a startup and especially by the way if all you're going to do well not all but if what you're going to do is get a professional license and
18:32 pursue a field in that area you're really not talking about a whole lot of money and these days um you know you're applying for your licenses online they all take credit cards so you don't have to have a you know the cash you don't have to have it you know send them in a check or anything like that you can just charge it on a credit card and get yourself going uh right away so uh that's another very good uh source of startup capital and then you know using our our plumbing business example so you need a truck so
19:08 you know you could go buy a truck just like you would a car are right you can Finance it through the dealer or maybe if you belong to a credit union and I would say by the way that typically the best car loan deals are from credit unions and it seems like pretty much anybody can get uh can get into a credit union these days it used to be much harder because you had to belong to some organization that had a credit union now there's so many credit unions there's so many different ways to join them if you've been in the military you can join uh you you can get an account at a credit union
19:44 um if you've uh if you belong to any kind of Professional Organization almost all of them have a credit union that they're affiliated with so um you know and and a lot of times um with car loans as long as you have a credit score at a certain level that's all they really care about so they'll approve you you know based on your credit score um they're not going to require a whole lot of other documentation so in the case of our plumbing business if if uh if we're able to kind of pull together about fifty thousand dollars in Angel Investors an angel investment from
20:21 friends and family and ourselves and then we can go buy our truck and uh we you know we buy that with a with a you know vehicle loan well so there we are we're we're in we've got the we've got the money that we need and the and we're on our way to having the equipment that we need to start the business as well you know if if you're gonna Finance the purchase of the truck of course you may need to re-jigger how you're spending or how you're allocating that hundred thousand dollars because some of that is going to have to go to cover the payments on the truck until you start generating enough cash flow
20:56 from the business to make those payments but in any event it's it's it's very very doable and the this these three sources okay money from fans friends family and yourself uh credit cards and things like like a car loan in a case where you can borrow money from a bank or some kind of lending institution that doesn't require them you know having you know taking you on faith so you're about you're borrowing money against an asset like a vehicle those are the three most common
21:31 ways of financing the initial startup of a business okay now um you know as you look at your business plan and I I Do by the way I do encourage you to to you know create a written business plan it doesn't have to be super elaborate but one of the things you want to have a sense of is how much money do I need to get started how long will it take me to get the business to the point where I think the money coming in from
22:08 the business will support the business if not myself okay there you know you probably have some interim goals initially you just want the business to cover its expenses you may not be able to pull any money out of the business in the first three to six months that's that's not unusual at all okay and maybe your goal is by the end of a year you can pull out on whatever it is a thousand dollars a month okay and you say wow I'm going to work for a whole year and make essentially nothing um yeah yeah you might you might and and and that's probably a good thing to count on but keep in mind this is an
22:44 investment for the long term okay so so the idea that you may work for a period of time without any cash return to yourself it doesn't mean that you're not gaining you are you're gaining in the sense that you're creating this this business that over the years will start to return to you much more money than it than you put into it okay that's that's really what you're attempting to do okay so that's that's this that's the startup phase and like I said usually there's there's Angel Capital now
23:19 if you are doing some kind of um I'm going to use the term bigger business or more sophisticated because let's say you're you're doing you're you're you've you've got an idea for um a medical device or you have some sort of Technology platform idea or um you have some sort of new food idea or or something like that right and it's going to take time to uh develop the product build it even if it's building it you know in in cyberspace and and all
23:57 of that so so you know your startup the startup phase could easily last for a couple of years okay in those kind of businesses okay there are what are called Angel Capital investors out there and they specialize in investing in startups okay I'm involved with a group like that called Tech Coast angels and every other well not not every other but uh two two Wednesdays uh a month we meet and uh owners of companies come and they
24:36 present their companies to us in the hopes that we'll be interested enough to potentially invest in their companies there are and there's there's these Angel Capital investing groups all across all across the country okay and they have an application process and and then they will there'll there'll be people there who can help you get through that process there's usually a pre-screening process if you make it through the pre-screen then there's a screening process if you make it through that then there's a due diligence period where your business will really be thoroughly investigated
