The Other Colors of Money

Silver Wings

There are many benefits to using personal assets first. But if you're tapped out, don't despair. The next best source for small-business capital may be right around the corner.

According to the Center for Venture Research at the University of New Hampshire, there are some 400,000 active individual or "angel" investors who invest in more than 50,000 businesses each year. Compare that to the country's approximately 450 venture funds, which, according to the National Venture Capital Association, invested in just 2,715 companies during 2003. Clearly, individuals-not VCs-are much more likely to provide the capital your company needs.

Where to find angels has always been a problem, but that may be changing. "More and more angels are joining clubs or networks," says Marianne Hudson, director of Angel Initiatives at the Ewing Marion Kauffman Foundation in Kansas City, Missouri. "There were fewer than 10 of these groups in 1996. Now there are about 200 of them, and we hear from more all the time.

"The good news for entrepreneurs is that these groups have Web sites, and they're looking for quality deal flow," says Hudson. That's a welcome change from the past, when finding an angel investor usually meant months of careful networking.

One new angel investment group, the Blue Ridge Angel Investor Network (BRAIN), is an excellent example. Based in Asheville, North Carolina, the group hired executive director Jim Roberts to reach out to both new and growing companies throughout the Southeast in an effort to expand the economic region of Asheville and western North Carolina. "Our members are often semiretired or retired," says Roberts. "They want to get involved in growing something."

BRAIN, a group of individual investors that meets quarterly, brings several entrepreneurs to present their business plans at each meeting. According to Roberts, the forums facilitate the introductions that will be critical for Asheville's continued economic growth.

A quick Web search will help you find a local angel group near you. Or just ask around-most CPAs and business lawyers will know somebody who's involved in your area.

The Customer's Always Right
Andy Birol, founder and president of Birol Growth Consulting in Solon, Ohio, has a funding source for companies in need of cash that's so simple, it's often overlooked.

So what's his answer? "Get customers to fund your growth by targeting early adopters-those people who have more money than time," he says. As an example, Birol points out that the Palm Pilot was once priced at more than $1,000, yet early adopters happily paid the price. Those early sales helped Palm get the cash in and the price down.

When cash is tight, young companies need to focus more on selling and less on fund-raising. An overemphasis on fund-raising is one sign that a business suffers from the "if we build it, they will come" approach to sales. Instead, Birol suggests a new tactic. "I believe organizations have to focus on their best and highest use-what they do well, what they enjoy doing, and what customers have valued in the past."

"Focus, accomplish and grow" are the three tenets of business success, according to Birol. For more on the subject, check out his book Focus. Accomplish. Grow. The Business Owner's Guide to Growth, available on Amazon.com or at AndyBirol.com.

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This article was originally published in the July 2004 print edition of Entrepreneur with the headline: The Other Colors of Money.

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