The old adage is true: you need to spend money in order to make money. So where do you look for the financing you need to turn your business plan into reality?
In a nutshell, you have two options: debt financing and equity financing. Debt financing (e.g., bank loans) enables you to retain full control of your business, but you must be prepared to assume all of the risk. Equity financing entails selling partial ownership of your company, while allowing you to share some of the risk with your investors. The correct approach depends on the type of business you are starting, your financial requirements, and your personal and business goals. Your business plan should already include this information, and can be instrumental both when deciding what type of funding is appropriate for your business, and later on when you’re ready to approach potential lenders or investors.
The first place to look when starting a business is your own bank account. This is the fastest way to get started and allows for maximum flexibility, but it can be risky. While many successful entrepreneurs have been able to get their business up and running with little or no external funding (also known as “bootstrapping”), another option is to use your own funds as an interim solution to get your company operating and well-positioned to seek funding from outside investors at a later time.
Credit cards can be a great resource for immediate short-term capital when you are funding your own business. The low introductory rates on some cards make them an attractive short-term option (in the US – Israel is another story). Managed well, they’re extremely effective; managed poorly, however, they’re extremely expensive.
For long-term debt financing, loans are usually better than credit. However, it can be difficult for a new company to obtain a loan without backing (e.g., assets or third-party guarantors). If you are unable to secure a commercial bank loan, consider approaching commercial finance companies or private lenders. Private lenders typically specialize in an industry and may be willing to take on more risk if they see that your business has potential. Friends and family may also be willing to help fund your business, either as a loan or an investment (e.g., by buying shares). Beware the temptation to accept informal arrangements or zero interest terms, though, as this can cause problems down the road, whether or not your business succeeds.
Some businesses may qualify for a grant or government support (e.g., a subsidized or zero-interest loan). These support schemes may also provide expert advice or subsidized consultancy. Keep in mind, however, that grants often apply to a specific project rather than general business costs. Moreover, the application procedure is lengthy and complex, and there is typically strong competition, meaning you may spend a lot of time on an application which is not successful.
One way to jump-start your business with minimal funds is to lease major assets such as equipment, office space and even support staff. If this sounds like a viable option, and if you would appreciate having an experienced team of professionals help form your company, consider launching at an incubator. Incubators are essentially ready-to-go space and support infrastructure for startup companies. Incubators generate most of their revenue from client rents and fees, and may also offer investment capital for entrepreneurs, allowing them to share in the upside should the company be successful. Different incubators will become more or less involved in the running of your company and offer varying degrees of business advice and legal assistance.
Crowd funding, contests, and group financing represent a fairly new trend in financing. Social media, online communities and micropayment technology make it relatively simple to engage and secure funds from a group of interested supporters at minimal cost. Customers invest as little as $1 in a product and help promote the product on the Web. These customers/investors receive a cut of the profits in proportion to their investment. Bear in mind, however, that soliciting investments from the general public is often illegal, unless the opportunity has been filed with the appropriate securities regulatory authority (e.g., the Securities and Exchange Commission in the U.S or the Financial Services Authority in the U.K).
If your business has a high potential for growth, you may be able to attract the attentions of “business angel”. Angels are generally not looking to run the firm; they want you to do it and they can offer support in return for a minority stake. Most business angels will expect to exit your company in 2-3 years with a substantial return on their investment (e.g., once you are bought or go public). Angel investors can be just as important for their skills, experience and contacts as money, so do your research before choosing. It’s also a good idea to enlist a savvy financial adviser to structure the deal.
Platonix does joint ventures – which are similar to angel and VC investments in that we typically work with companies in the seed stage (like angel investors), and in that our deals are fundamentally equity financing. A big difference, however, is that we do not invest cash, but rather provide technology work (R&D) for equity. Our incentives are aligned with the companies we invest in as our success comes from your success – but the risk is diluted among the many companies in our portfolio.
