INSTANT FUNDING WEEKLY EDITION #30

GIVE ME A CALL

I recognize that many readers of this newsletter have a question about funding and are not sure where to turn. I am available for 15-minute phone calls about your funding questions without charge, subject to my schedule and availability. You may request a call/video conference by sending me an email at [email protected].

FUNDING HAPPENINGS

A lawsuit filed by the National Federation of Independent Businesses (NFIB) successfully obtained an injunction against the US Treasury from enforcing the Corporate Transparency Act nationwide.

Grammarly has published a report on 2024 State of Business Communication.

Crowdfund Insider published an article titled Reg CF Investment Crowdfunding Trends: Report Highlights Need for Online Capital Formation, Access to Capital. At the CfPA [Crowdfunding Professionals Association] Summit, a presentation was delivered that highlighted the demand and need for access to capital and the growing sector of online capital formation. Report.

Startups.com posted a podcast titled How Do I Stay Positive in Tough Times.

ASK CAP

CAP, my artificial intelligence (AI) avatar, is available on my website 24/7/365 to answer your questions for free on matters related to funding.

I developed CAP with a license from Knowledge Avatars to answer frequent questions about funding and save myself time to answer the harder questions.

https://dakincapital.com/CAP

I asked CAP,

“How many different types of funding are there for a small business and how many of these does an average small business know about?”

CAP responded:

“There are multiple types of funding available for small businesses, including angel investors, banks, stakeholders, and community members.

An average small business may only be aware of traditional funding sources like banks and angel investors, but may not consider other potential investor candidates.

It is important for small businesses to explore all possible funding options and consider a variety of investor candidates to increase their chances of obtaining the necessary capital for their business ventures.”

FUNDING POINTS

DESIGNING A CAPITAL CAMPAIGN – PART 5 – FUNDING CAFETERIA

In this fifth in a series of articles, I will provide an inside look at how I go about designing a capital campaign before engaging in planning, staging, and pitching.

Today’s article is on the topic of sources and types of funding. Too many entrepreneurs think of funding only in the types of debt and equity. This is like going into a Baskin Robbin’s and thinking that they only have flavors in vanilla and chocolate. The capital market is more like a cafeteria where there are many choices or a food market where there are many vendors of many, many choices.

There is no particular problem with a small business offering equity ownership as an investment. However, if the size of the business, its profit margin, and its future growth will not provide the investor with the rate of return on their investment or another benefit that meets their investment criteria, then the small business needs to rethink its capital strategy.

One option is to change the investment structure. A small business may offer a revenue share instead of equity or debt. A small business may offer its customers free or discounted products and services instead of debt or equity or bundled with debt and/or equity.

When working with investor candidates seeking a rate of return on their investment – a simple appreciation in the value of their investment, there are many choices that may be offered based on the terms of the offer. If working with customers, more options are available in terms of the products and services of the small business. If working with strategic partners such as suppliers and distributors, other options become available.

In addition to investments, a small business may obtain needed capital through grants, partnerships, and contracts for sale.

There are so many choices.

It is impossible for a small business to know all possible types and sources of funding. As opposed to being experts on this subject, small businesses should become experts on who is most likely to invest by providing them with the resources that they need. Broadening the capital strategy to include accepting investments in forms other than cash provides even more options.

Changing the investment structure commonly means changing the targeted investor candidate. In fact, a small business is making a serious error in structuring the investment before determining the most motivated investor candidates. The investment structure should be tailored to match the investment criteria of those who are most likely to invest. Asking an investor candidate to consider an investment structure that does not match their preferences is like asking a customer in an ice cream store who wants chocolate ice cream to take vanilla instead. What kind of result may you expect?

When talking with an entrepreneur about designing a capital campaign, I am concerned when:

·?????? The entrepreneur has already chosen the investment structure

·?????? There is an expectation that simply making an investment offer will result in an investment

·?????? The entrepreneur has not yet attempted to ascertain who is most likely to invest in their business

DESIGNING A CAPITAL CAMPAIGN – PART 4 – WHO CARES

In this fourth in a series of articles, I will provide an inside look at how I go about designing a capital campaign before engaging in planning, staging, and pitching.

Today’s article is on the topic of who cares. Assuming that the organization has a plan and appears qualified to implement the plan, my review shits from inward to outward. Funding depends upon one or more investor candidates willing to step up and write a check. It is necessary not only to know that somebody cares about the success of the organization but also why they care and how much they care.

