Finance U

Student aid for start-ups, bank on the Web
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7 min read

This story appears in the January 1999 issue of . Subscribe »

Remember wanting to get out of school and make money? If money's still your goal, it may be time to return to academia, where a growing number of business schools are giving new meaning to the term "student aid."

"Professors at many schools are becoming involved as advisors or investors to help launch student business ventures," observes Jerry White, director of the Caruth Institute at the Cox School of Business at Southern Methodist University in Dallas.

Faculty members at UCLA, Harvard, Stanford, Cornell and the University of Colorado have invested in or worked with students or former students. "There's a trend at business schools to help students with seed--or concept--funds," says White. Although he's never invested in any student projects, he's considering starting a venture capital fund: "We're talking to businesspeople about it. We must decide if it will be strictly for students or also for alumni, or will we look at any deal? Most [funds] give preference to students."

That's the thinking at Columbia University, where alumnus Eugene Lang donated $1 million to sponsor the school's venture-capital program, which invests up to $250,000 in any single venture; funds are available only to current students.

"Columbia's the only school to have reached this level. The University of Michigan's fund isn't fully funded; UCLA and Wharton have small amounts of money," says Murray Low, director of the Entrepreneurship Program at Columbia Business School. "We have an alumni advisory panel that works with students and a board of heavy hitters in the venture community. So we're not limited to $250,000 if a deal's worthy of a larger investment."

Low emphasizes, "The mission of our program is to make entrepreneurship a viable career option for MBA students. Our venture fund energizes our curriculum and gets alumni involved as mentors. That's an enormous help to students."

The onetime entrepreneur attributes the trend to the growth and improved quality of entrepreneurship programs. "Ten years ago," Low explains, "I would have advised aspiring entrepreneurs to learn on their own. Today, we have well-developed entrepreneurship curricula that can help students fast-track their businesses--not just at Columbia but at many schools. We are generating more viable business ideas with greater economic potential."

Paul DeCeglie ( is a former staff reporter for Journal of Commerce and American Banker.

Too Much, Too Soon?

Q: My pager business has a chance at a government contract that would add 40 percent to my sales. There's not much profit in the contract. How fast is it safe to grow?

A: George M. Dawson ( is a consultant and author of Borrowing to Build Your Business: Getting Your Banker to Say "Yes" (Dearborn, $16.95, 800-621-9621):

Stop! It takes discipline not to charge after new sales, but you don't want profitless or cashless growth. Usually "not much profit" means it's really a loss. Forty percent is major growth. It can strain your company and move costs you think are fixed to a higher level. You'll liquidate your company through profitless growth.

Look at the problem as your customer would--strategically and tactically. The strategic approach uses the Sustainable Growth Equation developed by Robert C. Higgins in his book Analysis for Financial Management (Irwin/McGraw-Hill, $56.38, 800-262-4729). Using your balance sheet and income statement, the equation answers the question, "How much sales growth will my company's present financial structure and dynamics allow?"

The tactical approach is to develop a cash-flow projection model. Show how your company really operates--by week or by month. You'll see a cash crunch ahead of time and determine what to do about it (such as delay your payments or reduce expenses), and you can measure the dollar impact of each tactic.

Most business-planning software programs do cash-flow projections. My favorite is Ronstadt's Financials at

E-mail George M. Dawson your financing questions at

Defining Moment

Venture Capital

Also called equity or risk capital, venture capital is used to finance a start-up, business expansion or speculative enterprise--usually involving concepts with above-average growth potential.


Data Universal Numbering System, a Dun & Bradstreet (D&B) database, identifies all government contractors and their locations by number. Want a free D-U-N-S number? Call D&B at (800) 333-0505. Then register with the Central Contractor Register (CCR) used by the government.

At Your Fingertips

Online banking saves time and money--yet few small businesses regularly bank on their PCs. Why?

"Banks haven't yet delivered anything significant for small businesses on the Net," contends Alex Stein, whose Concord, Massachusetts, research analysis company, Gomez Advisors Inc., focuses on Internet financial services.

Jim Bruene agrees. "Web sites right now are not built for businesses," says the publisher of Seattle-based newsletter Online Banking Report, which advises bank executives on electronic customer service. He sees a future site "where banks will have all your customer files, billing information and accounts receivables. You check boxes, do billings and have customers pay directly on the site."

To take advantage of what's available now, Bruene advises small-business owners working on a cash accounting basis to use consumer software or Web sites to bank online. Bruene, for instance, accesses his business accounts, transfers funds and pays bills--all using consumer sites. "The more complicated your finances, the more online banking can do for you," he contends.

Another reason businesses have been slow to get online, says Stein: "Internet banks are targeting consumers, not businesses. They're protecting . . . their business relationships. Think about Y2K problems and other challenges banks have in the off-line world. They're waiting to deliver an interactive product that enhances the customer experience at a reasonable cost. It's better not to do something new than to embarrass themselves."

Another dissuasive factor may be security, according to a survey by the Emerging Technologies Research Group at FIND/SVP. But FIND/SVP reports users fear loss of privacy more than losing funds to online fraud. "Risk perception is fading," argues Bruene, a former banker who led U.S. Bancorp's online development efforts in 1992.

Of about 800 banks offering online services via PCs, growing numbers also feature so-called "small-business programs." Among them: Wells Fargo (800-956-4442,; Chase Manhattan Bank (800-CHASE24,; BankBoston (800-788-5000,; First Chicago National Bank (888-963-1900,, and Bank of America (800-477-5899, Service is free to business customers at Chase, and as high as $17.95 a month at First Chicago.

Before banking online, verify the site's authenticity by calling the bank or the FDIC Consumer Hot Line (800-934-3342) or checking out the institution online (

Indie Label

Thinking independent contractors instead of employees? No withholding taxes; no workers' compensation; no employee benefits . . . .

Wake up and smell the IRS. You can't call workers independent contractors unless they're self-employed and control their own work. How much control? Lots. You can't dictate working hours, where work is done or by whom. The IRS may ask:

  • Is compensation based on hours worked?
  • Do you provide tools and equipment?
  • Is the worker free to serve other businesses?
  • Must your instructions on how to do the work be obeyed?
  • Is the worker protected from being terminated at will?

    If any answers are "yes," you may have an employee on your hands. Seek legal advice if in doubt.

Even if you're dealing with an independent contractor, protect yourself. Draft agreements spelling out your relationship with each independent contractor. File each agreement along with the worker's business card, licenses, advertising copy and other substantiating documents. Include names of his or her other customers, professional affiliations and insurance companies.

Contact Source

Online Banking Report,

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