Venture capitalists (VCs) present another option for new businesses with rapid growth potential. Like business angels, VCs will usually bring their managerial and technical expertise as well as capital to their investments. However, VCs generally demand higher shares in your business, and may require you to make significant changes in your company’s management structure. When pitching to a VC, your executive team should be able to demonstrate that you can operate successfully on a technical and financial level, meaning you probably won’t be able to attract VC funding within the first few months of starting your business. Moreover, it can take several months to complete negotiations, so make sure you have sufficient funds to carry you safely through this stage. Contacting prospective investors through a respected referral such as an attorney, consultant or business broker will usually establish a higher standard of quality and accelerate a response. These individuals are also invaluable when you’re ready to negotiate a deal.
There is no one-size-fits-all financing solution for starting a business, and different options may be appropriate at different stages. Take the time and get to know your options before you get started, then choose the ones that feel like the best fit for your company.
© Image courtesy of David Goehring
Platonix is very excited to be giving two talks at Open Israel. We’ll be speaking about Django Web Development Platform and Business Models in the Open Source World, and we are proud to be sponsoring the conference as well. The OPEN 2010 is taking place on Thursday, June 10, 2010 at Cinema City, Glilot Junction, Ramat Hasharon, Israel.
Open source technologies are used in a wide array of IT in enterprises today, and these open source solutions are as capable as their proprietary counterparts to stand the toughest tests of their environment. The OPEN 2010 conference will focus on the open technologies that are already fully developed and suitable for adoption and offer a significant ROI benefit the organization.
Django is a popular platform for its stability and power. The Onion Tech team describes why they prefer Django here, “Cleaner. Much cleaner. Proper unit testing. Real reusable components across applications. An ORM rather than a just a series of functional query helpers. Tighter conventions… We can update then test a Django core change without worrying about having to take apart our applications, and if we do need to make a change, it’s easy to do because there’s less, much more readable code. Every member of the tech team can meaningfully contribute because there are fewer specialized or hacked together pieces. We can move more quickly on large changes because of all these reasons. And we’re more stable because of all the previously expressed points.”
For a piece of software to be called Open Source, it must (among other things) be freely redistributable. This seems like a severe restriction for anyone trying to make a living producing such software. And yet, a collection of companies, business units and individuals manage to generate fine revenues, and even exits, by writing source code that is released to the public. We will examine several such cases, from one-man projects and small start-ups to companies worth billions. We will explore the different business models which allow this apparent miracle to happen; peek into the economic support structures, which enable many of the great achievements of the Free and Open Source Software community.
Being able to tell your business story is a critical need for a start up looking for seed, VC or JV investment.
David S. Rose on pitching to VCs
The above video gives a great 15 minute synapses of what you need to pitch an investor, but here are two more things to think about before you get there.
- Who are you pitching to? Research both the fund and the investors within so that you can be certain you are pitching to someone with an interest and expertise in the area of your startup.
- What is the style of the investor? It’s important to partner with an investor whose style fits you – is it a mentoring or hands off partner? Getting funding is more than just receiving funds – it’s about making certain you are working with the right company who will help you succeed.
Want more information? These 5 articles cover every base there is to consider:
On May 6th Yishai Beeri from Platonix Joint Ventures will be mentoring at Mini Seedcamp in Tel Aviv.
6th May Mini Seedcamp Tel Aviv
09:00 – 18:30
The main event: 20 local finalists get to connect and learn from prominent entrepreneurs, investors, developers and other web technology experts.
The day consists of 5 minute presentations by the teams; a panel discussions; and four 1:1 mentoring sessions. The format is designed to maximise interaction between the teams and mentors, and has proved popular with mentors at previous Seedcamps.
Wondering what the day is like? Ezra Butler wrote a very entertaining and accurate description of Mini Seedcamp here.
Today we are hosting the Open Coffee Club in Herzelia at Sun Microsystems and would love to see you there.
The Open Coffee Club has gathered a team to make these meetups efficient and fruitful. Please bring business cards and a short statement of what do you want to get from this meeting.