25:13 and then at the end of the due diligence period they will make a decision about whether they're going to invest in your business or not okay now the re their their expectations of return are very very high because they're doing this as a business these are these are professional Angel Investors okay this isn't like your friends and family who if they invest a couple of thousand dollars in what you're doing and and in the end they lose it it's like yeah but it was for a good cause because it was for my nephew or it was for my you know child or
25:49 whatever that's not they're not looking at it that way at all while they recognize that they're going to lose their money on a number of the companies that they invest in they're in general looking to see what is the likelihood or first of all can we make roughly now in the case of the organization I'm involved with we're looking to make 10 times our investment at the point where uh there's at the point where the exit strategy is is executed either again it
26:24 goes public or it's it's sold or you know or whatever their exit strategy is we're looking to make 10 times our investment so if we invest uh fifty thousand dollars we're looking to make five hundred thousand dollars now you say wow that that's just a whopping return yes it is but remember that four out of five of the things we invest in are probably going to go bust so the two that are successful need to more than compensate for the other eight that that we lost money on right that's what I'm saying this is we're looking at
26:59 it from a business standpoint okay so when when you're talking about and that's why I say this is for a more sophisticated business you really have to be able you have to have a a clear plan for the business when you apply to these you can't be talking off the top of your head they're going to ask you to present what's called a deck it's a PowerPoint presentation and and and for the most part they're going to ask you to answer four questions in fact I've done a show on this before so you can refer back to it but just to review real quickly they're going to ask you uh
27:34 number one what's the problem you're trying to solve number two what is your solution number three what makes your solution unique and number four how are we going to make money off of it those are the four questions that they're looking for you to answer okay and and um it can be a pretty tough process I will say um well I know some people have gone through it and and they they just they I'm never doing that again that it's a complete waste of time I get it that you know they they have other avenues they feel they can take but for many people
28:09 who go through it it really helps them clarify their thinking and if they make it through successfully that's that's really something and if they don't make it through successfully many many many times they've learned they've gotten some good information that they can use when they talk to Future uh prospective investors um so that they can make a more effective presentation they can refine their plans Etc et cetera Etc so okay so that's a that's what I talk about in sort of private sources okay and and and these are private sources
28:45 they're they're uh you know professional Angel Investors okay now I wanna I wanna talk real quickly about a couple of other potential sources that you may have heard people talking about one of them are are sort of GoFundMe campaigns and that that kind of thing so you know I talked to somebody yesterday and and he he was telling me he had launched a GoFundMe campaign for a project he's working on and he raised a whopping zero okay that's most people in those campaigns okay and this is not I'm not
29:20 putting down GoFundMe however in order for a GoFundMe campaign to work number one you have to have a story behind what you're doing that really captures people's imagination okay and I'm starting a plumbing company or I'm getting into selling financial services that that that's honestly it's that's not going to do it it's just not and and doing a GoFundMe campaign in those circumstances is is a waste of time it it really is so number one
29:56 you've got to have a story that's just so gripping that when people read about they go I have to tell other people about this that's how you get that's one of the that's one of the factors in getting the momentum going in a GoFundMe campaign type raise the second is almost always the people who are successful they've preceded that's p-r-e seeded the the campaign meaning before the campaign goes live they've already arranged with a certain
30:32 number of people who commit to contributing to the campaign to get that momentum going okay and that's another factor in in this working is people have to see oh wow other people already investment so if you're getting like one investment on a Monday and then Thursday another one and then the following Tuesday sub there's no momentum there okay so what you want to do is pretty carefully choreograph people investing in it so it creates this Snowball Effect
31:09 okay without those two factors a very compelling story and preceding your raise it's very unlikely that your GoFundMe campaign is is going to go anywhere and again this is this is I'm not putting down GoFundMe they do a lot of good work uh and all of that but just when you talk about successful campaigns those are two of The crucial aspects okay there are others and and this is not I'm not going to talk about all the ins and outs of doing a GoFundMe campaign uh today but I just want to