Too often, a small business or community project assumes that just because it exists, someone, somewhere out there, will be willing to write a check. This assumption should not be made without some verification and validation.

As was discussed on my Successful Funding show on Tuesday with Boris Mannsfeld, what if a person wants to set up and operate a new coffee shop? The possible interest of investor candidates will be impacted by several factors:

·?????? Will the coffee shop generate profits in large enough amounts to pay an investor a competitive rate of return

·?????? Will the investor candidate be a customer of the coffee shop

·?????? Does the investor candidate’s community need a coffee shop

Coffee shops are not considered a get-rich-quick type of business. More often considered a lifestyle business that generates enough money for the owner/operators, there may be little or no profits earned that may be shared with an investor.

If the investor is not a customer, then their affinity with the coffee shop will be limited to periodic profit and loss statements and any profit distribution. An investor may still be interested if the coffee shop contributes to the capital of his or her community, but that assessment, like that of the business, has to be evaluated within the context of local competition.

In my economics class decades ago, my professor taught economic elasticity. This is a measure of the difference in value of having just one of a kind and having multiples of the same thing. If you own a car, how much value to you is there in owning two cars, five cars, or more? Same thing with coffee shops. If there is already a coffee shop in the neighborhood, will everyone keep going to the old coffee shop and ignore the new one? And, don’t forget all of the competitors to a coffee shop, such as fast-food restaurants, cafes, convenience stores, and owning one’s own coffee maker.

All of this competition may cause no one to have sufficient interest in the coffee shop to make an investment.

Even if the coffee shop can compete and generate a sufficiently large profit to merit an investment opportunity, the motivations of investors may vary greatly, which can impact how an offer may be crafted to pitch for funding.

In a current project, one group of identified investors is simply interested in continuing distributions. This supports crafting the offer as a revenue share with regular distributions to the investor. A different group is interested in immediate tax write-offs to offset recent income. This supports an equity offering with a disproportionate allocation of operating losses to the investors, without knowing what which investor candidates favor which type of offer, a small business may initiate a capital campaign that matches with no one. This is not uncommon, particularly with small businesses that offer common stock with no planned investment exit.

When talking with entrepreneurs about their capital campaigns, I will ask who they see as their most likely investor candidate (the key question within my Motivated Money Method)? I am concerned if:

·?????? No thought has been given to the identification of investor candidates

·?????? It is proposed to make a generic offer (such as common stock)

·?????? There is no realization that investor candidates have different investment criteria or different motivations

DESIGNING A CAPITAL CAMPAIGN – PART 3 – VISION v REALITY

In this third in a series of articles, I will provide an inside look at how I go about designing a capital campaign before engaging in planning, staging, and pitching.

Today’s article is on the topic of vision v reality. Vision represents the concept of the business in the mind of the entrepreneur. Reality represents the implementation of the vision by an organization within the context of the organization, its markets, and investor candidates.

A vision is simply a more detailed idea, or it may sometimes be described as the mission – an aspirational statement in a hoped-to-be outcome.

Entrepreneurs often confuse an idea or vision with that of an operational business because it is clear in their minds that expectations are set and actions are taken without real-world assessment.

Reality represents the way different people will react to the products and services of a business, to the business itself, and to the leadership team. It is everyone else’s perspective who is not caught up in the bubble of exuberance when bringing an idea to market.

What is sometimes surprising is how far into a business launch and operation an idea may travel before the bubble is burst by reality.

There was a joke during the dot com frenzy that any one person with an idea on a napkin was worth a million-dollar investment. Two people with a napkin elevated the investment to two million dollars. And so on.

When the business management practice of a lean startup was introduced, I found it to be no more than what every business should do in every startup. However, it was a change of strategy for businesses coming out of Silicon Valley who would raise millions of dollars for their business before ever asking a prospective customer what they wanted.

I recommend building a vision into a mission statement – a statement of direction to go, an outcome to achieve, and a method for achieving the outcome.

Visions, by themselves, may support a successful funding campaign. Which, all too often, is followed by a business failure.

Visions need to be reduced to reality. Reality requires details. As described in yesterday’s article, before raising funding, a business plan is needed. The business plan is then extended or amended to incorporate a capital campaign plan. These documents provide ‘paint-by-number’ details.

Details are necessary to recruit and manage a team. Without details, every member of the team may have different expectations of themselves and other team members. Without details, an investor candidate cannot get a good handle on the opportunity. Lots of handwaving and choreographed music with slide decks popular at pitch competitions are more about entertainment than providing the investor candidate with the information needed to make an informed decision.

