How did I miss the concept of crowdfunding?

Thanks to an Entrepreneurial Finance class, I happened upon these wonderful platforms. Now, all I need is an idea. Something wonderful that will solve all the worlds problems. You may be as confused as I was about this. I have reviewed several wonderful sites such as Kickstarter, Indiegogo, and fundly. Each of these sites has backers that are willing to support your endeavor. These endeavors could include a great gadget, social cause, or a new business. The backers are willing to take a chance on you and your ideas. With Indiegogo, you will pitch your idea and possibly have a perk that usually involves your product. The backer will support you in exchange for the chance to be the first to try your product. They want to help start something.

This funding does not come without a price. There is a fee for using the platform. The platform fee for Indiegogo is 5%. There is also a charge to the backer which is a payment fee.

Join me next week for more details on Indiegogo.

As entrepreneurs do what entrepreneurs do, it is important to know what your ideal outcome will be.  Going into my business, I knew that I wanted a long term income.  I see many entrepreneurs establishing the business, valuing the business and selling the business.  The business is not personal to them and it is easy to let it go for a tidy profit.  Whichever you choose, let the decision guide you in developing your business.  

If you are guided in obtaining wealth, you may as well plan on losing some or all control over the business. Whether you are losing control to board members, stockholders, investors or someone that is buying your business. These people will find value in your business and want to be a part of it.  

If you are wanting to keep control of your business, you may be passing on the public offering, buy out, or capital from other sources.  What you will have is the ability to call the shots and represent your own business and where the profits go.  

It is important to note that your motives may change over time.  While you may love what you do and are passionate about it, this could change as your interests change.  You may not be physically able to continue with the business.  You may decide that you need an exit strategy.  Knowing your options and keeping them open is very important as an entrepreneur.  The Founder’s Dilemmas by Noah Wasserman emphasizes that knowing whether wealth or control is your motivation will make decision making easier.  

Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, N.J.: Princeton University Press, 2012.

Week 2

As I write this week’s summary of this book, I am amazed at the amount I have absorbed from this book.  I am still reeling about the ideal client.  The relief that I felt from reading the book and learning that you do not have to please everyone was overwhelming.  I have thought about my ideal client this week.  I think that it is important to know them so that my marketing is specific to this group.  I have operated the cash register this week so I really felt personally involved with their buying decisions. Being hands on helps me with ordering and deciding what products we should be carrying and maybe some that we should not.  

Uniqueness!!!  This was a huge eye opener for me.  What makes my business unique?  Reflecting on the produce business, I would say that our freshness makes us unique.  Going to the farmer’s market everyday keeps everything very fresh.  In addition to buying it fresh, we grow our own produce so it is sold the day that we pick it in many cases.  Our competitive advantage for the CBD oil that we are producing is that we grow our own hemp.  I am able to market “local”

Finally, putting together a positional grid and conducting a survey was comforting.  I did discover that most are happy.  Only one person was not satisfied with the business, this had more to do with current events than my business.  I feel that we are doing a great job marketing our uniqueness!  I am looking forward to reading more Duct Tape Marketing this week. 

Jantsch, J. (2011). Duct tape marketing: The world’s most practical small business marketing guide. Nashville: Thomas Nelson.

Week 1

It took two weeks to get the book Duct Tape Marketing, but I was not disappointed.  This book is easy to read and has a nice flow about it.  There are seven fundamentals as named  by Duct Tape Marketing.  The first is developing a strategy before your tactics. 

The strategy is your plan of action to be able to reach your marketing goals.  This will be your road map to reach your ideal customers. Be different.  Claim your competitive advantage!  I always admire a marketing strategy that is so unique that you will never forget it.  Having been in the same business for twenty years, I find myself a victim of the hum drum.  I had never changed my marketing strategy.  Recently, I have acknowledged that my ideal client (target market) has changed.  My marketing strategy had to change with it. I have been developing a new marketing strategy over the last few months.  I am using daily Facebook posts, some even have a unique flair. 

I really like that the book is not all about selling online.  The book wants to give you strategies to use online for offline.  I am looking forward to digging into this book and working on a strategy to get this unique marketing thing started. 

Jantsch, J. (2011). Duct tape marketing: The world’s most practical small business marketing guide. Nashville: Thomas Nelson.

ENT 640 Supporting and Harvesting

Supporting

I think that supporting is the most important section in the book Winning Angels the 7 fundamentals of early investing by David Amis and Howard Stevenson.  I have started off small so I did not seek out capital, but I have needed advice.  The section on supporting broke it up into five roles.

Silent Investor

The silent investor is purely a financial investor.  This investor will take no active role in the company.  This person stays in the background and hopes for a return on their money.

Reserve Force

This investor will provide capital and help as requested by the entrepreneur.  This investor will provide advice and benefits from their experience if requested. 

Team Member

This investor works in the company.  If the investor has a stake or majority interest, they could possibly try to manage the entrepreneur.  This could definitely create conflict.