31:45 make you aware if if those two elements aren't there for the most part that's not a viable source of funding for you okay um and there was one other one that that was in the back of my head that I now dropped but but the the the the reality is in your in starting up a business the most likely places you're gonna find money are you yourself family friends credit cards and then some kind of uh loan from a financial institution if it's backed by an asset and then if you have a sophisticated business you you
32:21 might look to tap into some professional Angel Investors okay so that is the Angel Capital round that's to get you going that may get you through uh the first 12 months it may get you through the first 18 months maybe even two years it really depends on what type of business you're starting how long that angel period may be okay so that's Angel Investing now if you're starting a small business like a small service business or Plumbing business
32:56 probably that startup funding is really all you're going to need okay you're not going to go on to further rounds of funding because you're going to fund the expansion of the business through the income that it generates okay for for my real estate company that I had before I joined the Navy that's what I did once I use my credit cards to get the business started and and I got it kind of up and running um is for the first couple of years I took pretty much all the money that I you know that I didn't need for Bare living expenses and I put it back into
33:31 the business to help it grow okay and that's where you're ongoing you might call it working capital is most likely to come from now if you're dealing with a more sophisticated business let's let's say you've come up with some kind of medical device or you have an idea for a medical device that you're you know that you you either you're going to invent or maybe you have uh uh you know a colleague or a friend who's got a fantastic idea Okay so you'll you'll get your angel capital and hopefully that'll get you to the point
34:07 where you've got your device built maybe you haven't even been able to do some initial sales of the device to get to get some sense of market acceptability for for your business okay and now you're you're not ready for prime time as they say the Venture capitalists they're not going to look at you yet okay but you're beyond the angel stage that's the seed stage it's that in between okay and it's seed money to in essence help you grow to the point where
34:43 you get to your uh you know your your uh a round of venture capital is usually the first round of venture capital okay so seed Capital generally will come from the same places as Angel capital okay so people who lend Angel Capital almost oftentimes lend seed or not land I shouldn't say land that's a bad term people who make angel Capital Investments oftentimes make seed Capital Investments as well again the group I'm
35:19 involved with although we're called Tech Coast angels we do see Capital Investments as well okay and these the the idea with the seed Capital round is you've shown a certain amount of success with the business and you have a much clearer time frame as to when you're going to be able to get to your first Venture Capital round and so you're and so you can quantify how much money you need for this interim period okay maybe it's six months maybe it's 12
35:54 months maybe it's 18 months probably not much longer than that okay and it's really that that seed round is is to get you to the point where Venture capitalists are going to be interested in what you're doing okay now uh again you may go to family and friends although this time you've got actually something real to present to them okay so if you're going to be doing a seed Capital round even if you even if your angel Capital raise was pretty
36:30 informal by the time you get to a seed Capital round you're going to be needing to put together what's called a deck a deck is a presentation that I the presentation that I mentioned earlier in the show and it's it's really going to get down well it's not going to get down into the real nitty-gritty but it's going to get down to answering those four Central questions and in a substantial way and it's going to show that the business is viable okay that's what you're that's what you're showing is is success is more likely than not in essence okay you're
37:06 going to tell us that that story okay and at that point even friends and family may be willing to make a bigger Financial commitment to what you're doing because now it's it's much more solid there's there's a real business there and so they're making more of a business decision than an emotional decision of helping you out because they know you love you whatever okay um in terms of seed round Capital again unless you have some sort of asset uh
37:41 heavy business um you're probably not going to find much ability to raise money through banks and other lenders now there is an exception if your business let's let's say you're doing a some kind of manufacturing business and what happens is is you get an order for whatever it is you're selling and you've got let's say 30 days to deliver that order okay so then you may may be able to go to What's called a factor so a factor
38:16 will take that purchase order which is a promise to pay by your customer and lend you money against that purchase order so that you can buy the raw materials and or pay for the labor that you need to manufacture it knowing that once it's manufactured and deliver the customer is going to pay okay the bait the factor is going to get the money that they lent you and and you're going to keep the profit okay now there is of course a a charge for that there's an interest rate they charge on factoring and and it's it's not cheap although it's cheaper than credit cards frankly
