Crowdfunding just sounds so easy.  You read stories about all of these neat products that got crowdfunded to start.  You just put up a campaign on Kickstarter or Indiegogo (the two giants in the field), people start to donate, and you can avoid having to knock on doors looking for investors and testing your tolerance for rejection.  Sounds great, but unfortunately it ain’t that easy.  There is a lot that you need to do first and by far the absolute most critical thing you need to do is research.  There is so much good information out there on crowdfunding that you could almost get overwhelmed by it.  But the benefit is that there is a great deal to learn from other people’s successes and failures.  And to get started, Kickstarter and Indiegogo have a wealth of how-to information on their sites. You may not need to go much beyond their sites.

Another extremely important decision is what is your reward going to be for contributions?  Rewards can be tricky.  One thing you need to make absolutely sure of is if you are looking for funding for some type of product and the product is the reward, you better make sure that you can produce enough.  I have seen instances where a campaign was so successful and oversubscribed that the sponsor’s manufacturer couldn’t keep up with the demand and stopped making them.  People were so mad that it ultimately sank the company because of bad reviews.  Once you’ve determined what you’re going to do and how, you need to pick the right platform.  It might not be one of the big two, but we will stick with them for now.  Whichever platform you choose, look closely at their policies, fees etc., but most of all their policy on the money you take in.  Kickstarter and Indiegogo are very different.  With Kickstarter it’s all or nothing.  If you don’t make your goal the money goes back to the investors.  With Indiegogo you have an option to keep what you raise. 

Once you have determined what platform to use and how much to try to raise, you have to create the campaign.  When you’re doing your research, look at as many campaigns as you can.  Some can be pretty elaborate.  Some not so much, but whatever you put out there it needs to look professional.  Cheesy will probably not attract much interest.  You are probably going to need some kind of marketing materials including video.  That takes time and money depending on how professional you want your campaign to be.

This has been barely a scratch on the surface of crowdfunding.  There are many different types – for example, debt crowdfunding sites – Lending Club and Prosper being the giants.  But because there is so much of it everywhere, you have to be at the very top of your game so that your campaign will be successful.  Remember, research, research, research.

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Revenue-Based Funding
January 29th, 2019


How does a company raise capital to grow or even to start a new business?  Raising investment capital is generally one of the most difficult and painful things an entrepreneur has to do.  Generally the default method is selling a percentage ownership in the company in return for investment.  One of the risks that come with this strategy is dilution of your ownership.  You no longer own 100% of your company, so if you are successful you get less of the rewards.  Still, selling equity is by far the most common way of raising investment.  But another risk might be that you are not as successful as you projected that you would be and what sold the investor on making the investment in the first place. 

Since the investor has only a minority interest in your company, and since there is no market for the stock assuming that it has not gone public, the investor is stuck if you cannot or will not buy back the stock or if he/she can’t find another buyer.  This could potentially cause a problem if the investor is unhappy enough.  The investor might file a lawsuit for misrepresentation for example.  This is probably highly unlikely because it would be extreme and costly for both sides, but an unhappy investor is not something you want to deal with because it could take you away from concentrating on your most important job, which is running the company.

Another way to raise capital that you could consider might be some sort of revenue-sharing arrangement – royalties.  Royalties have been used in industries such as oil and gas, coal etc. for decades.  Say an owner owns a piece of land under which there might be oil or coal.  A mining company comes along, wants to drill, and offers a royalty on each gallon of oil or ton of coal extracted.  The land owner still owns the land.  So coming back around to a startup or early-stage company, a royalty on revenues might be worth looking at.  There are no rules or guidelines on how to structure such investments.  Every deal is a snowflake.  One example might be a royalty of X percent until the investor receives some percentage above the original investment.  Another might be a note with a royalty attached.  Such a structure would give the investor a definite exit point which is something that is almost always required in the venture capital industry. 

With revenue-sharing the most critical factor of all is that you keep 100% ownership in your company.  This could be particularly important at some point in the future if you become a serious candidate for a larger venture capital investment.  You will still own all of your stock enabling you not to have to be as concerned about additional dilution, and it also means a cleaner deal for potential venture capital investors because there is only one class of stock – yours.

