The Roadmap to Funding Your Business

Navigating the world of business financing can feel like trying to find your way through a maze. We're here to give you a roadmap and some no-nonsense advice on how to get your business funded and strategically prepare for the journey ahead. We've been there ourselves, from getting our first line of credit to negotiating with investors, and we've learned a few things along the way.

It’s all about Strategic Navigation. One of the first lessons we learned is the power of other people’s money, or OPM. Most wealthy people don't use their own money to build wealth. They use OPM. But to get access to OPM, you need to be prepared, whether you're a startup founder or a seasoned entrepreneur.

The Startup Route: SAFE and Convertible Notes

For those just starting out, you might not have the metrics or traction that traditional investors are looking for. This is where a Simple Agreement for Future Equity (SAFE) comes in. It's not a debt, but rather a way for early investors to put money into your business with the promise of future equity. The incentive for them is that they get more shares because they came in early.

There are three main types of SAFE agreements:

Discount Valuation Safe: You offer investors a discount on the future valuation of your company. For example, if you raise at a $10 million valuation, they would get an $8 million valuation with a 20% discount.

Valuation Cap Safe: This sets a maximum valuation for the investor's shares. This protects the investor if your business becomes a huge success quickly because they won't have to wait years for a return on their investment.

Most Favored Nation (MFN): This is for investors who are just getting the same valuation as a future institutional investor, with no discount or cap. They don't get special terms, but they get the opportunity to invest a small amount of money that they might not have had the chance to otherwise.

The Traditional Banking Route: Loans and Lines of Credit

If you're not a startup, the traditional route of business loans, like an SBA loan, may be a better option. We learned firsthand that bankers are going to require two years of tax returns that show you make money. Don’t go to the bank asking for a loan if you’re negative everywhere. On paper, you have to show that you're a good risk.

One example is the 100% zero down loan for dentists. My industry is considered less likely to fail, so banks are willing to give 100% funding with no down payment because the loan is backed by the business's assets, like expensive equipment. But I learned that even with a strong credit profile, you can still face challenges and need to shop around.

In my case, the money for the buildout of my practice didn’t even go into my account. The bank dispersed the funds directly to the contractors and suppliers per phase after approving the invoices. This is how they mitigate risk. Another essential tool we got was a line of credit. It’s like a big credit card for the business, used for day-to-day expenses, like payroll, while waiting for insurance payments to come in.

The Human Factor: Story and Relationships

The numbers matter, but they aren't the whole story. Whether you're talking to a banker or an investor, they're going to ask about your background. They want to know that you can execute. They’re investing in you and your vision. The most pivotal aspect of all this is building relationships. The best time to get credit is when everything is good. You have to make a case for why you need the money, and your business plan has to be airtight. But just as important is the narrative you're selling. The story is what they buy into. As a startup founder, it’s not about the metrics. It's about the way you present the narrative.

In the end, whether you choose to bootstrap your idea or seek outside funding, remember that it all comes down to a well-thought-out plan, a strong personal financial position, and the ability to tell a compelling story. It’s about being ready and able to show that you are a person worth investing in.

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