38:52 okay but through factors and or what are sometimes called credit companies asset-based lenders they're all kind of part of the same um you know business lending world you may be able to raise um Capital that way you know borrowing money okay whereas you know if if you're if you don't have purchase orders and and those kinds of um assets to borrow against you you wouldn't have access to that at all okay and and then and again then you have you
39:27 have private sources um uh there are I I think I mentioned this beginning in general I I'm not aware of any um companies that lend only seed Capital um companies uh companies organizations whatever you want to call them they tend to lend both Angel and Seed capital and and you know they they will look at a business a little bit differently depending on what which stage it's in um although it can sometimes be hard to say exactly where the business is but but like Tech Coast Angels again you could be in the seed Capital Stage okay
40:04 and and and they will you know they will consider um you know giving you money certainly it's you know you can apply and and you'll be given the same consideration um that somebody who's looking for Angel Capital will get notwithstanding its name Tech Coast Angels okay so so in terms of seed capital again you're at that point your business is up and running or and and you've you've hope you've got your basic concept developed and and you're really you're ready to really start
40:40 um marketing it okay that's that's the seed Capital round okay and then and then at that point once you've been marketing it for a while you've gotten some Market acceptance maybe you've got some um relatively decent clients and now you're really looking to sort of take off that's where the Venture Capital comes in okay now by the way sometimes you will hear the word Venture Capital used in a very general sense that covers you know all three of these Angel seed and Venture Capital um I'm using it in the specific sense of
41:17 venture capitalists generally are looking for businesses that have they've got their product or concept already developed they've gotten some Market acceptance and now they're looking to get on a growth trajectory okay and they're looking for substantial amounts of money so whereas your angel Capital May amount to you you know a few hundred thousand dollars to get you going and Seed Capital you know someone might seek maybe a million dollars in the CE Capital maybe a million and a half generally with Venture Capital you're
41:53 probably you're looking minimally at sever raising several million dollars if not more now it depends on which round a b or c you're in a is generally the first round maybe a few million dollars B is going to second round it's going to be maybe more like 10 million or above and then C even larger than that say so you know God willing you'll you'll you'll get to those later rounds by the time you get to venture capital okay you have to have certain things in place number one you have got to have
42:32 a CEO who knows how to talk to venture capitalists and as a Founder you may not be that person so if you're if you let's go to the example of a medical device business you may be the inventor of the medical device and you may not know very much at all about Finance you're probably not the right person to be pitching to venture capitalists by the way you may not be the right person to pitch to The Angel and Seed Capital uh funds either but for sure once you
43:09 get to the Venture capitalists they're expecting you to have very uh smart professional management of your business okay that doesn't mean that you won't be there okay so if you're the founder and the inventor you may very well be at the pitches to answer a specific type of question related to the product or the service okay but the person leading the presentation is has got to be the person running the company the person who has the responsibility on their shoulders to
43:45 look after the investors interests and and not only get them their money back but get them the return that they're expecting okay so while well as you move through the angel seed and Venture Capital um uh ranks if you will you want to be building your team to an Ever more sophisticated level because hopefully you're going to get to that Venture Capital round where the quality of the people that you're um that are that are that are in your business
44:21 are really Stellar okay and and and that will make the difference so a number of the um pitches that we see at Tech host Angel the personal start out by introducing himself or herself and they'll say you know I this is I've had you know 10 uh startups um I've had successful exits on four of them uh two of them were uh public offerings and the other two we sold out to larger companies or whatever it is they they quickly you know in the first minute sum up the success they've had in
44:58 the business world if you don't have any success like that you may not be the right person to be doing you know to be heading up your Venture Capital raise okay I'm not saying you are not I'm saying you may not be if you choose to even though even though you lack experience if you choose to lead the Venture Capital raise I would highly recommend you get some very very solid input on how to deal with that process if
45:33 you've never been especially if you've never been through it it can be pretty daunting and and the questions you can get can be very pointed nobody's trying to be mean to you or anything like that but if a company is is considering investing let's say five million dollars in your venture that that's a lot of money even for people who are worth a hundred million dollars five million dollars is a lot of money it's five percent of of their net worth um and and their questions are going to be very pointed and they're expecting you to be able to respond to them okay now by the way that doesn't mean you can't say gee I don't have the
