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It is free and you might wind $1m..  Of course the odds are VERY VERY low, but....

 

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jim@FinanceProfessor.com

Once you have a business plan you can then go about raising money for your new venture. 

Finance at the small firm is different in many ways.  For starters, much of what we teach in most finance classes is for large firms and these methods can be prohibitively costly for small firms.  For example, if you are just starting out, IPOs and other public equity offers are essentially out of the question.

The first place that many turn for financing is to family and friends.  This seed money can often get the idea started but there are many things to look beware.  This is a good way to start family feuds and lose friends. A way to lessen these problems is to always draw up written plans and report frequently to the investors. 

Banks are often prohibited from investing in start-ups and since the public market is too expensive most small firms are forced to turn to the private equity market.  This is made up of venture capitalists or investors called angels. 

Venture capitalists are investors (or more commonly firms) that invest in small firms.  Venture capitalists have received much press in recent years for the high, sometimes astronomical returns they have received.  Venture capitalists are often not easy investors to have on board,.  They can demand positions on the board and may want to take an active position in the operations of the firm.  (Of course this can be beneficial as they do have much experience, but most entrepreneurs do not like giving up their control.) 

Venture capitalists often take positions in the form of convertible debt.  The reason for that is if the firm hits it big, the venture capitalist will convert into equity and share in the appreciation.  If the firm does poorly, the debt has better standing and the venture capitalist can rely on bankruptcy courts to get some of the money back.

Venture capitalists generally do not want to have their money tied up for long periods of time.  Thus, most firms will want the small firm to have a timetable to go public.  This will allow the venture capitalist to "cash out" and often make large amounts of money.

Traditionally an angel was a wealthy investor that invested in small firms and then got out of the way.  They were the passive counterpart to the active venture capitalists.  However, this distinction is rapidly changing as angels have grown more demanding.
 
 

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