15:00 – 15:30 Gathering and networking
15:30 – 16:00 START SMART- START BIG – Dr. Tal Simchony an experienced TELECOM & BIOMED
entrepreneur, CEO at GI-View
16:00 – 16:15 Conversation (Q&A)
16:15 – 16:20 Platonix Joint Ventures – Yishai Beeri
16:20 – 16:30 Personal introduction
16:30 – 17:00 Networking
About Dr. Simchony:
Dr. Tal Simchony
Platonix is very excited to be part of the Vator Israeli Startup Competition.
Interested? You should be
Who should apply?
Israeli-based startups across the high-tech sectors – mobile apps, consumer Internet, digital media, SaaS, social media, commerce and gaming.
How do you submit?
Go to the Israeli Startup Competition page.
Click the “participate in this competition” button on the top right of this competition page. (This is assuming you are already a member of Vator.)
If you’re not then you need to:
- Create a profile for your company. The more comprehensive your company profile is, the more likely to get votes, ratings and be reviewed.
- Click the “participate in this competition” button on the Israeli Startup Competition page.
How to win?
Get out the vote on Vator! More votes on Vator will drive up your chances of winning. The popular vote on Vator will have a significant weighting and as such will be a significant part of the judging process. The criteria the judges will use include: Novelty/Innovation; Commercial viability and media presence. Companies with a larger follower base and solid testimonies will also grab our attention.
Voting ends on Friday, May 28, 2010 11:59 PM PDT
What does the winner get:
The prize is an one-hour sit down with six venture capitalists from six different VC firms focused on Israel and one joint venture firm based in Israel. The companies involved are:
- Yoav Leitersdor YL Ventures
- Ron Tamir, Founder & Managing Partner, Kaedan Capital
- Gil Dibner, Genesis Partners
- Elinat Metzer, Gemini Israel
- Gilad de Vries, Carmel Ventures
- Tili Kalisky, Greylock
- Yishai Beeri, Founder & Managing Partner, Platonix Joint Ventures
Vator.tv is a social media site and community for high-tech entrepreneurs. They have more than 35,000 members, many of which use their Vator profiles as a marketing tool to get their voices heard across the Web. Vator also has a newsroom, VatorNews, with 250 contributors/bloggers.
Picture from Forbes
As we all know by now, Israel is the Start-Up Nation so we’ve compiled a list of the top Israeli VCs, twitter accounts that chat about the VC world, VC blogs and other Israeli Investment blogs that might find helpful on your search for the next move forward.
Venture Capital Companies in Israel
“While we remain open to all creative thinkers, there are some very strong sectors in Israel that we are particularly interested in, such as: Advanced Materials & Clean Tech, Communications Services & Infrastructure, Financial Services & Tech-Enabled Businesses, Internet & Digital Media
Semiconductors & Components.”
“At Benchmark Capital, we’re focused on helping talented entrepreneurs build great technology companies. That’s what drives us and everything we do — from how we organize our firm to our investment strategy.”
“We invest primarily in early stage companies in the fields of Software, Communications, Semiconductors, Internet, Media, and Consumer Electronics.”
“Communications & Wireless, Consumer Electronics, EnterpriseSoftware, Internet and Semiconductors”
- Gemini’s Blog
- Gemini’s Twitter
- Danny Cohen on Twitter
- Ed Mlavsky’s Blog
- Daniel Cohen’s Blog
- Adi Pundak-Mintz
“Giza has invested in 93 companies in the sectors of Communications, IT, Software, Life Sciences, Media, Internet, Gaming & Entertainment, with 31 exits”
“JVP is focusing on building market leaders in the areas of digital media technology, including gaming and virtual worlds, mobile media & advertising, semiconductors & hardware for media distribution, and enterprise media.”
“Pitango Venture Capital is Israel’s largest venture capital firm and a lead investor in seed, early and expansion stage companies..”