46:09 answer to that question I'll get it for you there may be times when the question is is just something you didn't anticipate you're always better off saying I don't know but I'll get you the information then making something up because if you make something up that turns out to be wrong that's it you're done okay and if you do that enough times the word will get around this guy's a you know bser and that's it you're done okay and that's one of the reasons why having experience doing this
46:44 can be so important because even the best people can get caught off guard there was something for whatever reason it just in all the Preparatory sessions it just didn't get addressed and the person has to be very comfortable saying hey you know what that's that's a great question we we haven't looked at that yet uh so so rather than answer you off the top my head let me go back to my people and we'll get you an answer by the end of the day or we'll get you an answer tomorrow whatever whatever you think it's going to take obviously don't say we'll get you a question we'll get you an answer next week that's too long okay um so
47:20 you know as you go through these different levels of of of capital raising the expectations about the sophistication of of of you your team your business its structure all of that increases I know I'm going down because I've got Angel seed Venture maybe I should have gone Angel seed Venture that way um the level of sophistication has to increase as you you know progress through your business okay now going back to our plumbing business that process is going to happen
47:56 the longer you're in business because the more you're in business the more things you're going to learn okay and just by the process of being in business you are going to you are going to become a more sophisticated business person uh than you were when you started out okay and that's that's good the difference is is you know you're in the business yourself you don't have a lot of outside investors so if excuse me if you make a mistake hey no big deal you know hopefully you're the only one who's affected by it or maybe you and one one client or customer okay where you have investors
48:33 if you make a mistake now that mistake can impact all of your investors as well as the people working for the company okay and that's why the level of sophistication of of knowledge of experience increases as you go up the funding levels okay uh let's see one other thing I wanted to mention you know you get these these thoughts that go through your head as you're as you're giving it um okay well I it's okay I'm probably not important and I assure you I'm not
49:08 radioactive uh thank you Steve Martin for those of you who know that reference so let's just let's just take a minute and and review real quickly what we covered here in the last uh gosh it's been uh um almost 50 minutes okay so uh three levels of of capital raising angel or startup Capital seed Capital kind of that middle layer that gets you Bridges you to your Venture Capital funding okay and for a a a relatively simple business
49:44 you're probably just gonna need some angel or startup funding and then you will fund the growth of the business through its income but for a more sophisticated or complex business so you're probably gonna you're gonna probably look to go through all three rounds Angel C and venture capital okay and then you have the sources of funds okay and I I keep saying self I'm gonna I'm gonna think I'm gonna put that in there let's see if I can get it in uh yep there we go okay so self see yeah
50:19 there you go I couldn't even self family and friends okay that's gonna be that's gonna be the first the first place you go to is is is is those three uh those three sources yourself your savings whatever you have uh cash available family and friends okay after that you may look to Banks and other lenders whether it's credit card companies whether you have an asset that you need to acquire um or maybe you own your car outright
50:54 and you decide that uh you're gonna take out a loan on your car in order to fund your business perfectly viable to do okay oh I'm I know I mentioned at the beginning I would talk about if you have assets that you have equity in them okay so you know you may have you may owned your car outright okay so you might go get a loan against your car get a used car loan and that'll give you cash to use to start your business okay you may have equity in your house okay and you may decide to take out some kind of equity loan or refinance your house now here's here's the caveat
51:31 especially for your house if borrowing against your house puts you in a situation where the chances that you will lose your house increase significantly I I would recommend against doing that okay you you may still choose to do it but I think you got to think you you must think very long and hard what is my plan okay and I would say this
52:06 if you're going to borrow against your house to start a business okay bar you need to be able to borrow enough so that if the worst happens you'll have at least six months if not a Year's worth of payments on that house available to you while you pull your financial self back together again okay otherwise you know you're going to risk losing your house now if you you may be a gambler it doesn't bother you okay
52:41 um I would say you know if you're married talk to your spouse about that or if you if you own the house with somebody else talk to that person before you do that of course um but but those are some of the things I would encourage you to keep in mind so it's it's not that you shouldn't borrow against other assets that you're not acquiring for the business you can it's just I I would say give that a lot of thought before you decide to go that route okay so Banks and other sources it's credit cards is going to be the primary source especially for startup capital okay and then in in more of the
