The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
I have a new favorite app on my iPhone, Instagram. I am officially addicted to this photo social network that takes your mobile phone photos and turns them into pieces of art with filters. This is probably why I found it very interesting to read a few entrepreunurial tips on Goop (Gwyneth Paltrow's lifestyle site) from Kevin Systrom, co-founder of Instagram. See below for a few fantastic quotes from him. Considering that Instagram was just acquired by Facebook for 1 billion dollars; this guy obviously is a great person to take business advice from....
If your business is in need of funding, and you’ve maxed out your personal finances, exhausted your supply of friends and family and tapped the crowdfunding arena for all its worth, then it may be time to seek out an angel. Not the winged cherubic types, but rather the earth-bound variety of high net worth individuals known as angel investors.
Angel investors are rich folks. They typically invest their own money or family money in the early stage, even the idea stage in many cases. They also invest in fledgling companies in exchange for an ownership stake in the businesses. They provide a substantial amount of capital to early-stage businesses, with investments totaling $20.1 billion in 2010, spread across 61,900 entrepreneurial ventures. That works out to an average investment of about $325,000—although some angels make investments as small as $5,000—while others can invest millions or more in a single company, just to see it happen. That’s why they’re called angels.
But before you go rushing out to find an angel to answer your prayers, you need to ask yourself if you are suited to having angel investors as co-owners, and to assess whether your business would be attractive to them.
If you wind up accepting an angel investment you will need to give up an ownership stake in your company, and you’ll need to hear and heed advice from outsiders about the issues in your company. You’ll get advice that you may not always agree with. If these two dynamics appear to be a recipe for major conflict, then stop right here. However, keep in mind that personalities sometimes mesh and sometimes clash.
But if you are confident enough to know that your business could use the help of seasoned co-owners—many angels are former entrepreneurs themselves—and you value outside advice, then it’s worthwhile to understand what angels are looking for in an investment to determine if your business is an attractive opportunity for them.
Unlike friends and family and crowdfunders, who may make an investment in your business solely because they wish to see you succeed, angel investors have some pretty strict criteria that you need to meet. In addition to having a fully developed product and a verifiable customer base, you’re going to need to convince potential angels that your business is likely to grow rapidly in the medium term and that your revenues can reach upwards of $15 million.
Angels also want to see that you plan to put a strong experienced management team in place, and that you will service a large market where you can demonstrate advantages over your competitors. Having your own money invested in the company, as well as having friends and family onboard, is often a prerequisite.
While meeting all of the preceding criteria may help get you in the door, what you really need to hook an angel investor is an exit strategy. Angels don’t invest in companies because they want to help run them for the rest of their lives; they invest in them to make money and then move on to the next opportunity. Which means you’ll need to demonstrate a credible exit strategy that gets them out of the picture in five to eight years at a profit.
If you think that your company is at the stage where it makes sense to seek out angel investors then try searching for angel groups in your part of the country, as many angels prefer to invest in businesses that are located relatively nearby. A quick web search for angel investor groups in your area should get you started on the right path.
Have you heard of a mompreneur or a mogul mom? It is a woman who is raising children and running a business. We recently stumbled upon The Mogul Mom, a blog that is geared towards creating a community for women who are running a household and a business and rocking them both. They offer articles that are educational, inspiring, and actionable. The founder of The Mogul Mom is Heather Allard, a mother of three children. Allard has been a mom entrepreneur since 2001 and has started three successful businesses, including one she sold for six figures in 2008. If you are a mom who is also running a business, this site is a must read!
Some of their most popular articles are:
Harvard Business Services, Inc. is proud to announce we are now a main sponsor of The Financial Exchange “Bringing Wall Street to your Street” with Barry Armstrong, which airs from 9:00 AM until 11:00 AM weekdays on Boston’s Talk Station AM 680 WRKO.
Every Wednesday, Rick Bell, Chairman & CEO of Harvard Business Services, Inc. will be interviewed on Barry’s show, and each week he will discuss a different topic, such as Preferred Stock, fundraising for Delaware Corporations, Delaware LLCs, Delaware Series LLCs and other interesting topics. Our goal is to educate you in order to help you make the best decisions for you and your company.
Boston has a wealth of well-known universities that have spawned some of the world’s most successful entrepreneurs, such as Bill Gates (Microsoft) and Mark Zuckerberg (Facebook), who have both created Delaware corporations that filed Initial Public Offering.
We invite and encourage everyone from Boston to San Francisco and all over the U.S. to listen and, if you’re an entrepreneur with the next big idea, to incorporate your business in Delaware. Call our office today to speak with one of our knowledgeable associates with any questions and be sure to listen to the great financial talk show for up-to-the-minute financial information.
If you missed Rick Bell's first interview about incorporating in Delaware, you can still listen to it online.
Whether you’re just getting started as an entrepreneur or you need some outside investors to help your established business, friends and family are a time-honored source of funding. With bank loans harder than ever to obtain for small businesses, friends-and- family investments have become even more important for lots of entrepreneurs. If you want to have a successful friends-and-family round for your business, you are going need to get these three things right: the selection, the pitch, and the structure.
If you have a decent-sized set of friends and family members, you have to make sure you select the right ones to pitch your business to. And that doesn’t just mean avoiding your crazy Uncle Billy.
Start by putting together a list of all your potential investors and then try to answer a few questions about each one. Does he have any entrepreneurial experience himself? Could I see myself taking direction from her if she became an owner? Is he in a position to withstand losing money if my company goes under? Ultimately what you are looking for are your contacts who would be comfortable with an illiquid investment, who can absorb a loss on their investment without financial hardship, and who might make good business partners down the road.
Just because you are pitching to people who know you better than anyone doesn’t mean that you’re excused from doing a professional job. Treat friends and family as you would any other potential investors, it shows them that you take your business—and their money—seriously, and it’s great practice if you’re eventually hoping to talk with professional investors like angels and venture capitalists.
Try to pave the way for the conversation that needs to take place by keeping your inner circle up to date about what you and your company are doing, and possibly dropping in the fact that you may be looking for investors. When it’s time to give the actual pitch, let your best prospects know that you want to have a serious talk. And be prepared. That means having a thorough business plan and sharing it in as much detail as your audience is interested in hearing. You also need to be willing to share all financial documents related to your business, including the precise amount of capital you need to raise.
While it can be easier than you might think to find friends and family who want to help your business succeed, far too may entrepreneurs fail to properly structure these investments. And that can lead to problems down the road, for both your initial investors and for your company when you go looking for the next round of funding.
If you have someone willing to lend you money then you don’t have to give up any ownership in your company, but you do need to structure the loan properly. It needs to be written out as a contract, include a time horizon, and most importantly, pay a reasonable interest rate. If you ignore that last criterion the IRS may consider your loan a gift, leading to a potentially nasty tax bill for your investor.
If your friends and family insist on an investment rather that a loan, consider offering them convertible debt—a loan that converts into equity if you get a larger round of financing in the future. Convertible debt has a number of advantages over equity, including the fact that you don’t have to set a valuation on it, as you do with equity. If you value your company too high when issuing equity in the friends-and-family round, your initial investors will see their stakes significantly diluted if you find professional investors in the future. By issuing convertible debt you can put off the difficult task of valuing your company until you have professional investors involved.
And finally, just as you would when dealing with professional investors, make sure to have a lawyer and an accountant approve all agreements that you strike with friends and family.