Small, local businesses lack access to capital. Banks will place restrictions before giving loans, like asking for collateral, wanting to see years of revenues, or asking for personal covenants. And then venture and angel investors aren’t interested in the low-rate returns hairdressers, restaurants and furniture-makers can offer; they want “high growth.”
That is why small, local businesses generally stay as small, local businesses. But what if small businesses could reach over the top of those market failures to the general public and investors who are willing to suffer the relatively low returns on offer? That might open up options.
Entrepreneurs often talk about how they started their businesses with loans from family and friends, seed money from investors and even by maxing out their credit cards. But, for every one of these feel-good success stories, there are more than a few with unhappy endings.
Noelle Federico, the business manager and chief financial officer of Dreamstime.com, a stock photo service, said that while it is not easy to start and grow a business without incurring debt, it is possible.
“We’ve proven that it can be done,” she said. “Myself and the leadership team at Dreamstime.com have never taken loans, used credit cards or tapped angel investors to grow our business.”
A more effective model for Angel investing is long overdue. If Angels want to win — they want to lower their risk, create better returns, and help entrepreneurs more they’ll do the following: fly lower heights (avoid trying to fund the next 5 Facebooks) and take shorter flights (avoid riding each investment out all the way to the end).
“The system we have now will eventually destroy innovation in Silicon Valley. Every patent is a micro law prohibiting innovation. We’ve gone from a model of companies competing with each other to create the best product to companies suing each other to prevent them from innovating.”
Peter Mehit of Custom Business Planning and Solutions was a participant at the 2011 OC Technology Influencer Mixer and Summit. Here he speaks about his experience as an entrepreneur, the qualities entrepreneurs possess and why he is dedicated to helping them find success.
Posted in News and Views, Peter Mehit
Tagged angel investors, banks, business, business plans, entrepreneur, friends and family, fund raising, funding, investment, investors, ipo, Loans, planning, sba, small business, start ups, venture capital, vision
“You’re starting to see a trend of investors having to work harder to convince founders that they should be able to invest in that company,” he explains. “There is very much early-stage capital available for startups–many are getting involved in angel investing, and lots of traditional VCs are too. Founders are now asking investors, What are you going to do? Why should I take your money over the other angels? On a day-to-day basis, why is having you in my company going to be a good thing? These are questions that people never asked before.”