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April 22, 2005

Diary of a Start-up

Diary of a Startup: On the Road

Posted by at 2:35 PM

It's Thursday morning April 21st and we are on the rampage to raise $250,000 to $500,000 in order to keep the business going. At the tail end of last week we received our first letter of interest to acquire stock in the company from a wealthy Chicago entrepreneur. He sent over a laundry list of things for us to complete so that he could do the appropriate due diligence and make a quick decision on whether or not to invest in our business. He had a meeting with his advisors yesterday to discuss all of the information that we aggregated for him and to assess whether ours was the most appropriate investment for him. We expect to hear something more from him today or tomorrow. I am cautiously optimistic because I know that these interested parties often find that reasons not to invest trump the reasons to invest in a small private company, due to the inherent risk.

In addition to that single investor, we have been on a road show this week and presented to about six different parties, mostly angel investors. We seek to steer clear of the venture capital market because we don't want to lose too much control of the business. None of us have ever participated in a capital raise, so we are trying to learn as we go. Getting too much advice from our attorney would result in astronomical legal bills that we cannot afford at the present time. As entrepreneurs, we have learned that its always a balancing act, and right now we are attempting to do everything from servicing our clients to learning about how to engage in a capital raise to assessing who the "right" investors/partners are for Acquirent. I can honestly say that this fundraising thing is a full-time job and I would warn any other entrepreneurs that you should prepare to spend the majority of your weeks focusing on this versus the business itself. Taking your eyes off the existing business can be dangerous though!

We are also facing one more problem, but again this is a problem that can be resolved by successfully raising funds for the company. On the 15th of each month, we usually pay commissions to our salespeople and we still have not received a large commission payment from one of our clients. Since our business is centered around employing salespeople, and salespeople want their commissions when they sell something, it puts us in a little bit of a bind! As such, I fronted some commissions to two salespeople despite our ongoing cash flow issues. This hurt, but I felt that in the long run that this was the right thing to do because without our sales people we would really cease to exist.

The next step is for us to solidify our funding and then decide how to best allocate the cash. We are really working hard to get this money in and even if we have to knock on a few hundred doors to get the money, we are going to do it because we have worked too hard and built too much to simply let it all evaporate. Hopefully we'll be back with some good news next week!

Diary of a Startup is a weekly blog written by Pete Kadens, founder of Acquirent, an outsourced sales execution company based in Chicago. Click here to read last week's column.

4 Comments

Posted by: Douglas Paul at April 22, 2005 4:40 PM

I applaud your efforts and your resilence but have you considered other avenues of funding? I have often read about alternatives like selling account payables, microloans and more.

If your business is healthy now and has a real solid, promising future I am sure that you can raise money through these means as well with a little less stress.

Nevertheless I hope that you make it through and get what you need to stay afloat and grow. I know how rough enterpreneurship can be but when it's all said and done - we wouldn't have it any other way.
----------------
Douglas Paul
Soho360 Networks, Inc
http://www.soho360.com/

Posted by: Max Lint at April 25, 2005 2:53 PM

Great article – we are a boot-strap start-up just on the edge of getting a bigger piece of market share and lack of capital has been a very big challenge. I commend your efforts and feel your joy and pain. One of our struggles is very similar to yours; it is difficult to not focus on the business for a week to work on fund raising. I am very interested to know how you did, what worked, what didn’t work, etc… We have learned from our mistakes and some have been very difficult, but your information could help us avoid some mistakes! The best of luck to you!!!!

Posted by: j arguelles at April 26, 2005 12:20 AM

Congrats! Now, first question: What items did you potential investor asked you for so that he could proceed to do his due diligence? Secondly,how did you select the right investors to contact? Thirdly, you indicate that you must have "knocked on a few hundred doors to get the money"? How were these doors selected and what was your approach and outcome other than simple rejection? Did you ask why? Final note: I command you for seeking capital yourselve even though that is not your primary function in a growing company. Your efforts in raising equity funding for use as working capital is an expensive and labor-intensive proposition and frankly not very wise during the stage of growth of your company. The comments offered by other readers are on target--debt financing is best. Incidentally, did you explore the classical line of credit, vendor financing, an interim strategic alliance, A/R, leasing, SBA--Community Express, Accion, your local government CDBG program, the local bank consortia lending organization,etc. If not, food for thought. If yes,then the course of action that you pursued was best!!!!!!!!!!!!!!

Posted by: Brett at April 27, 2005 8:17 AM

Pete

Keep up the good work!

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