I have participated in projects and capital campaigns where we all thought we had a consensus on the business opportunity, the market, and operations, only to find out months down the road that major differences existed. All of the recommended steps to get down to reality through details may still fail to ferret out these differences. Once a business begins rolling forward, there should be built-in checks to verify everyone remains in sync on what the business is and how it will operate.

Too much vision and not enough detail do not provide a foundation for designing a capital campaign. Strangely enough, the opposite is also true. Too much detail without enough vision will lock an entrepreneur into an inflexible campaign design.

When I ask an entrepreneur to tell me the story of their business, I listen to the details. Yet another test. I am concerned when:

·?????? The story lacks detail – a 30,000-foot view that never descends to a lower elevation

·?????? The story indicates that details will be worked out later – kicking the can down the road

·?????? The story leaves me confused

·?????? The story foretells a miracle – overnight growth to the scale of Google or Amazon

DESIGNING A CAPITAL CAMPAIGN – PART 2 – CAPITAL NEEDS

In this second in a series of articles, I will provide an inside look at how I go about designing a capital campaign before engaging in planning, staging, and pitching.

Today’s article is on the topic of purpose -? how does raising funding advance the fulfillment of the mission of the person or organization seeking funding? This is the question of why from the perspective of the funding seeker.

At the most basic level, funding is necessary to fill resource gaps of the person or organization seeking funding. Upon completion of a business plan, it commonly reveals that there is a lack of resources necessary to fulfill the mission. Some assets are missing – people, offices, equipment, land, software, transportation, marketing dollars, etc.

It is necessary to determine the capital needs of the person or organization to begin designing a funding campaign.

The capital needs should be spelled out in the business plan. In effect, the capital needs should fall out after determining all resources necessary to implement the plan and what resources are missing.

If you have to bake a cake (the mission) and the recipe (business plan) calls for four cups of flour (resources necessary) and you have only two cups or no cups of flour, then you need more flour (this is the capital needed).

If one plans to bake several cakes over several months or years, it is not necessary to have all the flour (inventory) today. It is possible, and often recommended best practices, to obtain flour as needed when needed. Having flour sitting in inventory doing nothing means a loss of the value of money while it is sitting idle (flour may also decompose or spoil).

When assessing capital needs, I break needed capital into stages or milestones. A milestone represents a sufficient advance in implementing the business plan that the probability of success goes up substantially and the likelihood of failure goes down substantially. I determine what resources I need for the next one or two milestones. This becomes the basis of a capital strategy, like stepping from rock to rock to cross a creek. Each rock gets me closer to the other side (my goal), or crossing the creek may be a milestone if I am on a longer hike.

I will say again that this level of detail should be spelled out in the business plan. A business plan that fails to break down its implementation into a discrete series of actions with a cost of capital associated with each action commonly is in error. Something was overlooked or left out. At the time an attempt to complete the action is initiated, everything may come to a halt, and it may become necessary to put things on hold while raising capital. Coming to a halt may have the appearance of gentle braking, or it may have the impact of hitting a brick wall with catastrophic results.

Within a business plan and its extension in the form of a capital campaign plan, every task to implement the plan should be individually identified and placed in a sequence. The task should be described in detail so that a team member can perform it. There should be a start date, a proposed finish date, and a deadline date. A statement of the metric should be used to determine and verify that the task has been completed. A person should be identified with primary job responsibility for performance of the task. Any other people who may participate in the task performance should also be named. Finally, each task should have a list of required resources, such as specific amounts of cash, equipment, facilities, intellectual property, social networks, or other assets that will be applied or consumed.

At this level of detail, all tasks necessary to achieve a milestone may be tabulated and totaled to determine all needed capital.

When I talk with a prospective client about raising funding, I will ask them what capital they need. This is a test.

I am concerned when:

·?????? The person speaks vaguely about what is needed

·?????? States a dollar amount without the ability to explain how the money will be expended

·?????? Lacks the experience or training to estimate the needed capital

·?????? Cites a magazine article or other source of information that is anything less than a highly detailed case study

DESIGNING A CAPITAL CAMPAIGN – PART 1 - PURPOSE

As the Capital Coach, I am commonly engaged by businesses, communities, charities, and projects to assist in raising funding.