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I am a very strong supporter of SBA loans.  Over the years the SBA has guaranteed billions of dollars in loans to help small businesses.  But because of the government shutdown the SBA is one of the agencies shuttered (and not likely to be called back) which means that no loans submitted to SBA by banks for the guarantee are going to be dealt with and no loans approved and waiting for SBA approval will be processed..

SBA loans have two steps.  The first is the approval by the lender.  Banks underwrite requests for SBA loans almost exactly the way that they underwrite regular loan requests as though the SBA didn’t exist.  The only difference is that the SBA has broader credit guidelines – things like longer terms, lower debt or collateral coverage for example, so a bank, if they are interested in pursuing an SBA guarantee can be a little more aggressive – emphasize little because banks don’t want to get too far away from their regular (tight) credit guidelines.  SBA’s credit guidelines are not that different from banks.  They are just less restrictive.  So the first step in the process is to get the loan approved by the bank – a process that has its own seemingly never-ending time line SBA guarantee or not.

Then, if the bank approves the loan, it submits it to SBA for the guarantee.  Banks that do a lot of SBA loans can become Preferred Lenders (PLP) meaning that they can put the SBA guarantee on the loan themselves which saves a great deal of time.  Non-PLP lenders have to actually submit the loan to SBA for underwriting by SBA.  Here is where the process starts to slow down.  Even PLP lenders have to get a loan number, which means somebody has to look at it, but now there is nobody to look at it.  And once the number is attached, closing documents are sent to the lender.  No one in that department either. 

But longer term –  after the shutdown ends, the SBA is going to have to deal with the huge backlog of applications already in for approval, and that is even before the banks start submitting loans that are backed up in their pipeline.  It’s going to be a mess for a good many months.  So if you’re thinking about applying for an SBA loan or actually have one approved by the bank waiting for SBA approval, if it’s something you can’t or don’t want to put off but so long, you should probably start considering a Plan B.



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Fast Cash
January 15th, 2019

Fast Cash

Cash for car titles; payday loans; quick cash; fast money….  So how does this relate to small business ownership?  Cash.  Lack of adequate cash is one of the biggest causes of small business failure.  There are multiple causes for cash flow problems, but two often stand out.  The first, and arguably the most important, is not knowing your cash position each day.  Things can often happen so fast that all of a sudden a particular event can create a cash flow problem.  Say you have to purchase new inventory; even if you have terms from the supplier the inventory may not be turned into cash fast enough and suddenly you are short on cash.  This is not at all an uncommon occurrence but if you haven’t planned for it you could suddenly be in trouble.  And one of the results of such an occurrence is that you may have to forego a paycheck or take less until you sell that inventory.  And let’s say you do sell that inventory at a profit, but then you may be thinking I’m making a profit so why don’t I have any more cash?  Profit is not cash, and if you’re not regularly paying attention to your cash position you might not see the problem coming and be able to do something about it.

The other thing that stands out as mentioned above is failure to plan for it.  If you know that there are going to be periods where there might be a shortfall due to the normal business cycle or even some unforeseen event, know what the most likely sources of working capital are.  The most obvious place to start is your own bank.  Bank financing is generally the cheapest form of debt financing there is.  But generally banks don’t like providing lines of credit or working capital loans to startups or early-stage companies with limited earnings history – even if it’s your own bank.

 So if you haven’t done it already, the first thing you should do as soon as possible is to go to your bank and find out what if anything they will do or if they will even consider it.  If not, it may be worth checking other banks – like getting a second medical opinion.  In Richmond, Virginia for example, there is one place where there are four banks in two blocks.  And they are not long blocks.  There are also two more several blocks away.  So if you get a “We don’t consider working capital lines of credit….” from your own bank, don’t stop.  Remember, banks are always after new accounts.  You could say something to another bank like “As we grow we are going to be running a lot of cash through your bank.  We are going to be a good customer for somebody. Your bank could be it.”