53:16 sort of seed round you may be looking at some kind of factoring or asset based lending depending on what you know what your you know the context of your business what it does and and how it works okay and then finally private sources so these are people who lend money to businesses starting up for you know this is what they do it's their business okay now I have I've left out one other source that a lot of people think about or or yeah think of when they think about starting business and
53:51 that is the SBA the small business administration they say well can't you go to the SBA well the answer is yes but okay the SBA in general is not providing funds what the SBA is doing is they are providing a guarantee to a private lender a bank or some sort of Credit Company that that um partly protects the bank against losing
54:26 money okay and there's different Pro there's different SBA programs but most of them require that you have some kind of asset to borrow against so if you need a building in which to conduct your business you may be able to get an SBA loan to buy that building okay so I'm not saying it's not a good source of capital but you don't go to the SBA and say Hey I want to start my Plumbing business I need a hundred thousand dollars will you you know lend me a hundred thousand dollars their answer is going to be no okay here's the
55:01 they will say here's the programs we have if any of these work for you we're happy to help you with these programs okay so that's that's one uh that that's the issue with the with the SBA okay number two there are at least in the Jewish World something called free loan associations so here in Los Angeles there's something called the Jewish free loan Association it's it's over on Wilshire Boulevard I think it's 6505 if I remember correctly the address it's uh between San vicini Boulevard and Crescent Heights on the
55:36 north side of the street as the name sounds the loan is free in the sense not that you don't have to pay it back but if there is no interest charged on the loan and I know the Jewish free loan of Los Angeles has a small business lending program when I was involved with it and this is quite a number of years ago now I believe the loan limit was ten thousand dollars it may be higher now okay so if you are going to start a small business like we talked about last week based on a professional license or something like that that may be a source
56:13 and although it's the Jewish free loan Association many Jewish free loans or sometimes they're called Hebrew free loans land on a non-sectarian basis meaning you don't have to be Jewish to borrow money there so if you have a free loan Association in your community I encourage you to either check them out check out their website or give them a call the worst thing they'll tell you is no you know we don't have a non-sectarian program or if you're Jewish then that's that's not an issue but but if you're not like you said the worst they can tell you is thank you for calling but you
56:49 know we don't have a small business program and or we have one but it's it's it's only available to to Jewish people okay so there you go you you you spend 10 minutes of your time against which the the likelihood is if they do have a small business program they lend on a non-sectarian basis and that may be a real source of of capital for you and it's interest-free that's one of the best parts okay and also they tend to work with their borrowers okay so you know if the worst case happens and things don't go as well as
57:24 you thought they're going to work with you okay um generally speaking they don't foreclose the way a Traditional Bank would okay so that's another that's another possibility finally there are organizations out there that provide grants for starting certain types of businesses sometimes they're based on your status I.E you're a veteran sometimes they're based on income status I.E low income sometimes they're based on gender woman whatever sometimes they're based on race I encourage you to check them out
57:59 um because these can be another excellent place to find it's typically not a lot of money but it can be enough to get you going okay so that you're not having to borrow off your credit cards okay and and if you get a grant of let's say a thousand dollars to start out being a real estate agent maybe that's all that it's going to take because you're going to start out part-time you just need to get licensed and a few dollars to you know to get some uh to get you know to get a website built and that kind of thing or whatever it is um so that may be all you need so I
58:35 encourage you to look around for those kind of sources as well okay um in the show notes I will put links to some of the types of resources that I've mentioned during today's show I hope you enjoyed it hope you find it useful gotta wrap things up here in about a minute and a half so I just want to remind you we're here every Wednesday 12 30 p.m Pacific Time 3 30 p.m Eastern Time an hour in for mountain and central time and if you think you would be a good guest or you know someone you think would be a good an interesting guest for the wait a while show people making
59:11 money please let me know their contact information will be in the show notes it's also on our website the waytowow.com and uh uh there was one other thing I was gonna say and I don't remember this and so I will close by saying as I always do to my dear friend up in heaven Marie you are my bell thank you very very much for watching and we'll see you next week