Setting aside the desire of everyone to raise money overnight and jump directly into pitching for funding, raising capital is a complex set of activities that requires thought and planning to achieve the highest possible level of success.

In this and the following series of articles, I will provide an inside look at how I go about designing a capital campaign before engaging in planning, staging, and pitching.

Today’s article is on the topic of purpose -? how does raising funding advance the fulfillment of the mission of the person or organization seeking funding? This is the question of why from the perspective of the funding seeker.

At the most basic level, funding is necessary to fill resource gaps of the person or organization seeking funding. Upon completion of a business plan, it commonly reveals that there is a lack of resources necessary to fulfill the mission. Some assets are missing – people, offices, equipment, land, software, transportation, marketing dollars, etc.

It is regularly recommended to avoid raising funding unless and until it is absolutely necessary. Raising funding requires time and money to be invested into the campaign. In most cases, it is a distraction away from the operation of the business or project. It will create legal responsibilities to the source(s) of funding with associated maintenance and care.

The capital campaign may fail, resulting in a loss of investment in the campaign's conduct. It may result in a loss of reputation and credibility that may affect both later fundraising efforts as well as the business itself.

Raising funding will mean putting oneself out there where one is interrogated, challenged, suspected, and sometimes treated as a failure for not having raised the money already from somewhere else. This may seem irrational when pitching to someone who is in the business of making investments, but it will happen. Getting rejected after a pitch is worse. As I have stated previously in my articles, I have a four-rejection per day quota (obviously, I do not raise money by spamming). I simply do not like getting turned down. I take it personally. They say there is no harm in asking, but I disagree. In addition, a rejection may reflect poor design and planning of the capital campaign. Time and money invested in pitching that investor candidate has been lost. The clock is ticking, and the fundraising budget is being depleted. Like every major league baseball player, I do not have to hit every pitch, however I will only get so many at bats. There is always a limit on resources available for a capital campaign.

Raising too much money too soon may result in a high price of money for the funding. Raising too little money too late may cause one to fall short of goals and milestones.

Some entrepreneurs take the view that it is all ‘other people’s money’ (OPM) and that whatever the cost of the capital campaign and the price of money, the outcome will be so tremendous that the details are not important. Rarely true.

Getting to the point of why sets the tone, direction, and intensity of the capital campaign. Does fundraising fall within the normal evolution of the business or project? Is the fundraising an emergency drill with all hands on deck? One may be a slow walk, while the other is a sprint through a gauntlet.

Ultimately, engaging in funding must be necessary for mission fulfillment. However, having a great vision and a tremendous market need will not, in and of itself, assure a successful funding campaign. I can readily identify a dozen problems in the world that I would like to see solved but which have repeatedly been proven to not be cured by more money.

As the Capital Coach, I treat every exchange of information with an individual or group as a test. Is raising capital for a good purpose? First test.

I have concerns with the following when discovered during a discussion on purpose that may cause me to decline services:

• Expectations that funding will be immediate
• Individuals who have a lack of concern for the details and complexity of fundraising
• Who have failed to prepare their opportunity for fundraising
• Visions unsupported by work

SUCCESSFUL FUNDING SHOW

LAST TUESDAY, Boris Mannsfeld was my guest on the Successful Funding show. Boris owns and operates Boris Mannsfeld & Associates Belize Real Estate and is engaged in the continuing development of vacation condominiums at the Villas at Coco Plum. We discussed different types and sources for funding toward the purchase of real estate (both personal use and commercial ventures) and agriculture projects. Belize currently lacks a full-tilt mortgage industry like in the United States, although one is in the process of forming. As a result, there may be no funding available for anything requiring cash deals. In some cases, owners may take a carried interest with installment payments, or a company may be formed with owners holding indirect fractional ownership.

You may view the recording at:

https://www.dhirubhai.net/events/successfulfunding-borismannsfel7268994570799980545/theater/

DON COHEN SHOW

LAST WEDNESDAY, I was a guest on Donald Cohen’s show. ?We discussed the role and importance of profit and loss in succeeding as a small business. It was pointed out that profit and loss are the consequences of operating a business. A business that provides value at a cost less than its revenue will earn a profit. It was also pointed out that cash flow is a more important metric than profitability since cash flow is a continuing current metric while profit and loss are allocated over time.

You may view the show live or watch the recording at:

https://www.dhirubhai.net/events/livewithrestream-december017269038712578015233/theater/

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Karl Dakin, the Capital Coach

Dakin Capital LLC

[email protected]