In January of this year, I was reading one of those popular little business articles in one of the small business publications that you find at the newspaper rack. In that particular article the author was explaining how come new small startups were having such a half time finding venture capitalists, and small time investors. The article went through all of the deals which got funded in 2012, and there was quite a bit of data there. It showed that certain types of industries just were not getting any juice, not even from friends and family, angel investors, or this new crowd funding strategy.
It was a very good article and well documented, however as the coordinator for a think tank which happens to operate online, I am constantly reading new business plans. There is something missing in most of these new business plans and that is a decent return on investment and a realistic pro forma. You see, small entrepreneur startup businesses just can’t make up facts and figures, and guestimate the amount of profit they might attain from their revenue without some good backup, or even some industry standard information.
Interestingly enough, just the other day there was an interesting article in the Phoenix business Journal on April 9, 2013 titled; “Why it’s so hard for startups to lure investors,” by Francine Hardaway. This article was similar, albeit written better and much quicker to the point. Still, from what I have seen many of today’s entrepreneurs are on a mission, or a cause, thinking they can start a business for their life’s calling. That’s nice and wonderful, but the business still has to make a profit. Doing nice things in the community or feeding starving Africans, or even helping people reduce their carbon footprint are all very noble indeed. But you still have to make a profit.
Investors are interested in a return on their investment (ROI), and they aren’t so interested in taking big risks, especially in the age of ObamaCare. Small startups which are going to be labor intensive are scaring away investors, and even though the Small Business Administration (SBA) is guaranteeing more loans, and banks are starting to make business loans once again, even they are leery in funding a good many of the business plans they are presented.
Further, many of these smalltime startup entrepreneurs don’t want to be on the hook in case the business doesn’t work out, and many of them don’t have a whole lot to show in the way of personal assets to guarantee the loan.
Investors are not stupid, and they want a return on investment for their money, many of them are worried that they won’t have enough savings in their retirement if they make too many bad choices or bad guesses with new business startup funding opportunities. So there’s a lot more to the story than what you might read in a cute little article online, or in a small business magazine. Please consider all this and think on it.