Whoever you talk to at your or another bank, find out exactly what they would need if you apply and have it ready almost like emergency supplies that you can grab and go like up-to-date P&L and balance sheet and personal financial statements and most recent tax returns if you have them.  Also you should probably check out some of the multitude of online lenders that have appeared in the last few years to fill that void of banks not lending to small businesses.  Their loans are frequently more expensive, but if you are in a bind and can get it fast it could be worth the extra cost.  It could save your company. 

And your car.


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Student Loan Debt
January 8th, 2019

Long-range weather forecast – possible strong storms on the horizon.  Federal student loan debt is the only consumer debt segment that has continued to grow since the last recession, also leading to a rising default rate.  Over the last eleven years student loan debt has grown almost 157%.   According to the Federal Reserve there was $1.5 trillion in student loans outstanding through the second quarter of 2018, and the number continues to grow.  At the same time student loan debt currently has the highest 90+ day delinquency rate of all household debt, and these delinquency rates are within about a percentage point of their all-time high in 2012.  Couple that with the fact that interest rates are continuing to slowly increase and you have the possibility for those severe storms on the horizon to do some serious damage.  One of the most severe effects of the student loan crisis is the potential negative impact on the broader economy which is continuing to slow down, albeit slowly.  But it is definitely slowing.

One segment of the economy potentially affected by defaults on student loan debt is small business.  Debt financing of many kinds such as working capital loans, equipment purchases and real estate acquisition is often critical to a business, but if there has been a default it can have a serious negative effect on a credit rating making getting loans more difficult or even impossible to get.  An unpaid student loan on a credit report is close to the kiss of death.  I had a borrower turned down for a loan because of an old – very old, unpaid student loan payment.  The number was almost tiny; the business owner had been trying to pay it off but could never get a response from the servicer. The borrower was very strong including a high credit score, but that unpaid student loan killed the chance to get a loan.

As young adults struggle to keep up with student loan payments they are forced to make financial concessions such as delaying starting families or buying a house – two things that generate substantial economic activity.  It is a serious problem that is only going to get worse before it gets better and could also have a negative effect on the formation of new small businesses.

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Hemp = Opportunity
December 18th, 2018

Cannabis Sativa.  Yep.  Same plant that produces marijuana which is pretty much all that people are hearing about these days.  But, all hemp is not equal and therein lies what might be some very interesting opportunities for new businesses.  There are different strains of Cannabis Sativa.  One has a high concentration of THC – the psychoactive component that gives marijuana its kick.  Industrial hemp has a far lower concentration of THC, and has wide variety of uses.

Hemp is probably one of the earliest plants to be cultivated.  Evidence of its cultivation has been found on an island off Japan dating to approximately 8000 BC.  There are many more advantages to industrial hemp than can be listed here, but here are just a few.  One acre of hemp will produce as much fiber as two to three acres of cotton, is stronger and softer than cotton and will not mildew.  On an annual basis one acre of hemp will produce as much paper as two to four acres of trees.  Most types of paper products can be produced from hemp, and while hemp is generally ready for harvesting in about 120 days, trees take a little longer to harvest.  And one more, hemp can be used to create environmentally-friendly substitutes for plastic-based products.

So for someone looking for a new business opportunity industrial hemp might be worth a look.  If you look at everything that industrial hemp can be used for now, with all of today’s new technologies and manufacturing processes, the opportunity is out there.  But one of the absolutely biggest factors that will affect the future of industrial hemp is its inclusion in the new Farm Bill about to be signed into law which makes it legal to grow hemp, which makes it eligible for crop insurance.  That is more than huge.

So if a woman in Brooklyn can make lamps out of mushrooms, what could you do with hemp?

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You started your business with a value proposition – your product or service.  You had something to sell that people bought to either to get a job done more efficiently or cheaply, or to solve a problem, or something that they wanted (but not necessarily needed).  Often at SCORE we see people come in with a product or service already in existence.  But when we start asking questions about who their customers will be, whether they will pay what you are asking in order for you to make a profit, who their competition is and why their customers will switch and buy from you, things sometimes begin to unravel.

