According to most experts, 2014 is a good time to start a business. Although the economy is still struggling, that can be a benefit for start-ups. For one, it costs less. Goods and services are cheaper, and interest rates are still very low. You may also have more negotiating power when establishing contracts with vendors, landlords, and employees.
While funding can be more difficult to secure in recessionary times, our clients have been finding plenty of investors looking for promising business opportunities. Moreover, companies that learn to survive during economic downturns are often in the best position to take off when times are good.
“Whether it’s a bubble or not in the public financial market, this is probably the single best time in the past 25 years to start a company.” Venture capitalist Jim Breyer told young entrepreneurs at a recent Forbes event. It only costs 20 percent today of what it would have cost five years ago to get the product into the market. “By next year, you’ll be able to get to 3 billion people in the world through the social networks.”
Breyer knows a thing or two about creating a successful start-up. His investments, which include Facebook and online crafts marketplace Etsy, have helped him amass a $2.1 billion fortune. As for what he looks for in a venture, Breyer highlighted the importance of the team behind the start-up as well as the market for its product or service.
Breyer’s advice rings true with my experience in working with start-ups and venture capitalists. Usually we begin the financing with a “friends and family” round, before approaching professional investors. This can allow for a faster, albeit smaller amount being raised to lay the groundwork for the business. VC firms and angel investors will closely examine the background, knowledge, and skills of your leadership team to determine if they have what it takes to run the company successfully. While “vision” is important, investors clearly place a high value on good managers. For instance, they will be particularly interested in how the team’s experience can be used to manage the obstacles the new company will undoubtedly face. Being able to raise a friends and family round, and to show that “the train is leaving the station” is one way to demonstrate the ability of the team and the likelihood for a successful launch.
Venture capitalists want to see that you are bringing something new and different to the market. Therefore, you should be able to clearly demonstrate not only that your product or service is unique and innovative, but also that it capitalizes on a void or need in the particular industry. The VC firm will also want to see what steps you have taken so far to develop the product or service as well as what remains to be done. That is another reason why conducting the friends and family round can be important.
Of course, VCs also want to see the numbers. VC firms are always looking for companies that are on their way up, if given the proper funding. Therefore, they will want to know a lot about the particular industry as well as the sufficiency of the proposed financing, including current and projected expenses, sales, earnings, and dividends.
If you have questions about this post or would like to discuss how to foster the success of your start-up venture, please contact me or the Corporate Transactions & Business attorney with whom you work.