Coach

As an entrepreneur, the coach is probably the most important supporting role in my opinion.  The coach provides support, advice, and any assistance needed.  Having a coach is crucial to the success of a new venture.  

Controlling Investor

This is an investor that becomes the entrepreneur by buying or taking control.  This investor runs the company.

Supporting is a huge function in investing.  Having an investor that is knowledgeable and interested in your company helps an entrepreneur succeed.  An entrepreneur that is new to a business can really benefit from a coach.  Many entrepreneurs think that asking for help shows weakness.  I think asking for help is a key to success.

Harvesting

The book concludes with a section on harvesting.  Getting a return on your investment.  This is what the winning angels investors strive for.  The book outlines seven methods of harvesting. 

Walking Harvest

The company distributes cash directly to the investors regularly.  It usually takes a while to see a payment but over time could provide a steady stream of income. 

Partial Sale

This is when the investor’s stake is sold.  This is usually a quick way to exit an investment.  According to this section, the investor could realize 3-4 times profit on their investment.  The investor could also see no profit.  

Initial Public Offering

The company sells a percentage of their shares.  This makes it easier for the company to raise more capital but many times investors have their shares on hold for six months.

Financial Sale

The company is sold to buyers based on its current and expected cash flows.  The value could vary but this is pretty low risk.

Strategic Sale

This is usually the best harvest method for a company.  The buyer usually pays value above what cash flow suggests.  They are usually looking for value beyond the cash flow. The returns to the investor could range from 10 to 40 times their investment.  

Chapter 11

The company is reorganized and gets a second chance.  Investors may not fare well.

Chapter 7

The company is liquidated and the investors usually get little or nothing.

At my current age, I see the walking harvest as the most dependable return on your investment.  I am a low risk kind of investor.  It would be nice to draw dividends off of a company’s profits monthly.  

In conclusion of the book, Winning Angels the 7 fundamentals of early stage investing, I must say that it was power packed with wonderful information.  This is one for the library to refer to later.  

Importance of Negotiating

This week’s reading in the Winning Angels – the 7 fundamentals of early stage investing by David Amis and Howard Stevenson was really interesting.  Negotiating the deal is another important fundamental.  As with the other fundamentals, negotiating needs to build the relationship between the entrepreneur and the investor.  The terms that are established should benefit both parties.

Negotiation boils down to mutual respect.  The objectives of the winning angels that choose to negotiate include the price of course, the terms, their investment, and the role they will play in the organization (Amis & Stevenson, 2001, p. 230).  The objectives of the entrepreneur are building relationships, getting their investment with favorable terms, and maintaining control of the company. 

A successful winning angel can choose to negotiate or not to negotiate.  The angels that do negotiate have different motives.  I thought that it was interesting that some angels negotiate to not only be active in their role in the investment, but to get an idea of how the entrepreneur reacts to situations.  The angels that do not negotiate may not want to deal with the emotions involved so they avoid negotiations.  

If the entrepreneur and the investor have honesty and integrity, I think that the relationship will be successful.  It is important to have a good relationship because this will set the tone for years to come. The investor needs the entrepreneur and the entrepreneur needs the investor.

Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001

The Importance of Structuring

As I continue reading Winning Angels – the 7 fundamentals of early stage investing by David Amis and Howard Stevenson, I realize what a novice I am to investing and investments.  In the last section, the book was on valuing the idea or business.  This week’s reading was on structuring.  The importance of structure really depends on the investor.  Some investors play an active role in the structure of the deal actively leading the negotiation, some do not play an active part but just don’t invest if they don’t like the terms.  On the flip side, some investors feel that the structure is irrelevant.  They accept that the deal will either be a success or a failure.

There are three fundamental structures common to investing.  These include: common Stock, preferred convertible with various terms, and convertible note with various terms. With each of these structures, you should look at the exit possibility, protection, and possible outcomes.

Common Stock is the easiest structure.  This structure is used for family and friends.  The book also says it is also used by fools.  The structure allows the entrepreneur to issue stock according to the valuation agreed upon by the investor. An advantage to the use of common stock is the timeliness and the lack of additional risk.  Some of the disadvantages are the possibility of loss of all your money, the entrepreneur could sell their shares to another person,  or the company could completely fail leaving the investor with their shareholder’s equity position.  This structure is great for the investor that is looking for easy and quick.  It is suggested that the investor get the pre-emptive and tag-along rights.    

Preferred Convertible is just that, preferred by some investors. This structure is not as simple as common.  It requires more interaction with the entrepreneur.  The preferred share structure offers more protection to the investor.  The entrepreneur may expect more consideration for using this structure. 

Convertible Notes with various terms are being used more often.  Most of the risk is taken away with this structure.  Convertible notes are debt instruments that allow the investor  to turn their investment into stock.  This structure can be more complicated and more time consuming.

A winning angel may use a variety of structures for different deals depending on the complexity, the amount of capital requested,  the time-frame, and the trust they have in the entrepreneur.   As a novice, I will continue to read Winning Angels.  

Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

The Importance of Valuing

As I continue to read Winning Angels-the 7 fundamentals of early stage investing by David Amis and Howard Stevenson, I really consider what I would look for in an investment.  How do you value an investment?  The value of an investment goes beyond the numbers.  Many times the value of an investment is connected to the relationships that you make in a deal. 

The section on valuing in this book leads off with methods of valuation.  These methods help you arrive at the “numbers”.  As far as which method is best, this decision is left up to the investor.  The book emphasizes that an early investor should focus on companies with valuation of 5 million or less.  When investing in these companies, you are more likely to earn five times your money in five years.

Out of all the methods, I like the Berkus method formula.  With this method, a value is given to entrepreneur assets.  

Putting the numbers aside, some of the other values of a company are the relationship with the entrepreneur, the knowledge that the investor can gain from the industry, future investments into the company, and building relationships with other entrepreneurs.  

When I am buying for my business, it is sometimes hard to know how much product to invest in to sell.  I have always said that I buy until it feels good.  The same is true for investing.  You have to feel good about the deal.  Many times it just boils down to give and take with the entrepreneur.  Naturally, the entrepreneur will feel that their business or product is valuable.  As a business owner, I know that I would think that my business is worth more to me than anyone else.  An investor has to understand that the entrepreneur does have this heart connection.  The entrepreneur has to realize that the person investing and believing in their idea or business has to make money.  The relationship that is made between the entrepreneur and the investor is the key to being successful. 

Resources

Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

Nasser, Stéphane. “Valuation For Startups – 9 Methods Explained.” Medium, The PARISOMA Review, 28 Apr. 2020, medium.com/parisoma-blog/valuation-for-startups-9-methods-explained-53771c86590e.

The Importance of Evaluating

As I sat here watching the sunset, I completed the section on Evaluating in the book, Winning Angels.  I am sure that the sun has set on many successful deals because of poor evaluating or lack of trust in the Entrepreneur, the business model, the context or the structure of the deal.  As Entrepreneurs, we will be faced with making investments on opportunities that come our way.  I have actually taken a personal risk philosophy test and have determined that I am a medium risk taker.  

Like Winning Angels highlights, an investor has to be confident in the people you are dealing with.  The people include, not only the entrepreneur, but also the team members, other investors, advisors and stakeholders.  The section on sourcing also pointed out that it is important to have experienced entrepreneurs when contemplating an idea.  The entrepreneurs that winning angel investors  look for have knowledge of their industry, skills necessary to start a business, and goals for the company.  The one factor that this book mentions that really attracts investors is the existence of an exit strategy.  

One section that I found really interesting was the rejection section. As an investor, it is important to be timely with your decisions. Being of your word helps build your reputation as an investor. This reputation will win you more referrals. As an entrepreneur, you can learn from rejections. Many times you will obtain constructive criticism. Take the advice of the entrepreneur and use it to your advantage by improving your business model if necessary.

If I was evaluating myself as a potential investment, I would say that I am in the learning stage of my industry.  The regulations are up in the air at this present time. My company is in the beginning stage of an industry with a huge amount of competition.  As I look at the risk in the hemp industry, the return would need to be high to make this investment worthwhile.  

Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

Importance of Sourcing to a Winning Angel

By Tina Jones

Upon receiving the book Winning Angels-the 7 fundamentals of early stage investing, I was curious to how this was going to tie into the class of Entrepreneurship.  The class that I am currently enrolled in is Entrepreneurial Feasibility Analysis.  Life is pretty fast paced so I find myself asking how will I ever read this book.  I find the book really interesting so far.  I am currently reading a section on Sourcing.  First, it is important to know what a winning angel is. An Angel in the context of this book is someone willing to invest and take a chance on an entrepreneurial venture.  If the business or venture fails, the entrepreneur does not have to pay the funding back.  In return for the investment the entrepreneur gives up some control of their company.  Many angels invest in hopes of making money when the company sells or sells public stock.

The book speaks from the perspective of the investor.  In the section on sourcing, the book stresses that you must know what kind of deal you want to be a part of.  Having entrepreneurial experience will help you be a more successful investor according to Winning Angel(Amis 2001, pg. 58).  Just for kicks I looked up winning angel sourcing for Hemp.  I was not surprised that there are many angel investor sources for Cannabis and hemp.  If you are wanting to be a winning angel investor, it is a good idea to concentrate on one industry.  Building your expertise in the industry allows you to build relationships and knowledge.  It is always a great idea to connect with the industry by attending trade shows, going to association meetings and talking to professionals in the industry. Finally, getting a referral from a successful investor is always helpful in making a successful deal.  The book, Winning Angels, points out that a good referrer will know what kind of deal is right for you because they will already know your personality, objectives and interests.  If you are interested in becoming an angel investor, know your industry and network with professionals that will help your make successful connections.  Please check in next week as I will discuss the importance of evaluating when making your winning angel deal.

Tina Jones

ENT 640

Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

“Cannabis Investors.” New Cannabis Ventures, 4 Oct. 2019, http://www.newcannabisventures.com/cannabis-investors/.