General Helpful Information
We don’t know who is speaking (yet, I’m sure they will announce soon) – but we know we are sponsoring, where it is and when it is:
TechAviv Founders Club – February Meetup
Yes, we’re sponsoring Tech Aviv in February – so if you’ll be at the event find us and say “Hello”! (or “Hi” if hello isn’t your thing…)
Platonix Joint Ventures works on software R&D for equity with start-ups, creating a win-win for both sides as the start-up has a partner whose success goals are aligned with their own. Ours is an ongoing relationship – which means that both sides have more at risk if it goes sour and as such both sides work harder to be certain the whole succeeds.
The win for start-ups is the quality of the work and the alignment of incentives. The partners at Platonix have worked together as a team since their Israeli army days in the 8200 unit and have over a decade of high level software process and coding behind them individually. Their incentives are aligned with the company because the software start-up equity only pays when the startup company earns profits or has an exit.
The investors on the VC side also win. They have less risk because of the experience offered by the brilliant, fun and easy to work with (yes, we’re modest) team at Platonix. Instead of having an entrepreneur learning it all the hard way, Platonix’s serial entrepreneur experience is an advantage when working with the software firm to implement processes and policies that lead companies to success in a quicker time period. Furthermore, it allows investors to put in a smaller first investment (as opposed to a traditional VC) and learn more about the company before deciding to invest a significantly larger amount. We help investors hedge their risk.
One of the most common issues in Israeli start-ups is running out of money before the sales and marketing stage. As such, when the time comes to actually market the product for sale, they don’t have the money to hire someone or the expertise to do it successfully themselves. This is one of the many ways that working with Platonix can help. We allow start-ups to save their precious cash resources for when they actually have a product to sell, thus increasing their chances of survival and success.
All around, it’s a winning combination. If you’re interested in learning even more about Platonix please check out our website.
The idea of Startup Weekend, which was actually held during the week as Shabbat makes working on the weekend a no-no, is 52 hours to present, create and pitch a start-up idea. As Platonix Joint Ventures is always looking for new, promising software startups to fund and work with, it seemed the place to be.
According to Joel Leyden of Israel News Network, Startup Weekend had “attendees from Tel Aviv, Jerusalem, Haifa, Ashdod, Hadera, Ra’anana, Afula, Holon, Sderot, Kiryat Shomona, Katzrin, Rehovot and Herzliya.”
Yishai, Itay, Itai and Shai from Platonix didn’t just sponsor Startup Weekend, they participated in it as well.The event started off with Itay and Itai sitting with me (Shira) in the front row of the event, debating (quietly) which presentation would have the most likely success story. Some presentations made no sense, others sounded a bit too over the top. In the end we were told to choose 2 teams and work with one (which seems a bit silly looking back, we should have only joined one team). Itay and I joined what would end up being AttenDance, an application aimed at maximizing the social experience at events. Itai (note the i at the end of his name) joined ShopJet, a widget meant to bring the Amazon level experience to smaller online shops. Shopjet was my second choice, but I never got the chance to actually join them over the “weekend”.
Due to Hannukka and other obligations there was a bit of tag-teaming on the coding side of things. Itay couldn’t make it on Thursday, so Yishai came to code for him instead, but he returned on Friday for the finishing up of the work and presentation of actual product. Itai was with ShopJet for the whole 3 days. Shai came on Friday to give some extra help where it was needed.
In the end we created two strong beta products. However, only one of our Beta products actually demo’d correctly. As Murphy’s Law would allow, anything that could go wrong – will, and that was the case with the AttenDance presentation. Not only did the demo fail miserably, but the PPT presentation was lost as well. Meaning that poor Gene was stuck on stage with no visual element to explain the product (which worked on the actual phone, but not on the demo software for some unknown reason). Fortunately, not all was lost for Platonix as Itai’s team won the runner-up position.
Overall, Startup Weekend was a lot of fun had by all. The food was great and the people were wonderful as well. The video of Startup Weekend is here.