It seems almost unnecessary to ask if you really know your customer.  But do you?  How well do you know them?  Are they the same today as they were yesterday when you started?  Is there a new competitor who has entered your market space that you may not have paid attention to yet?  Might they be better, cheaper, or closer in location to your normal customers?  In the world we live in today things can often happen so fast that if you aren’t constantly monitoring your customers and your competition, the business model that you have been using suddenly may not be as valid any more.

The light at the end of the tunnel could be a train.  Don’t let yourself get run over.

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A Startup Idea
December 4th, 2018

How about a can opener?  Someone’s first reaction might be “Can openers are so yesterday!”  But there

The article centered around problems that companies like StarKist, Bumble Bee Foods and Chicken of the Sea are having with declining sales of canned tuna.  One reason, among many, is the ever-increasing American focus on convenience.  A can of tuna has to be opened, drained (cats can smell it from the opposite end of the house and can suddenly materialize in the kitchen before the can is half drained), and then utensils and dishes to eat or mix the tuna have to be gathered.  Waaaayyyyyyy too many steps in today’s convenience-oriented world.  The companies are now starting to take various steps to make eating tuna more convenient.

The lesson here is to pay attention to the world around you.  Things are always changing in the economy, sometimes almost imperceptibly, that can create new opportunities for entrepreneurs.  Even in something like your social media feeds you may begin to sense something being mentioned more frequently – positively or negatively.  Maybe there is an opportunity there for a new business.  Maybe you can invent the next can opener. was a recent headline in the Wall Street Journal that said “The Trouble With Tuna: A Lot of Millennials Don’t Even Own a Can Opener.”  My first reaction was a chuckle.  But as I read on in that article a lesson began to dawn on me.  This is not a criticism of Millennials.  It is about change and opportunity, and the Millennial generation is moving into place to lead it. 

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Loan Applications and Risks
November 27th, 2018

Small business lending for banks is high-risk even in good times.  So if you are planning to make an application for a loan, think about this.  Small businesses tend to have a higher failure rate than larger ones, often simply because they have not had enough time to build up a cushion against bad times.  So rather than try to put only a positive spin on the benefits of your application, how significant your sales growth has been etc., consider adding something on risk factors and how you plan to deal with them.  You know it’s a risk.  The bank knows it’s a risk.  All public offerings of any kind of securities have a section on risk factors because of the laws of full disclosure to protect investors, and the bigger the offering the more the risk factors listed – sometimes going on for pages. 

So if you have something addressing risk factors in your loan application, or even in a preliminary conversation, it says to the lender “I know that there are risks in this loan, but here are the ones I see and how I plan to deal with them (in order to get your loan paid back).  I’m reasonably sure that most small business lenders have hardly seen anything like this, and it might just make a difference to you getting the loan.  You have nothing to lose.  Full disclosure might make you a winner.


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Lenders and Social Media
November 20th, 2018

Are you are looking ahead to expand or buy new equipment and thinking about getting a loan for your company at some point in the future?  Do you spend much time on social media?  Use social media to grow your brand?  Use social media to take a picture of what you had for breakfast?  You may never think that your social media activity could one day have an effect on your ability to get a loan, but it might.  Lenders and credit bureaus are looking more and more at potential borrowers’ social media activity as part of their credit decisions.

I’m talking here about business credit, not personal.  There are still questions about the legality of using personal social media posts in making credit decisions, but one major credit reporting agency has already dipped its toe into the water.  If at some point in the future looking at peoples’ personal social media posts become legal for companies such as banks, it is going to open a dramatic new look into your personality online, and may be opening a very large can of worms depending on what you do when you’re online.

Getting back to your business, your business presence online could be a problem, or it could an asset. Think how many people turn to social media and other sources for things like reviews – for example, what you liked about what you had for breakfast; but they also look for companies to do business with that they can trust.  Your behavior online can be a tremendous benefit to your company and your brand.  The more positive attention you attract to your company and your products or services on social media the stronger your chances could be of a favorable opinion of your company by a lender at some point in the future.  Like it or not, your social media profile is going to become a more widespread data point in your business activities.  It is already being widely used in things like hiring decisions where, as far as I know, the legality of it has not been seriously challenged.  But it’s coming.  Where do you fit in?

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